Bribery in the spotlight: The Adani saga

While initially regarded as contradictory, the concept of business ethics has gained widespread attention since the 1970s. Companies increasingly recognise that pursuing profit without regard to ethical considerations is unsustainable, particularly in today’s interconnected, ethically conscious global market. Allegations of bribery, whether domestic or international, pose significant risks to an organisation's reputation, integrity and legal standing.

The recent allegations surrounding Gautam Adani and Sagar Adani, key figures of the Adani Group, have brought these issues into sharp focus. Reports have surfaced that the US Securities and Exchange Commission (SEC) has summoned the company to explain accusations of paying over $250 million in bribes to secure solar-power contracts. This is coupled with a criminal indictment filed by US prosecutors.

Even though the Adani Group has firmly denied all wrongdoing, the case raises critical questions about corporate governance, anti-corruption laws and the responsibilities of business leaders to ensure ethical conduct within their organisations.

The decision on whether and how the Department of Justice (DOJ) will proceed with a Foreign Corrupt Practices Act (FCPA) matter is guided by the Principles of Federal Prosecution for individuals and the Principles of Federal Prosecution of Business Organizations along with the FCPA Corporate Enforcement Policy for companies. These frameworks take into account several factors, such as the severity of the violation, the effectiveness of the company’s pre-existing compliance programme, the extent of cooperation with investigations, and whether the company voluntarily self-disclosed the misconduct.

India’s Prevention of Corruption Act, 1988 (PCA) serves as the primary anti-corruption legislation, criminalising the offering and acceptance of bribes, as well as the provision of any "undue advantage" to public servants. The PCA defines "undue advantage" broadly, encompassing both financial and non-financial benefits, far beyond a public servant’s legal remuneration. The term "public servant" extends to government employees, employees of public sector entities, and employees of private banks, as affirmed by the Supreme Court in CBI v. Ramesh Gelli & Ors.

The PCA also criminalises actions such as providing bribes to public servants in exchange for improper performance of their duties or for aiding business interests. Recent amendments to the PCA have expanded the law to also criminalise bribe-givers, making them equally liable for prosecution. Penalties under the PCA include imprisonment (ranging from six months to ten years), asset forfeiture and substantial fines. Additionally, individuals who are coerced into offering bribes may be granted immunity if they report the incident within seven days.

The US (FCPA) also has broad jurisdictional reach. The Act prohibits bribes aimed at securing business advantages, applying to three categories of persons and entities: (i) issuers, (ii) domestic concerns, and (iii) individuals or entities, whether inside or outside the US. Notably, although the alleged criminal activity in the Adani case took place in India, the charges have been filed in Brooklyn Federal Court in the United States due to the scheme’s connection to the Eastern District of New York. This underscores the complex, cross-border nature of the case, where US laws govern conduct that takes place abroad. The SEC has also pursued a civil case against the Adanis, highlighting the global scope of anti-bribery regulations and the significance of compliance with US laws such as the FCPA. The case exemplifies how international regulatory frameworks are increasingly interconnected, and how the legal consequences of misconduct in one jurisdiction can reverberate across borders.

The Adani case also raises the issue of wire fraud, a potential charge in light of the allegations of fraudulent financial transfers. For instance, in a 2006 case involving a US subsidiary, overbilling of government and private customers was linked to wire fraud. Funds were transferred from the parent company's Oregon account to off-the-books accounts in South Korea, used to pay bribes to foreign officials. This scenario mirrors the complex financial operations often involved in bribery schemes, adding another layer of legal complexity to the Adani investigation.

In the case of United States v. SSI Intl, the criminal information alleges violations of 18 U.S.C. §§ 1343 (wire fraud) and 1346 (honest services fraud). The plea agreement in this case details the company's admission to engaging in fraudulent conduct, including schemes to defraud and deprive others of their right to honest services, which is a violation of US federal law. These charges are part of broader investigations into fraudulent practices such as overbilling and kickback schemes, where the company misused wire communications and financial transactions for illicit purposes.

