The Western Focus on Bribery 1970s, bribery became a national issue with public disclosure of political payoffs to foreign recipients by U.S. firms. The.

The Western Focus on Bribery

• 1970s, bribery became a national issue with public disclosure of political payoffs to foreign recipients by U.S. firms.

• The decision to pay a bribe creates a major conflict between what is ethical and proper and what is profitable and sometimes necessary for business.

• OECD Convention on combating the bribery of foreign public officials in international business transactions.

• Transparency International (TI)

Transparency International

• A non-governmental organization that monitors and publicizes corporate and political corruption in international development.

• It publishes an annual Corruption Perceptions Index, a comparative listing of corruption worldwide.

• The headquarters is located in Berlin, Germany but operates through more than 70 national chapters.

Transparency International• Companies from Russia and China are most

likely to pay bribes when doing business abroad, a survey suggests.

• The two scored worst out of 28 countries in a poll of 3,000 business executives.

• Russia, which came bottom of the league, was seen by TI as a particularly challenging case.

• "Unfortunately... there are no islands of integrity in Russian public and business life," said TI Russian director, Elena Panfilova.

Transparency International

• "It is of particular concern that China and Russia are at the bottom of the index," said TI in its report.

• "Given the increasing global presence of businesses from these countries, bribery and corruption are likely to have a substantial impact on societies in which they operate and on the ability of companies to compete fairly in these markets."

Transparency International

• The Netherlands and Switzerland came top, (i.e. the least corrupt) while the UK ranked eighth, just ahead of the US and France.

Transparency International

• Bribe-paying was seen as much more common by businessmen from countries whose governments were also considered to have the least integrity, according to a separate "corruption perceptions" survey carried out by TI last year.

• The report called for more international action to outlaw companies from paying bribes in foreign countries.

Transparency International• The sector most affected by bribery was public procurement - where

companies compete to win contracts from governments for everything from waste collection to road building.

• TI noted that the nature of public sector contracts - which are usually large,

complex and involve many sub-contractors - makes it much easier to inflate costs and hide inappropriate payments.

• However, TI said that paying bribes to win major infrastructure and housing projects "effectively cheats taxpayers out of their money" and can undermine safety standards.

• The survey indicated that companies paid bribes almost as routinely to other businesses as they do to government officials.

Transparency International

• The mining and the oil and gas sectors - in which Russia and China are most active - also scored low in the poll.

• Agriculture was considered the least bribe-prone, while banking ranked the fourth least-corrupt out of 19 industries.

How Much?

• The Economist estimates that corruption may be measured at approximately $9 trillion per year.

Foreign Corrupt Practices Act (FCPA)Enacted by Congress in 1977 and amended in 1988, which forbids individuals as well as businesses and their respective officers, directors, employees, or any stockholders acting on their behalf, from paying money or anything of value to a foreign official in order to influence any act or decision of such official in violation of his lawful duty. This includes such tactics as “Entertainment” expenses and “Consulting” fees.

• Imposes certain recordkeeping requirements on issuers and subsidiaries:– Books and records must, in reasonable detail, accurately reflect

the transaction– Internal controls must provide reasonable assurances that

transactions are authorized, and assets are kept track of and protected

BELS• Bribery: voluntarily offered payment by someone seeking

unlawful advantage.

• Extortion: payments which are extracted under duress by someone in authority from a person seeking only what they are lawfully entitled to.

• Lubrication: a relatively small sum of cash, a gift, or a service given to a low-ranking official in a country where such offerings are not prohibited by law.

• Subornation: large sums of money, frequently not properly accounted for, designed to entice an official to commit an illegal act on behalf of the one offering the bribe.

Examples• Schering-Plough – Its Polish subsidiary made

payments to a Polish charitable organization whose head was the director of a Polish governmental body that provided funds to, and influenced the purchase of drugs by, Polish hospitals.

• Electronic Data Systems (EDS) – Two firms partially owned by the Indian Government retained a second-level Indian subsidiary of EDS for management consulting services. The subsidiary paid bribes to employees of the partially owned Indian companies to retain the business.

Examples

• The Shell Group operates in more than 130 countries. They frequently face demands for “facilitation payments” from junior officials, and for “bribes” from more senior people.

• Shell has a clear anticorruption policy: it does not sanction giving or receiving any type of bribery or illegal payment; an employee who is found to have done so is instantly fired and prosecuted.

EXCEPTIONS / DEFENSES

• “Grease Payments” – for routine government actions – licenses, permits

• Payment is legal under written law of foreign country – statutes, regulations, written decisional law

• Reasonable and bona fide expenditure relating to promotion of products or services or the execution or performance of contract

CONSEQUENCES

• Incarceration – up to 5 years• Fines• Disgorgement of benefits• Debarment• Independent Monitors – Compliance

Programs• Employees, officers and directors may not be

indemnified• Successor liability• SEC / IRS issues

RISK AREAS

• Foreign business• High risk countries• Business contacts with entities in which relatives or

political associates of Government officials are employed or have an ownership interest

• Negative background information• High commissions / consulting payments• Cash payments• Convoluted payments

Other Issues

• Illegal for companies to pay bribes to officials, candidates or political parties

• Penalties can arise• Issue of cultural acceptance• Country’s definition of term “illegal”

Other Types of Corruption

– Profits (Marxism)– Individualism (Japan)– Rampant Consumerism (India)– Missionaries (China)

Ethics and International Management

What is/are ethics?◦The study of morality and standards of conduct”

How is ethical behavior defined?◦Regulations and accounting standards◦Codes of conduct◦Social norms

The challenge for international managers◦Standards vary from country to country◦Coordinating compliance can be burdensome

Major Ethical IssuesCorporate behavior◦Corruption and lobbying◦Fraud and misrepresentation◦Conflicts of interest

Hostile or discriminatory workplaces◦Unsafe workplaces◦Lack of respect for individual rights◦Discriminatory practices

The social impact of corporate behavior◦Market-distorting practices◦Social inequality◦Adverse environmental impacts

Ethical Issues Around the WorldJapan

◦ Payments to politicians for favorable treatment◦ Concealing customer complaints◦ Unequal status of women in the workplace◦ Encouraging employees to mislead government inspectors

Europe◦ Widespread acceptance of side payments (bribes) as a business cost◦ Discriminatory workplaces

China◦ Lack of workers rights◦ Use of prisoner and child labor◦ Weak intellectual property (IP) protections/enforcement◦ Counterfeiting, and industrial spying

Perceptions of Corruption

TI’s 2006 Global Corruption Barometer◦Most corrupt: Political parties and legislatures◦In the middle: the business sector◦Most trusted: religious bodies and non-governmental

organizations (NGOs)

Principles of the UN Global Compact

Anti-CorruptionPrinciple 10: Business should work against all forms of corruption, including extortion and bribery.

Countering CorruptionForeign Corrupt Practices Act (1977)◦Made it illegal for U.S. firms and their managers to attempt

to influence foreign officials through personal payments or political contributions

OECD Anti-Bribery Convention (1997)◦Commits signatories to passing domestic laws against

international corruption◦Establishes a monitoring mechanism◦37 signatories; laws adopted in 20 countries

UN Convention Against Corruption (2003)◦Came into force in December 2005◦140 signatories; 95 ratifications/accessions

Corruption and Culture

◦Corruption is linked to poverty

◦In countries that suffer from corruption, the problem is weak institutions

◦The vast majority of people in such countries are only victims of corruption