Findings from EY Bribery and Corruption Survey in India 2013
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Findings from EY Bribery and Corruption Survey in India 2013

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EY Fraud Investigation & Dispute Services conducted an online survey on bribery and corruption from March 2013 to May 2013. The survey report focuses on the impact of bribery and corruption on India's ...

EY Fraud Investigation & Dispute Services conducted an online survey on bribery and corruption from March 2013 to May 2013. The survey report focuses on the impact of bribery and corruption on India's economy and foreign investment, awareness and enforcement of anti-graft laws and the challenges faced by corporates in India.

For further information and to download the full report, please visit: http://www.ey.com/IN/en/Services/Assurance/Fraud-Investigation---Dispute-Services/Bribery-and-corruption-ground-reality-in-India

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    Findings from EY Bribery and Corruption Survey in India 2013 Findings from EY Bribery and Corruption Survey in India 2013 Presentation Transcript

    • Bribery and corruption risks: scenario in India Findings from EY Bribery and Corruption Survey in India 2013
    • Page 2 Bribery and corruption: ground reality in India Contents  Message from the industry  Impact of bribery and corruption on India’s economy and corporate organizations  How is India Inc. complying with the provisions of various anti-graft laws?  Are there adequate safeguards to protect against bribery and corruption risks? 03 05 11 15
    • Page 3 Message from FICCI Bribery and corruption: ground reality in India “Empirical evidence suggests that high levels of corruption are associated with lower levels of investment. Corruption invariably increases transaction costs and uncertainty in an economy. The results of the Survey indicate that it is extremely important that anti-bribery and anti-corruption be on the agenda of senior executives and a comprehensive bribery and corruption risk assessment is done before undertaking any project” - Dr. Alwyn Didar Singh, Secretary General, FICCI
    • Page 4 Message from the Transparency International Presentation title “This report provides an in-depth study of the current scenario in the country, various forms of bribery faced by the private companies and efforts made by them towards the compliance program. It also talks about the impact of corruption on the economy, sector-wise corruption and how poor enforcement of existing laws has led to rampant corruption” - Justice Kamleshwar Nath, Chairman, Transparency International India
    • Page 5 Bribery and corruption: ground reality in India Impact of bribery and corruption on India’s economy and corporate organizations 134 Impact of bribery and corruption on India’s economy and corporate organizations
    • Page 6 Indian Economy under the strain of corruption Bribery and corruption: ground reality in India What is the impact of corruption on the Indian economy and the operating environment for businesses?
    • Page 7 Perceived as most corrupt sectors Presentation title Infrastructure and real estate Metals and mining “According to 73% of the respondents from PE firms, a company operating in a sector that is perceived as highly corrupt, may lose ground when it comes to a fair valuation of its business, as it bargains hard and factors in the cost of corruption in the sector during a transaction.” Aerospace and defense Power and utilities
    • Page 8 Sector-wise corruption risk heat map Bribery and corruption: ground reality in India ► Infrastructure & Real Estate ► Metal & mining ► Aerospace & Defense ► Power & utilities ► Telecom ► Oil & Gas ► Technology Media & Entertainment ► Financial Services ► Pharmaceutical ► Retail & Consumer Products ► Manufacturing Perceived as most corrupt Perceived as corrupt Perceived as less corrupt Making the sectors vulnerable • Government-funded projects • High use of subcontractors and consultants/agents • Large contracts • Obtaining licenses and planning permissions • Procurement and sourcing of raw material • Movement of personnel, equipment and goods (Visas, Customs-clearance) • Sales, advertising and promotional expenses • Use of third-parties (outsourcing) • Event grants and sponsorships • Fee-for-service payments to health care professionals (HCPs) • Counterfeiting and IP theft • Use of distributors • Complex supply chain
    • Page 9 What is making bribery and corruption rampant in the country? Bribery and corruption: ground reality in India Top five factors facilitating bribery and corruption (Ranks are based on the percentage of responses) 1 Weak law enforcement 2 Numerous government “touch points” 3 Complicated taxes and licensing system 4 Lack of will for making an effort in getting permissions the right way 5 To get unfair advantage in business “Automation of all procedures or processes involving interface with the Government is the ideal it needs to focus on. Doing away with person-to-person interface (to the extent feasible), especially for approvals, services, licenses, etc., would greatly reduce the scope for corruption.” - Respondent from an Indian MNC
    • Page 10 Strengthening anti-graft laws Bribery and corruption: ground reality in India At present, there are no legal provisions to check graft in the country’s private sector. The Government has proposed amendments in existing Acts and certain new Bills are on the anvil that will be aimed at checking corruption in the private sector. Proposed Bills/ Amendments Salient features Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations' Bill, 2011 (India’s FCPA equivalent) India signed the United Nations Convention against Corruption on 9 December 2005. The Bill is required for the ratification of the convention. It provides a mechanism to deal with bribery among foreign public officials (FPOs) and those of public international organizations (OPIO). The Bill criminalizes the following acts :  Acceptance or solicitation of bribes by FPOs and OPIOs for acts or omissions in their official capacity  Offering or promising to offer a bribe to any FPO and OPIO to obtain or retain business Prevention of Corruption (amendment) Bill, 2008 To make the anti-corruption laws more effective, the recommendations of the Law Commission of India and the Committee on Civil Services Reforms (Hota Committee) formed the basis of a Bill introduced in the Lok Sabha. The salient features of the Bill include:  Forfeiture of property acquired by the holders of public office through corrupt means, by incorporating the provisions of the Criminal Law( Amendment ) Ordinance 1944 in the Prevention Of Corruption Act 1988 (PC Act)  