(MZM Legal Advocates & Legal Consultants in Mumbai, India). Panag is the India Expert for FCPA Professor.
FCPA enforcement actions in 2014 have seen companies such as HP Poland, Bruker and Avon (in part) face heat as a result of alleged bribes being paid under the alleged guise of gifts and corporate hospitality.
The risk for multinational companies operating in countries with engrained ‘gift giving’ and ‘hospitality extending / accepting’ cultures is thus a real compliance concern. India happens to be one such country where its cultural and ethnic diversity, multitude of festivals and high levels of public corruption, make the already complex compliance task all the more challenging.
In the ‘Resource Guide to the U.S. Foreign Corrupt Practices Act’ the DOJ and SEC recognize that a small gift is often an appropriate way for business people to display respect for each other. It further goes on to lay down some hallmarks of appropriate gift giving as “when the gift is given openly and transparently, properly recorded in the giver’s books and records, provided only to reflect esteem or gratitude, and permitted under local law.”
The focus of this post will be to help facilitate a better understanding of what gifts, entertainment and hospitality to public servants is permitted under Indian law.
India’s principal anti corruption legislation – the Prevention of Corruption Act, 1988 (PCA) recognizes that bribes paid to public servants are not limited to pecuniary gratifications or to gratifications estimable in monetary terms. This is further emboldened by the use of the term ‘any gratification whatever, other than legal remuneration’ in the substantive text of the bribery provisions. The gratification would be deemed to be illegal or a bribe if it is paid/given with the intention to:
- motivate, influence or reward the public servant to perform or forbear performance of an official act;
- show favour or disfavour to any persons;
- render or attempting to render any service or disservice to a public servant.
Therefore, gifts given or hospitality extended to public servants beyond the threshold limits or in improper circumstances that are likely to influence the public servant, would be deemed as a bribe under Indian law.
Who is a Public Servant?
Section 2(c) of the PCA provides the definition of who would be deemed to be a public servant. The definition is extremely broad and includes among others government officials, local authorities, judicial officers, any holder of office to perform a public duty and employees of government owned or government controlled entities. Broadly speaking state control and financing is a reasonable test to determine whether an individual would be a public servant or not.
What Gifts Can be Given and Hospitality Extended to a Public Servant?
Every public servant is governed by the conduct rules / code of conduct of his or her service or organisation. For example, the ‘All India Services (Conduct) Rules, 1968’ would cover services such as the Indian Administrative Services and the Indian Police Service, the state owned Oil and Natural Gas Corporation (ONGC) has the ‘ONGC Conduct, Discipline and Appeal Rules, 1994 (Amended 2011)’, Ministers of both the Union and States are governed by the ‘Code of Conduct for Minsters’ so on and so forth. These Conduct Rules establish the threshold limits on the value of gifts and hospitality that can be accepted by the concerned class of public servant and the circumstances thereof.
While the threshold value varies among the different services and organisation based on the class and seniority of the public servant, few standard aspects are prevalent:
- Public servants shall not accept nor have any member of his / her family or person acting on his/her behalf accept any gift for him / her.
- Gifts shall include free transport, boarding, lodging or other service or any other pecuniary advantage when provided by any person other than a near relative or personal friend having no official dealings with the Government servant.
- Gifts of the specified value may be accepted by public servants from his / her near relatives or personal friends having no official dealing with him/her when the same is in conformity with prevailing religious and social practices.
- Public servants shall not accept any gifts from any foreign firm which is either contracting with the Government of India or is one with which the public servant had, has or is likely to have official dealings.
- Generally a casual meal, lift or other social hospitality shall not be deemed to be a gift.
- Public servants are to avoid accepting lavish hospitality or frequent hospitality from any individual or commercial organisation that have official dealings with him /her.
- It is imperative to read the conduct rules / code of conduct alongside the applicable provisions and objectives of the PCA.
Best Practices That Corporations Should Bear in Mind While Framing Their ‘Gift, Entertainment and Hospitality’ Policies in India:
As noted above specific threshold limits as specified in the public servants code of conduct / conduct rules are applicable to them. Therefore, a ‘Gift, Entertainment and Hospitality’ policy must cater to these specificities and variations by keeping the following best practices in mind:
- Companies should maintain a database of up to date and official conduct rules / code of conducts of the public servants it regularly interacts with.
- Employees of the company should be adequately briefed on the legal need to carefully evaluate the specific gift, entertainment and hospitality provisions and corresponding threshold value of each class of public servant before giving a gift or extending hospitality to them.
- Threshold values in the company policy must ideally be mentioned in Indian Rupees in order to ensure clarity and prevent any misunderstanding / misconduct that may inadvertently occur due to fluctuating foreign exchange rates.
- Business courtesies should be accurately documented and reported in the company’s books and records.
 This list is merely indicative and is not exhaustive, nor applicable to all conduct rules / code of conduct. Items included in the list are subject to the exceptions, explanations, exclusions, modifications and additions as narrated in the respective conduct rules / code of conduct.
This post is purely informative and does not constitute legal advisory and should not be construed as such