Is India a Partner in Fighting Corruption?
Recently, the U.S. Department of Justice announced that it had indicted Gautam Adani, one of the richest people in the world, on charges of bribery and fraud. The DOJ alleged that Adani and others paid more than $250 million in bribes to boost their solar business in India, then sought to cover it up when regulators asked questions.
It seems improbable that the DOJ would take action against Adani, who is seen to have close ties to Indian Prime Minister Narendra Modi, without the awareness of senior executive branch officials.
Moving forward would risk diplomatic tension, and jeopardize $10 billion in pledged U.S. investments by Adani’s companies. But in moving apparently unilaterally, the U.S. may have revealed a broader perception that India is not doing enough to help clamp down on cross-border corruption.
Indeed, a recent FCPA enforcement begs the question of how much Indian officials are willing to cooperate in corruption-related inquiries.
In October, the U.S. Securities Exchange Commission announced that it had settled an investigation against Moog Inc., a New York-based manufacturer of motion controls systems used in various industries. Moog agreed to disgorge about $600,000 in profits and interest, and to pay a $1.1 million penalty.
Although the SEC claims that Moog paid bribes to officials in India, it did not charge the company with violating the anti-bribery provisions of the FCPA – perhaps because of a lack of evidence about where the company’s payments ultimately went. This suggests that the SEC either did not seek – or did not receive – cooperation from Indian authorities.
Lack of this type of evidence seems to recur in cases involving India. Since 2015, there have been more than 15 corporate FCPA enforcement actions (and one declination) relating to activity in India. In more than two-thirds of those cases, regulators only alleged violations of the books and records or internal controls provisions of the FCPA, and not the anti-bribery provisions. (Over a similar time frame in other countries, the anti-bribery provisions were implicated about 55% of the time.)
While some of those cases did include cooperation from India’s securities regulator, the Indian government’s reluctance to assist in a separate FCPA case against executives of Cognizant raises questions about how much India intends to go along with the U.S.’s efforts to bolster international coordination in this field.
Meanwhile, Indian officials implicated in the enforcements seem to act with impunity. One official, referred to in an enforcement against AB InBev, went on to become a member of parliament despite being investigated by an anticorruption agency. That same official has been identified by the SEC in a related civil case against Adani, and is accused of taking roughly $200 million in bribes.
Just as Adani’s companies faced a cascade of repercussions following the charges – from cancelled deals to tightened credit to more than $30 billion in lost market value – India as a country risks being damaged if it cannot tighten the reins on endemic corruption.
Data does suggest that FCPA enforcement in a jurisdiction leads to lower investment in that particular country. But if India thinks that it can stave off investigations by keeping its arms crossed, the recent charges emphatically show otherwise. And if it is worried that stepping up domestic enforcement will likewise spook investors, the evidence suggests otherwise.
Indeed, the opposite is more likely – enforcement, after all, is one of the factors used in many prominent indices relating to corruption risk and perception.
Despite being the world’s most populous country and having the third largest economy (by purchasing power parity), India lags in foreign investment. Other than human capital, the nature and prevalence of corruption may be the single most important factor in attracting that investment. Particularly as corruption in India seems especially arbitrary – in that it casts uncertainty on commonplace activity like getting licenses and routine approvals – the country may wish to take a closer look at how it is reacting to transnational enforcement cases. Otherwise, there will likely be plenty more of those cases to come.
FCPA Compliance Consultant