Counsel to Counsel - November 2008 - (Page 13) Companies, particularly those with large manufacturing facilities, face operational challenges because of India’s lack of adequate power generation. In September, the Nuclear Suppliers Group issued a waiver, allowing India to purchase nuclear material on the international market. It is the hope of the government that this will spur the development of a nuclear energy industry, bolstering the country’s power supply. The private sector has also contributed to infrastructural improvements. For example, in some cities that have seen tremendous job growth, such as Bangalore, U.S. companies are building campuses with private housing for their employees. This is because, oftentimes, these cities still lack adequate lodging to meet the needs of the rapidly increasing work force. exists and shows itself most prominently in the Indian court system. “People who think litigation in the United States can drag on for prolonged periods have not seen anything. The U.S. legal system is a model of efficiency when compared to India’s. Cases in India can drag on for years,” Wombolt says. In fact, litigation can take so long in India that Wombolt recommends avoiding the Indian court system altogether. Instead, he generally advises that companies seek to include arbitration clauses in Paying off a government official could trigger the Foreign Corrupt Practices Act as well as Indian anti-bribery and anti-corruption laws, including the 1988 Prevention of Corruption Act, which criminalized active and passive bribery, extortion and bribery of a foreign public official. If companies do encounter corruption, they can approach India’s Central Bureau of Investigation, which provides whistleblowers and complainants a reporting mechanism on its Web site. Furthermore, to ensure compliance, Wombolt recommends that in-house counsel educate employees on bribery issues. “Companies need to put in place a comprehensive compliance program that sensitizes employees to the issues and instructs them on what to do when a specific situation arises,” Wombolt says. “By following this best practice, companies can operate in the correct fashion even though, in some instances, it may take longer to get something done.” So although India parallels the United States in many respects, it is important to remember that it still is a developing country in which it is far different to establish operations than in most Western nations. “It has always been interesting to me that companies will approach the Indian market knowing about these issues, but until they actually enter the market, they don’t truly appreciate the challenges of operating there,” Wombolt says. “Outside counsel can prepare them for these challenges, but they likely won’t understand the gravity of the situation until they put boots on the ground and experience it firsthand.” Kyle A. Wombolt, partner at Goodwin Procter LLP concentrates in the areas of securities law , and the Foreign Corrupt Practices Act. He also is a member of the firm’s India practice group and regularly visits the country on behalf of clients operating and investing there. He can be reached at kwombolt@goodwinprocter.com. unraveling regulations Historically, investing in India has required complying with an overly burdensome regulatory environment. A movement to ameliorate the regulatory morass started in the early 1990s, when the nation began a process of deregulation to better entice global investors. Prior to this, the business environment was far from friendly. Under what was referred to as the “License Raj,” nearly every business in every sector was required to have some form of a government-issued license to operate. “In the early ’90s the Indian government faced a balance of payments crisis and had to borrow money from international investors. As a result of the pressure that was later exerted by these investors, the government began instituting economic reforms. In effect, the License Raj was lifted, and the Indian economy opened up in such a fashion that it invited much more investment, kicking off the economic boom of today,” Wombolt says. Thanks to the dismantling of the License Raj, India benefits from an average annual 9.2 percent GDP growth rate, fueled heavily by foreign direct investment, which from 2006 to 2007 totaled $23 billion, according to the Indian Embassy. However, even with the License Raj relegated to India’s past, a convoluted bureaucracy still “People who think litigation in the United states can drag on for prolonged periods have not seen anything. the U.s. legal system is a model of efficiency when compared to India’s. Cases in India can drag on for years.” their agreements. Typically such clauses stipulate that Indian law will apply and that the arbitration will take place in nearby Singapore, where the Hague-based Permanent Court of Arbitration (PCA) is located. Curbing Corruption Still, the bureaucracy that companies come across when investing in India is unlike anything that happens in the United States. For example, the process to incorporate in the United States is relatively simple. In India, this same process requires many additional steps, including background checks on directors. “In virtually any industry, you are going to have more approvals necessary in India than in the United States,” Wombolt says. “In the course of these interactions with government officials, it is not uncommon for the officials to demand a payment in order to continue through the approval process.” www.martindale.com/c2c November 2008 13 http://www.martindale.com/c2c
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