Corporate Corruption and Bribery

1
Corporate Corruption and Bribery

• The Foreign Corrupt Practices Act (FCPA)

2
Overview

• The Bribery of foreign officials by US
  corporations to influence decisions of foreign
  officials foreign political parties or
  candidates for political office is occurring with
  greater frequency
• Bribes are often given to ensure favorable
  actions by foreign governments
• Involving but not limited to the following
  industries
• Drugs and Health Care
• Oil and Gas Production/Services
• Food Products
• Aerospace Airlines and Air Services
• Chemicals

3
US Companies Involved in Overseas Bribery

• Dow Chemical
• Xerox (India)
• Tyco (Venezuela)
• Accenture (Middle East)
• IBM (South Korea)
• Monsanto
• Titan
• Enron
• Just to name a few

4
Not Just a US Problem

• May 1 2003 and April 30 2004 the global
  competition for contracts worth up to 18 billion
  may have been affected by bribes by foreign
  firms of foreign officials- Report from the US
  Department of Commerce
• A global survey by Price Waterhouse Coopers in
  2003 found that 49 of companies surveyed were
  required to offer or pay a bribe at least four
  times

5
The Detriments of Bribery

• Unethical- The payments of bribes conflicts with
  the moral expectations and values of US citizens
• Bad for Business- Bribery erodes publics
  confidence in the integrity of the free market.
  Bribery also gives those businesses with
  inefficient operations an unfair competitive
  advantage
• Unnecessary- We find in every industry where
  bribes have been revealed that companies of equal
  size are proclaiming that they see no need to
  engage in such practices Former SEC Chairman
  Roderick Hills
• Foreign Policy Problems- The disclosure of US
  bribes lowers the esteem for the US among foreign
  nationals embarrasses allied governments and
  suggests that US enterprises exert a corrupt
  influence on foreign political processes

6
The Foreign Corrupt Practices Act

• Enacted in 1977 to prevent the corporate bribery
  of foreign officials
• Prohibits both the US and foreign corporations
  and nationals from paying or offering anything of
  value to a foreign political party foreign
  government official candidate for foreign public
  office or an official of a public international
  organization in an attempt to obtain or retain
  business
• Main Parts
• Requires corporations to keep accurate books
  records and accounts
• Requires issuers registered with the Securities
  and Exchange Commission to maintain a responsible
  internal accounting control system
• Prohibits bribery by US corporations of foreign
  officials

7
History of FCPA Legislation

• -Consideration began during the 94th Congress
• -Based extensively on the Report on
  Questionable and Illegal Corporate Payments and
  Practices issued by the SEC May 12 1976
• Revealed the widespread practice of
  questionable corporate foreign payments
• -September 21 and 22 the Subcommittee on
  Consumer Protection and Finance held hearings on
  numerous bills that should to prohibit these
  payments
• HR 15481 HR 13870 HR 13953 S 3664
• due to end of session pressures the
  Subcommittee was unable to report prior to
  adjournment
• -Continued in the 95th Congress
• -April 20 and 21 1977
• focused on HR 1602 and HR 3815
• -Full committee reported the bill on September
  20 1977

8
Key Provisions

• Provide criminal penalties for US businesses
  found to use mail or interstate commerce
  corruptly in order to further an offer or
  payment of anything of value to a foreign
  official to influence the person in their
  decision making to obtain or retain business
• Prohibits the payment of money to any person by a
  business if the business knew that the payment
  was to be used to bribe a foreign official to
  influence business cooperation
• Requires companies with publicly traded stock in
  the US to practice required accounting books
  records internal controls
• Exclusions
• The definition of foreign official excludes
  foreign government employees whose duties are
  essentially ministerial or clerical
• The Act is not intended to cover grease
  payments (payments made to expedite shipments
  secure required permits obtain adequate police
  protection etc)
• Extortions of money by foreign officials may be
  used as defense against charges of bribery by a
  business if either its property or the lives of
  its employees are threatened
• Section 2 regarding the prohibition against
  certain payments to officials by registered
  companies was made to amend the Securities and
  Exchange act of 1934. The SEC is therefore to
  retain investigative jurisdiction over this
  matter due to their relatively easy access to
  reporting companies books and filings

9
Parties Involved

• Enforcement
• -Securities and Exchange Commission (SEC)
• -Justice Department
• US Corporations (Public and Private)
• -Bristol-Myers Exxon Mobil Daimler Chrysler
  IBM Halliburton Syncor Monsanto Titan etc
• Companies with stock publicly traded in the US