Deletion of section 13(1) (d) (iii) of PC Act by observing that a commercial decision taken by an officer acting in good faith may benefit one party or another, which does not constitute grounds for prosecution of the officer who may have acted in good faith  Proposal to amend section 16 of the PC Act to provide a quantum of fine for a person accused of an offence u/s 13(1) (d) so as not to exceed the pecuniary resources or value of property for which the accused person is unable to account for satisfactorily  Section 19 of the PC Act to be amended to provide for obtaining sanction for prosecution, even against those who cease to be public servants, on the lines of section197 of the Cr.P.C.,1973 Public Procurement Bill 2012 Up its implementation, the Bill will enable India to achieve compliance with the stipulations contained in the UNCAC. It aims to regulate public procurement with the following objectives:  Ensuring transparency, accountability and probity in the procurement process,  Fair and equitable treatment of bidders  Promoting competition, enhancing efficiency and economy,  Maintaining integrity and public confidence in the public procurement process  Matters connected therewith or incidental thereto. 1. Bill No. 26 of 2011, The Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill, 2011. 2. Bill No. 70 of 2008, The Prevention of Corruption (amendment) Bill, 2008 3. “India: Probity in Public Procurement,” United Nations Office on Drugs and Crime (UNODC) Report, 2013, p. 22 and 23. This information is intended to only provide a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions and taking legal action, nor should it be used in place of professional or legal advice.
    • Page 11 Bribery and corruption: ground reality in India How is India Inc. complying with the provisions of various anti-graft laws? 599 How is India Inc. complying with the provisions of various anti-graft laws?
    • Page 12 Bribery with cash reigning supreme Bribery and corruption: ground reality in India In which form(s) bribe is/are most often given or accepted ? 0% 20% 40% 60% 80% 100% Gold Tickets to event Doing favors like referring of giving employment Gifts and kind Cash Forms of bribe
    • Page 13 Investors throwing caution to the wind Bribery and corruption: ground reality in India The survey revealed that 73% of PE respondents’ organizations do not conduct anti- bribery and corruption due diligence before investing in enterprises.
    • Page 14 Contagious issues in emerging markets that can expose companies to bribery and corruption risks Bribery and corruption: ground reality in India Corporate hospitality Established norms in some countries may be extravagant and at risk of being perceived as intended to have a direct impact on decision-making. Facilitation payments Such payments, also known as “grease payment”, are allowed under the FCPA, but are prohibited under the UKBA. In fact, many payments that meet the FCPA’s narrow definition of “facilitating payments” may be illegal in the country in which they are made, e.g., such payments are prohibited under PC act in India. Third Party Risk In a new market, a company must work with multiple suppliers, intermediaries and agents, who may themselves depend on a web of second-tier third parties. A business may be held responsible for the actions of persons employed by or associated with it. It has also become increasingly clear that ignorance of laws does not absolve senior management of their liabilities for the activities of their local subsidiaries and agents.
    • Page 15 Bribery and corruption: ground reality in India Are there adequate safeguards to protect against bribery and corruption risks? 152 Are there adequate safeguards to protect against bribery and corruption risks?
    • Page 16 Organizations falling behind in training employees on risks Bribery and corruption: ground reality in India Does your organization conduct anti –bribery and corruption trainings for the employees ? What are the other methods used by your organization to mitigate the bribery and corruption risk? 66% 34% Yes No 45% 60% 72% 76% 0% 20% 40% 60% 80% Monitoring and auditing of business partner's compliance activities Monitoring expenses to ensure that these are compliant with anti-bribery laws Anti-bribery and corruption clauses in the contract with business partners/third parties Whistle blowing mechanism to report potential bribery/corruption issues Anti-bribery and corruption trainings Methods used to mitigate bribery and corruption
    • Page 17 How are PEs monitoring their portfolio companies? Bribery and corruption: ground reality in India Keeping track of investments (Ranks based on the percentage of responses) 1 Management information and accounting systems 2 Independence of board and board functioning 3 Strengthening internal audit function 4 Regular compliance monitoring 5 Change in statutory auditors
    • Page 18 Protect your business Bribery and corruption: ground reality in India  Acknowledge: There are diverse risks for different divisions and geographies and the one size fits all approach is not effective.  Be alert: Constant updating is required on current bribery risks in a country, sector, transaction, business opportunity and business partnership.  Take the right approach: Action taken on policies and procedures should be proportionate to the risks faced and the complexity of the nature, location and scale of commercial activities.  Define “zero tolerance”: Clearly communicate what this means for the business.  Do not be ambiguous: Provide clear guidance on gifts, hospitality, political and charitable donations, and demands for facilitation payments.  Perform due diligence: Carry out systematic risk assessment of third parties, undertake site visits, perform information searches in the public domain and conduct local interviews to collect information on identified vendors.  Conduct tailor-made training: A continual and relevant training process need to be in place on day-to-day issues employees are likely to face, to guide them effectively on addressing these effectively.  Employ a dynamic approach: Make required adjustments as business risks change.
    • Thank you Arpinder Singh Partner and Leader, Fraud Investigation & Dispute Services Direct: +91-22-6192 0160 Email: arpinder.singh@in.ey.com Ernst & Young LLP EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit www.ey.com/in. Ernst & Young LLP is a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008 in India, having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata – 700016 The information in this presentation is intended to only provide a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions nor should it be used in place of professional advice.