Implications of the allegations

The bribery allegations against the Adani Group are serious, particularly given the scale of the alleged payments and the public interest in the renewable energy sector. If the allegations are proven true, the legal and reputational consequences for the company could be severe. Under the PCA, the Adani Group could face prosecution, asset forfeiture and significant penalties for their involvement in the bribery scheme. The 2018 amendments to the PCA also broaden the scope of liability, making bribe-givers equally accountable. This case, if proven, could serve as a significant test of the PCA’s ability to hold large corporate entities accountable for corruption.

Even before any verdict is out, the interconnected nature of countries and business interests have started to reveal. For instance, Kenya has already announced that it is cancelling a proposed deal where Adani Group was under consideration in a procurement process for expansion of its airports. Similarly, the US International Development Finance Corp is reassessing its decision to lend over $550 million to Adani-backed Sri Lankan port project. The remainder is, of course, the Indo-US relations where some sort of realignment is already in the fray given the change of government in the US. As per one estimate, the Group has already lost $55 billion as far as market value of its portfolio is concerned.

Penalty provisions

While the DOJ has the sole authority to initiate criminal proceedings, both the DOJ and the SEC have civil enforcement powers under the FCPA. For anti-bribery violations, the DOJ can pursue civil actions against domestic concerns and foreign entities, while the SEC can pursue civil actions against issuers and their officers, directors, and employees under both anti-bribery and accounting provisions.

Over the past thirty years, the DOJ has used its civil authority in limited cases. For example, in United States & SEC v. KPMG Siddharta Siddharta & Harsono, the court issued an injunction preventing the company from committing future FCPA violations after it was alleged that the company paid bribes to an Indonesian tax official to reduce its tax assessment. Similarly, in United States v. Metcalf & Eddy, the court imposed an injunction prohibiting the company from future FCPA violations and mandated the maintenance of a compliance program, based on allegations of paying excessive marketing expenses, such as travel and per diem, to an Egyptian official and his family.

For violations of the anti-bribery provisions, civil penalties of up to $21,410 per violation may be imposed on corporations and individuals. Moreover, the proceeds of criminal activities may be forfeited, or the profits generated from illicit actions may be disgorged. Disgorgement and forfeiture are intended to return perpetrators to the financial position they would have been in had the crime not occurred. Additionally, entities found guilty of FCPA violations could face suspension or debarment from government contracts and may suffer cross-debarment by international development banks.

Declinations

In evaluating whether to prosecute business organisations for FCPA violations, the DOJ follows specific guidelines that include assessing factors such as the nature of the offence, the scope of wrongdoing, the company's history, the effectiveness of its compliance programme, and whether the company voluntarily self-disclosed the misconduct. Recent instances show that the DOJ has opted not to pursue several cases involving potential FCPA violations, which provides valuable context for the Adani case. The DOJ’s declinations illustrate its discretion in resolving corporate wrongdoing and offer insight into how prosecutors balance competing interests in such matters.

DOJ has declined matters where some or all of the following circumstances were present: (1) a corporation voluntarily and fully disclosed the potential misconduct; (2) corporate principles voluntarily engaged in interviews with DOJ and provided truthful and complete information about their conduct; (3) a parent company conducted extensive pre-acquisition due diligence of potentially liable subsidiaries and engaged in significant remediation efforts post-acquisition; (4) a company provided information about its extensive compliance policies, procedures, and internal controls; (5) a company agreed to a civil resolution with the Securities and Exchange Commission while also demonstrating that criminal declination was appropriate; (6) only a single employee was involved in the improper payments; and (7) the improper payments involved minimal funds compared to overall business revenues.

Conclusion

The case of the Adani Group underscores the increasing complexity of global anti-corruption enforcement, where actions in one jurisdiction can trigger legal repercussions across borders. The application of both Indian and US anti-corruption laws in this case highlights the importance for multinational corporations to establish strong, effective compliance programmes to mitigate the risks of bribery and other ethical violations. As the global regulatory environment continues to evolve, the Adani case may serve as a crucial benchmark for the effectiveness of corporate governance and anti-corruption laws in holding powerful corporate entities accountable for misconduct.

Dr. Nandita S Jha is an Assistant Professor at Chanakya National Law University, Patna.

Sumit Jain is the Director at the Centre for Competition Law and Economics (CCLE).