The Foreign Corrupt Practices Act, 1977, has historically been a very sensitive legislation not only in the United States but globally because of its extra-territorial reach and consequences. Over the years, the FCPA has significantly influenced international anti-corruption frameworks and business ethics.
The Foreign Corrupt Practices Act, 1977, has historically been a very sensitive legislation not only in the United States but globally because of its extra-territorial reach and consequences. Over the years, the FCPA has significantly influenced international anti-corruption frameworks and business ethics.
A watershed moment in the United States enforcement policy was witnessed in February when the president of the United States issued an extraordinary executive order pausing FCPA enforcement for 180 days. In terms of the presidential order, the attorney general has been directed to review guidelines and policies governing investigations and enforcement actions under the FCPA and cease initiation of any new FCPA investigations or enforcement actions "unless the attorney general determines that an individual exception should be made".
The presidential order further vests the attorney general with the discretion to extend the review period for an additional 180 days. This move has brought in uncertainties regarding the extent of regulatory burdens on the firms based in the United States and the ones which are associated with them in some manner, especially in foreign markets, and the associated impact on global anti-corruption efforts and corporate compliance.
In view of the presidential order, the regulatory landscape for Indian businesses having touchpoints in the United States is poised to change. While the FCPA enforcement has over the years worked as a deterrent against corruption, the absence of active investigations could potentially influence companies to take greater risks in regions where bribery or undue advantage has been a silent convention.
Under the Department of Justice's Safe Harbor Policy, announced in October 2023, multinational companies engaging in merger-and-acquisition transactions were encouraged to voluntarily self-disclose misconduct within six months of an acquisition to avoid prosecution under the FCPA. However, with the FCPA pause, the companies can feel less incentivised to self-report corruption risks within newly acquired Indian entities.
The broader construct of the presidential order is that there is only a pause on enforcement actions under the FCPA and it is not a case where the legislation has been repealed by way of the presidential order. There is no impact of the presidential order on the reporting obligation of the corporations to the Securities and Exchange Commission. Despite the pause on investigations and enforcement actions under the FCPA, domestic enforcement actions under the Indian law continue to remain in operation.
The Indian anti-corruption laws, primarily the Prevention of Corruption Act and the Companies Act, are generally perceived as having weak whistleblower protections coupled with limited precedent of proceedings against the bribe givers. In fact, the PCA does not explicitly cover private-sector bribery unless it involves a public official, creating a gap in the legal framework compared to the larger scope of the FCPA.
However, despite the shortcomings, the PCA provides for the liability of commercial organisations if any person associated with such a commercial organisation gives or promises to give any under advantage to a public servant intending to "obtain or retain business" or "obtain or retain an advantage in the conduct of business".
Under the PCA, a commercial organisation has the ability to raise a defence of having in place "adequate procedures" to prevent persons associated with it from undertaking corrupt conduct. Thus, companies should continue to implement robust due diligence frameworks, including when dealing with third-party agents.
Beyond bribery, India's corporate governance laws impose additional compliance burdens, particularly through the Companies Act and the rules made thereunder. Under the Companies Act, the statutory auditor of a company is required to report fraud to the central government if they have reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company.
In terms of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, listed companies are mandated to establish a vigil mechanism/whistleblower policy for enabling stakeholders of the company to lodge complaints against unethical and illegal practices in the company. Under the Companies Act, every listed company is required to establish a vigil mechanism for directors and employees to report genuine concerns. Accordingly, despite the pause on the FCPA, relaxing vigilance could have deleterious effects in future.
Despite the operation of the presidential order, corporations operating in India should continue to embrace and follow best global practices for anti-corruption and anti-bribery to hedge domestic enforcement action risks in India and keep their compliance programme evolving. For businesses operating in India, the temporary FCPA-pause does not eliminate corruption risks, it simply shifts the enforcement burden to other regulatory bodies.
Companies should not scale back their compliance programmes only because the US monitoring is temporarily ceased. Instead, firms should continue implementing strong anti-corruption measures, strengthening internal controls, and ensuring that due diligence procedures remain intact, particularly when dealing with government entities or third-party vendors. From a regulatory standpoint, strengthening the PCA's corporate liability provisions, introducing clearer compliance guidelines for private sector bribery and enhancing the efficacy of enforcement agencies would help position India as a self-reliant jurisdiction in corporate anti-corruption efforts.
Ultimately, whether the FCPA-pause results in increased corruption or a shift toward more localised enforcement, depends on how businesses and regulators respond in the coming months. Companies that take a long-term view on compliance rather than reacting to short-term policy shifts will be better positioned to navigate regulatory uncertainties, avoid legal pitfalls, and maintain ethical business practices, regardless of future changes in the FCPA enforcement.
Nikhil Varshney is a partner and Ishu Gupta is an associate at Cyril Amarchand Mangaldas.
Disclaimer: The views expressed here are those of the authors and do not necessarily represent the views of NDTV Profit or its editorial team.
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