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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
• OECD Convention on combating the bribery of
foreign public officials in international business
• 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
• The headquarters is located in Berlin, Germany
but operates through more than 70 national
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 bribeprone, while banking ranked the fourth leastcorrupt 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
– 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
• 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
• 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
• 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
• 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
• “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
Incarceration – up to 5 years
Disgorgement of benefits
Independent Monitors – Compliance
• Employees, officers and directors may not be
• Successor liability
• SEC / IRS issues
• 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 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 impacts
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
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
Principle 10: Business should work against
all forms of corruption, including extortion
and bribery.
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/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