Diwali is one of the most anticipated and celebrated festivals in India. It is also a festival of giving gifts, which is often a challenge for compliance professionals who struggle with policies and nuances of law around this time, on giving gifts that might seem like bribes.
Under the Prevention of Corruption Act, 1988 (PCA), the principal anti-bribery and anti-corruption statute in India, giving and receiving any form of pecuniary gratification may imply criminal penalties for both the bribe-giver and the public official. Furthermore, according to the conduct rules of various government departments, government servants are obliged to report receipt of gifts that go beyond prescribed monetary limits..
Gifting per se is not an illegal activity under Indian law. Under the PCA, the determining factor that separates a gift from a bribe is whether the gift was made with an expectation of quid pro quo. Furthermore, it must be clarified that the various conduct rules do not prescribe a de minimis or a minimum monetary threshold up to which a gift is seen as unquestionable. The conduct rules (as may be applicable to different public officials) merely provision for reporting obligations on behalf of the government servant, in cases where the pecuniary value of the gift received exceeds a certain limit.
The essential factor in determining whether a gift would amount to a bribe or not, is the motive behind the gift irrespective of its pecuniary value. Therefore, the internal controls and policies that a company adopts to ensure that employees do not abuse provisions of gifts, are extremely important.
Going a step further, Section 11 of the PCA stipulates even more rigorous conditions in certain situations, wherein the gift is provided to a public official by a person involved or likely to be involved in a proceeding or business transacted with him. In such situations, the element of quid pro quo has also been done away with. In addition, Section 12 of the PCA specifically targets the supply side by treating the act of giving a bribe as a criminal offence of abetment, which may lead to a fine and imprisonment up to a term of three years.
Furthermore, due to the federal form of government existing in India, conduct rules vary widely across different government departments and state territories. In fact, certain conduct rules provide extremely low pecuniary limits of Rs. 50 (or approximately 76 US cents). A point that commentators often misinterpret is that the pecuniary limits under conduct rules are only a guidance; a gift within such pecuniary limits should necessarily adhere to internal policies and meet the standards set out in the PCA.
Advice for Diwali gifts
Organisations need to consider the following when evaluating gifts during the Diwali season:
The organisation’s senior management should establish a strong tone at the top and should actively disseminate a no tolerance policy towards bribery and corrupt practices, preferably in advance of the festival month.
The legal department of the organisation should put in place a prior approval process for offering gifts to public officials. All requests for prior approval should be determined in accordance with the applicable conduct rules relevant to the official, who will be the recipient of the gift.
On a request being made under the gift policy, get a local counsel to vet the submitted disclosure form and supporting documents.
In certain conduct rules, foreign firms and companies are specifically prohibited from providing gifts to public officials and this should be kept in mind when designing an appropriate gift policy.
Gifts made to public officials should be reasonable, infrequent, of nominal value, appropriate and should not be given with the intent to improperly influence an official. They should also preferably include the organisation’s logo or official branding.
Special permission from the organisation’s legal department must be taken in cases where gifts may be given to public officials, with which the organisation has been, is or is likely to be involved in proceedings or business transactions.
All gifts made to public officials must be adequately recorded and reflected in the organisation’s books of accounts and the relevant documentation should be preserved. This includes all supporting documentation such as invoices, delivery challans, etc.
It is not uncommon in India for certain employees to indirectly route their impermissible gifts through one of their vendors. All policies and communication on gifts should clearly emphasise the fact that the policy regulates gifts given directly or indirectly.
Additional hospitality or gifts provided to public utility officials or officials who are conducting inspections should be appropriately recorded in the books of accounts and should be in line with the overall gift policy