1970s bribery became a national issue with public disclosure of political payoffs to foreign recipients by US 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 ID: 679890
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Slide1
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)Slide2
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.Slide3
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
.Slide4
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."Slide5
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.Slide6
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.Slide7
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
.Slide8
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.Slide9
How Much?
The Economist
estimates that
corruption may be measured at approximately $9 trillion per year. Slide10
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 i
ncludes
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
protectedSlide11
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.Slide12
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.Slide13
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. Slide14
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 contractSlide15
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 issuesSlide16
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 paymentsSlide17
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”Slide18
Other Types of Corruption
Profits (Marxism)
Individualism (Japan)
Rampant Consumerism (India)
Missionaries (China)Slide19
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 burdensomeSlide20
Major Ethical Issues
Corporate 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 impactsSlide21
Ethical Issues Around the World
Japan
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 Slide22
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)Slide23
Principles of the UN Global Compact
Anti-Corruption
Principle 10: Business should work against all forms of corruption, including extortion and bribery.Slide24
Countering Corruption
Foreign 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/accessionsSlide25
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