Some time ago, a well-known Singaporean investment bank asked risk management advisory Control Risks to investigate the actual ownership of a well-known power company in India, which happened to be listed and actively traded. The Singaporeans wanted to know who exactly they were getting into bed with before putting their money into the company.

Control Risk’s investigators started with the India end. They found that the listed entity had investments in it by two apparently separate, Mauritius-based companies. On investigating further, and drilling past the usual Post Office Box addresses of these offshore companies, they found that both these Mauritius investment arms were, in fact, wholly owned by a third company, also registered in Mauritius. More digging revealed that the Mauritius entity which controlled the other two was itself the subsidiary of another company, registered in the Cayman Islands.

That in turn, was owned by yet another Cayman Island entity which, they found to their surprise, was mainly owned by a company with an India address. That, in turn, was held by a web of investment companies which eventually led back to the promoters and their wives of the listed, traded company at the end of the chain back in India!

Illuminative as this example may be to foreign investors, the scenario is laughably familiar to anybody doing serious business in India. The Government can appoint as many Special Investigative Teams as it likes to try and trace black money stashed abroad. At best, they will only find that the money may have left Indian shores dyed a deep black, but is long since back home, laundered lily white and busy earning even more money, via special washeries scattered on specks of land in various oceans of the world — Mauritius, Cayman Islands, the British Virgin Islands and what have you.

Welcome to the new Indian ‘ jugaad’ — not the inventiveness praised by management professors and taught to future leaders as ‘frugal innovation’, but another kind of fix-it which is used to bypass, circumvent or outrightly sabotage any attempt to impose laws, rules and regulatory compliance on people who think such matters are stuff and nonsense, intended to increase the rent-seeking capacity of corrupt bureaucrats and politicians.

In their report (‘Grey Practices: Fuelling Fraud and Corruption in the Indian Business Environment’), James McAlpine, Managing Director of Control Risks India & South Asia, points this out. “There are two distinct forms of corporate malpractice in India: those that are clearly illegal (the black practices) and those that are less clear-cut and fall into a grey area where legality is ill-defined (though integrity and morality are often not).

These grey practices are the schemes — often highly innovative in themselves — that in turn tend to fuel fraud and corruption on a far grander scale that can pose serious legal, commercial and reputational risks to companies that are not alert to the dangers.”

For all the hand-wringing that India Inc does on the issue of corruption, and for all the spleen vented at the red tape and roadblocks which come in the way of doing legitimate business in India, this particular aspect — of routine business practices transitioning from white to grey, even in companies which aver (and often believe) that they practise ethical and legally compliant business in India, has gone virtually unnoticed, and even unremarked.

So no one questions the setting up of dummy companies (or utilising their friends and agents) to put in bids for a tender, so that their own, quite legitimate and compliant bid, becomes the lowest. A director will happily sign a compliance report, secure in the knowledge that the actual corrupt practices have been put at arms length, via an agent or a middleman. That is the reason why virtually every firm worth its salt has a ‘corporate affairs’ representative in New Delhi, whose sole job is to smooth the passage of those all-important files through the corridors of power.

Over time, such grey practices become an intrinsic part of doing business, and often end up masking much more sinister and downright illegal practices. As the Control Risks report points out, “Ultimately grey practices are adopted by an individual to gain advantage by deceiving a regulator, commercial partner, or even his or her own company. While they may not always be illegal in their own right, many are designed to conceal or enable illegal activities that ultimately grease the wheels of corruption, perhaps the single biggest topic dominating India’s national agenda.”

There is another business risk. Those who commit such ‘grey’ acts on behalf of their employer under pressure to get the job done and cloak ‘official’ illegalities, may soon be tempted to do it in order to cloak their own, personal illegalities.

As the saying goes, if you teach your servant to steal, he will soon steal from you. Some of the more spectacular corporate frauds in India in recent times are illustrative of this.

But talking about corruption is easy, action is much tougher. India has made a reasonably earnest attempt to amend rules and regulations to ensure better control and compliance. The new Companies Act, for instance, for the first time, clearly defines what ‘fraud’ is and lays down specific penalties, for both individuals and companies. An attempt is also being made to strengthen a structurally weak and often deeply flawed regulatory framework.

And then, of course, there is the political dimension. Corruption is no longer merely a conversation topic. As both the BJP and the Aam Aadmi Party discovered, and leveraged to electoral gain, it is now a live political issue capable of moving significant portions of the electorate into voting for change. The ‘Modi sarkar’ rode to power on a promise of “more governance, less government”. If it fails to deliver, it is likely to be punished by the same voters who swept it to power in the first place.

But the issue is no longer restricted to babus and mantris. Legislative and regulatory attention is already turning (albeit slowly) to those who pay, rather than only those who take. But any attempt to seriously tackle corruption will fail unless corporates also learn to objectively look within, and stop turning a blind eye to illegalities and ethically wrong practices simply because they have plausible deniability.

Unless businesses realise that this type of ‘ jugaad’ comes with a high price tag, Indian inventiveness will always find a way around every rule.