By Ronak D. Desai
A recent $25 million settlement between Cognizant Technology Solutions and the Securities and Exchange Commission resolving bribery allegations in India is an effective reminder that traditional Foreign Corrupt Practice Act enforcement against U.S. companies and their executives is a real possibility and underscores the immense corruption risk India poses to foreign companies conducting business there.
The civil settlement came the same day the Department of Justice announced criminal indictments against the company’s former president and chief legal officer.
American enforcement authorities alleged the two C-suite executives had facilitated the payments of millions of dollars of bribes to state government officials in India in exchange for planning permits necessary to build Cognizant’s office park in the southern city of Chennai as well as other construction projects around the country.
Federal prosecutors brought 12 FCPA-related charges against the two executives, including one count of conspiracy to violate the FCPA and three counts of actual violations. The move is consistent with DOJ’s policy to focus FCPA regulations not just on companies, but on culpable executives individually as well.
Many experts expected FCPA prosecutions to fall under the current administration after President Donald Trump and other prominent individuals within the DOJ and SEC expressed skepticism about the law, alleging that it disadvantaged American business. Others began to wonder whether the statute would be used increasingly to target foreign companies as a way to advance the president’s “America first” agenda.
The Cognizant case is an important reminder that traditional FCPA enforcement against U.S. companies and their executives is still a real possibility.
The DOJ’s decision not to prosecute Cognizant is instructive. Its Feb. 13 declination letter cited 10 different factors explaining why it opted not to bring criminal charges against the technology giant. Chief among these were the company’s “voluntary self-disclosure” of the bribery in conjunction with its “thorough and comprehensive investigation,” “full and proactive cooperation,” and its “lack of prior criminal history.”
These factors and others set forth in the department’s FCPA Corporate Enforcement Policy represent important guideposts for companies to consider when confronting possible scrutiny from U.S. regulators for anti-corruption violations.
Cognizant’s legal woes also underscore the immense corruption risk India poses to foreign companies conducting business there.
On one hand, India’s appeal is obvious. English-speaking with a well-established rule of law, the world’s largest democracy is also the world’s fastest growing major economy. India’s burgeoning middle class totals more than half a billion people alone, creating a huge market for an endless range of industry sectors.
At the same time, India’s culture of corruption and accompanying risk to foreign business remains pervasive. Corruption plagues virtually every level of the Indian government. Its infamous and well-entrenched bureaucracy makes it difficult to obtain the requisite approvals to operate within the country.
Despite Prime Minister Modi’s efforts to facilitate the country’s ease of doing business in recent years, India’s complex regulatory landscape remains difficult to navigate. The result is a labyrinth of opaque policies and procedures that create deep corruption risk.
It is therefore unsurprising that foreign companies operating in India continue to face anti-corruption enforcement by foreign regulators. Many of the world’s most prominent companies, including Beam Suntory, Mondelez, and Oracle have found themselves in the crosshairs of either the DOJ or SEC (or both) for running afoul of the FCPA in India.
Cognizant’s legal issues also serve as a potent reminder of the high costs FCPA enforcement imposes on foreign firms in India.
In addition to the $25 million settlement figure, the company reported spending more than $74 million in connection with the underlying FCPA investigation and related costs. Viewed against this backdrop, the settlement amount is just a fraction of the total financial consequences Cognizant is confronting as a result of anti-corruption enforcement.
The numbers reflect the new reality that has come to characterize FCPA regulation and enforcement. An FCPA investigation involving possible violations by Walmart of the statute in Mexico, Brazil, China, and India, among others, for example, has prompted the retail giant to set aside more than $230 million for a possible settlement. This is separate from the $907 million dollars Walmart has spent on FCPA-related costs since 2013.
The sobering figures represent a cautionary tale. Ultimately, companies must remain mindful the risk India poses to their business despite its promise.
Ronak D. Desai is an international investigations, enforcement defense, and compliance attorney deeply experienced in conducting FCPA and white collar investigations in high-risk jurisdictions, including in India. He is currently India Practice Vice Chair at a prominent international law firm based in Washington DC and previously served as an attorney to the US Congress. He also serves as a legal and policy expert at the Lakshmi Mittal South Asia Institute at Harvard University.
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