Thoughts on economics and liberty

Do not extend definition of corruption into private interactions

It is crucial that the definition of corruption be always understood to be this: the act of influencing, through economic incentives, a government decision. That's what it has meant throughout history, and the reason why we care about such economic incentives is because is prevents the rule of law – the uniform application of laws to everyone – from being distorted through "corruption".

However, it now appears that the Indian government is extending the definition of corruption into WITHIN-private-sector transactions.

That's merely a ploy to allow the government to say: "Look, we are not the only corrupt people, the WHOLE country is corrupt!"

In the private sector if someone is indulging in "corrupt" practice, the organisation can fire the relevant person, or otherwise organise corrective steps – including self-regulatory mechanisms.

To criminise "corruption" in the private sector would be to entirely distort the PURPOSE of seeing "normal" corruption as a crime.

I disagree entirely to the idea of extending the definition of corruption into the private sector.

Let the private sector deal with its internal corruption through its own self-regulatory means.

This is a management problem for the private industry, NOT a criminal issue.

If this law is allowed to go through, the government will shift its limited anti-corruption resources to the private sector, thereby further increasing corruption in government. Apart from giving bureaucrats YET ANOTHER lever to arm twist businesses – for corrupt money!

Why is Indian business allowing the government to enter their factories on YET ANOTHER pretext?

India Inc calls for criminalising corruption in private sector

India Inc has supported a proposed law to criminalise private sector bribery saying such an attempt would help in checking corruption.

Federation of Indian Chambers of Commerce and Industry (FICCI) has noted with approval the government attempt to amend the Indian Penal Code (IPC) to make corruption in private sector a criminal offence.

"We believe that such a provision could be an effective deterrent and help curb corruption," it said.

The Central government has proposed to make bribery in private sector — both giving and accepting it — a criminal offence by amending the IPC.

However, FICCI, said that it was necessary to ensure that the amended law does not cause undue harassment to businessmen in the country.

"It is imperative that such a law be implemented only after a thorough cleansing of the existing regulations and legal provisions…

"It is also important to ensure that the amended law does not cause undue harassment to private businessmen in the country," the industry body said.

The government's move was also supported by the Associated Chambers of Commerce and Industry of India (Assocham). Assocham Secretary General D S Rawat said that the body favours such a law which was the need of the country.

Whereas, the Confederation of Indian Industry (CII) said it was "examining the matter internally".

The draft Indian Penal Code (Amendments) Bill, 2011, circulated to states and Union Territories by the Centre for their comments, would cover graft by an individual, firm, society, trust, association of individuals, company, whether incorporated or not, which undertakes any economic or financial or commercial activity.

At present, there are no legal provisions to check graft in the private sector.

As per the draft law, whoever in the course of economic, financial or commercial activity promises, offers or gives, directly or indirectly, any gratification, in any capacity, for a private sector entity, for the person himself or for another person shall be punishable.

The Centre has asked all States and UT administrations to give their views on the proposed amendments in the IPC.

According to an expert of Pricewaterhouse Coopers (PwC), a consultancy firm, penalising errant private firms could be a way to check corruption.

"Strengthening of corporate governance norms and increasing disclosure requirements thereby creating a market mechanism to penalise errant private firms could be a way to check corruption," said Kunal R Gupta, Associate Director, PwC India.

He also cited a US Law which deals with foreign bribery saying it had a "tremendous impact" in the manner in which companies and persons in that country do business.

"We understand that in the US context US Foreign Corruption Practices Act (FCPA) of 1977 which, in a slightly different context of foreign bribery, deals with the supply side of bribery, has had a tremendous impact in the manner in which the US companies and persons do business and on their compliance policies," Gupta said.

The expert hinted support to a regulatory body close on the lines of the US's Securities and Exchange Commission (SEC) and the UK's Financial Services Authority (FSA).

"Purely based on our experience and information available in public domain, SEC in the US and FSA in the UK have had a discernible impact on the corruption in private sector," the expert said when asked whether there was a need to have a regulatory body to check corruption in the private sector.

The Securities and Exchange Board of India (SEBI) has oflate declined to play a CVC-like role to check corruption in private firms saying it was not its mandate.

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Sanjeev Sabhlok

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4 thoughts on “Do not extend definition of corruption into private interactions
  1. Munish Raizada

    Sanjeev: I understand your opposition to the definition of corruption in private sector. I assume the following examples come under a different label: private businesses or companies indulge in tax-evasion, unfair business practices (like hoarding, selling fake products).
    Having said that, the latter part of the article says something that is beneficial to curb corruption in private sector too. Like USA’s FCPA. Would you be opposed to such a law for Indian companies?

  2. Sanjeev Sabhlok

    Tax evasion etc. is a clearly a crime. This is about businesses gaining advantage over other business through “corruption”. That’s not corruption. That’s a business cost. Where it is unauthorised then business should self-regulate.

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