Counter-attacking corporate corruption

India’s business ecosystem has evolved to be irrepressible, led by progressive reforms, robust domestic demand, and sanguine economic performance. According to the latest World Bank’s Doing Business 2019 survey, we have moved ahead to 77 in ranking among 190 countries; India is also expected to continue being “the fastest growing emerging market economy.”

World Bank’s Global Economic Prospects Report – January 2019 further projects a static 7.3% growth in FY19, with the coming three years expected to grow at 7.5%. Efforts made in the last few years have also helped in enhancing the perception of India globally as indicated by Transparency International’s Corruption Perceptions Index (CPI). Published annually, India’s score has improved from 36 in 2012 to 41 in the latest 2018 report. Interestingly, this year’s index analyses the reciprocal effects that corruption and democracy have on each other.

An age-old tryst?

Fraud and corruption are growth deterrents, can have a crippling effect on economies and place regions under undue turmoil. Both governments as well as corporates understand the negative impact of these risks on businesses and societies, and that decisive steps need to be taken to mitigate them. But India’s tryst with corruption has been around for centuries. During the 4th Century BC—Kautilya, minister and royal advisor in the Kingdom of Chandragupta Maurya wrote the 'Arthashatra', which covered the existence of corruption and ethical dilemmas during that time. A deep dive into history shows that corrupt practices were perhaps deeply rooted in India.

Some of the key challenges faced by corporations today when doing business in India are as follows:

* Engaging in corrupt practices under the garb of ‘culture’, which says that it is necessary for business survival

* The web of a complicated licencing system in India is another hindrance for businesses to operate. While many areas and departments have been digitised, a significant number of licences and permits still require manual processing. Approvals may be given at the discretion of certain officials, who might ask for bribes or speed money.

* Dependence on third-party agents or intermediaries is a key area of concern and is typically linked to the sourcing of licences mentioned above. Absence of adequate visibility and monitoring of such third-parties can potentially expose organisations to risks for any irregular acts done by them.

* Nepotism may affect the way how businesses are operating by giving positions to individuals who are not competent due to the influence exercised by those in power

Recent anti-corruption efforts

The only thing that’s ever constant in life is change. With time, there has been a steady change in the acceptable ways of working as a result of new or revised laws, strong focus on anti-corruption, shift in mindset, improved corporate governance, and digitisation. The government has rolled out various amendments to strengthen the regulatory scenario, and to build a more robust and transparent economy.

* The Prevention of Corruption (Amendment) Act now includes bribe-giving as an offence, bringing corporates within its ambit including liability for directors and officers, and defines a timeline for trials

* The Fugitive Economic Offenders Act, 2018, aims to confiscate properties and assets of economic offenders who seek to avoid prosecution by staying outside India

* Insolvency and Bankruptcy Code seeks to resolve insolvencies in a strict time-bound manner

* The Data (Privacy and Protection) Bill will attempt to bring strong data protection laws in India

* Adoption of Kotak committee recommendations

* Amendments to Insider Trading Regulations for unpublished price sensitive information (UPSI) for listed companies

Regulators, including the Securities and Exchange Board of India, Central Vigilance Commission, Reserve Bank of India and many others, have taken strict action within their respective purviews. This includes the crackdown on shell companies, investigations against bribe takers and action against listed companies for non-compliance. New legislations are also placing greater accountability and responsibility on independent directors and audit committees to exercise adequate supervision in their roles.

Will the corruption gambit triumph?

The constant tussle between corruption and anti-corruption is remarkably similar to chess, with two opposing sides pitted against each other, each fiercely committed to achieving its own goal. With this in mind, our book, Checkmate corruption! highlights the malevolence of bribery and corruption and outlines what organizations can do to navigate through risks in this transformative age. Chess has its origin pinned down in India, and seemed an apt way to depict the continued conflict in corporate India.

Today, the rising cost of managing fraud and corruption has become not only a national but also a global priority. As a result, corporates, governments as well as the masses need to come together and work in tandem in the fight against corruption. Strong reforms and enforcement can help businesses in India build confidence and create a positive perception about the region. At the end, only individuals and organisations who are compliant with the rules of the game will survive and succeed.

Views are personal.

Arpinder Singh is partner and head–India and emerging markets, EY and Vinay Garodiya is partner, forensic and integrity services, EY.