Can a CSR program be a corruption risk for the Company ?

Transparency International’s Corruption Perception Index (CPI) ranked India at 80 (out
of 180 countries) in 2019, with a CPI Index of 41, based on an overall potential score of
100 (Zero being highly corrupt while 100 being very clean). While making Corporate
Social Responsibility (CSR) contributions, companies may find themselves exposed to
corruption risks under the Indian as well as global laws like FCPA and UK bribery laws.
With the kind of money involved the CSR spend can create some risk that can have real
legal and reputational consequences. Companies have been spending of CSR not only
to just comply with the law but also to build stronger relationships with local
communities. In an attempt to promote the goodwill, companies spend CSR money,
sometimes only to find out later that the same has been used in violation of company
policy and local laws.

How can companies expect to achieve improvements in the social, environmental, and
economic conditions if the bases of the efforts are impacted by corruption? For
example, a donation given to NGO as a quid pro quo to obtain permission from a
government is not only a serious violation but also question the integrity and
transparency of the CSR program.

The CSR Policy may specifically mention about preventive anti-corruption practices
which are to be prohibited direct or indirect bribery of government officials. Further,
bribery is not limited to the public sector and but can be in form of kickbacks or conflict
of interest with stakeholders.

The company can safeguard itself when engaging in CSR Activities by taking below
steps:

• Laying down of CSR Principles: CSR Policy to provide for identification and laying down of basic principles – Transparency, Accountability and Integrity that are to be followed while execution of the CSR program. The CSR policy should make a reference and incorporate the company’s anti-bribery policies and must lay out the framework around the allocation of CSR funds.
• Due Diligence: Identification of Implementing Agency is key and companies can conduct thorough due diligence to select well established and recognized nongovernmental organizations, trusts or companies having proven track records, with good reputations for regulatory compliance, integrity and fund management. The process will also help companies to check whether there is any direct or indirect affiliation with political party or government officials
• Monitoring: The CSR Committee should institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.
• Internal Controls: Companies may consider implementing control measures such as auditing and compliance certifications. Companies should ensure that funds are transferred to the designated authorized account. Funds shall ideally be released in a staggered manner based on milestones achieved under each project.

Principles laid down in Business Sustainability and Responsibility Report under National
Guidelines on Responsible Business Conduct, 2018 (NGRBC) also state that Businesses should conduct and govern themselves with integrity, and in a manner that is ethical, transparent, and accountable. It also says that the governance structure should ensure that the business avoids complicity with the actions of any third party that violates any of the Principles contained in these Guidelines.