10
Increased Enforcement

• Due to recent increases in global mergers and
  acquisitions as well as increasing revelations of
  corporate bribery and corruption instances FCPA
  enforcement levels have reached record highs.
  The number of enforcement actions is likely to
  increase further in upcoming years as the US
  government shifts additional resources into this
  area

11
Criticisms

• Dissuades Export Trade- The grey areas that
  exist within the legislation regarding what is
  and is not permissible have led many corporations
  to cease foreign operations rather than face
  uncertainties
• Remove the Reason to Know Standard- Removing
  the standard concerning the liability for actions
  of a specific business agent while in a foreign
  country would eliminate the legal responsibility
  of the management of a domestic firm over the
  unauthorized actions of the agent
• Too Costly- The internal accounting controls
  mandated by the Act were too burdensome and
  costly on domestic firms. Failure to implement
  these controls made officials unnecessarily
  cautions
• Questionable Exports- In some nations acceptance
  of a fee of payment by a government official from
  a business is customary. If the US makes this
  payment illegal it appears that we are more
  concerned with exporting our cultural biases
  rather than our products
• Ambiguities- Defendants have been able to claim
  there is no prohibition of bribes intended to
  reduce customs duties or tax obligations

12
Are U.S. Companies Disadvantaged in World Trade
by the FCPA

• If US businesses are restricted from bribery
  while foreign businesses are not does this
  result in an major disadvantage for US businesses
  in global competition

13
International Anti-Corruption Agreements

• OECD
• Convention on Combating Bribery of Foreign Public
  Officials in International Business Transactions
• Adopted November 1 1997
• UN
• United Nations Convention Against Corruption
• Adopted September 29 2003
• WB
• Anti-Corruption Program (through good governance)

14
International Enforcement

• Lack of enforcement by OECD and UN
• Lack of compliance with the OECD conventions
  provisions continues to hinder corruption
  investigations and prosecutions.
• Transparency International
• OECD convention is the strongest international
  convention against corruption to date

15
Implementation

• Lack of or Partial Implementation by Domestic
  Governments
• Continued corruption in some OECD countries
• Lack of enforcement domestically
• Degree of Punishment possible

16
Status of Worldwide Corruption
17
Non-OECD Countries

• OECD convention only signed by the 37 members and
  5 non-members
• What about all the other non-OECD countries
• Incentives to companies to operate in non-OECD
  countries to escape FCPA restrictions
• Impacts of major new trading centers- Singapore
  China etc.

18
Policy Proposal

• Bi-lateral and Multi-lateral Agreements
• World Trade Organization (WTO)
• DSU offers some recourse for implementation
• Doha Agenda
• the topic of building an anti-corruption
  strategy more explicitly was raised (by
  Transparency International representative Eigen)
• Current issues facing the Doha Round

19
Conclusion

• Addressing bribery and with it its detrimental
  economic social and political effectscould
  further enhance the development opportunities and
  outcome.
• WTO Development Opportunities from Doha
• Corruption and bribery are trade distortions. To
  level the playing field it is necessary for all
  countries to cooperate to eliminate corruption.

20
Works Cited

• Congressional Research Service. CRS Report to
  Congress Foreign Corrupt Practices Act.
  http//www.fas.org/irp/crs/Crsfcpa.htm
• Organization for Economic Co-Operation and
  Development. The OECD Convention on Combating
  Bribery of Foreign Officials in International
  Business Transactions. http//www.oecd.org/documen
  t/20/02340en_2649_34859_2017813_1_1_1_100.html
• Transparency International. Corruption
  Perceptions Index 2007. http//www.transparency.or
  g/policy_research/surveys_indices/cpi/2007
• United Nations. United Nations Convention Against
  Corruption. http//www.unodc.org/pdf/crime/convent
  ion_corruption/signing/Convention-e.pdf
• United States Department of Justice. Foreign
  Corrupt Practices Act. http//www.usdoj.gov/crimin
  al/fraud/fcpa/
• World Bank. Governance and Anti-Corruption.
  http//web.worldbank.org/WBSITE/EXTERNAL/WBI/EXTWB
  IGOVANTCOR/0contentMDK20672500menuPK1740553p
  agePK64168445piPK64168309theSitePK174053000.
  html
• World Trade Organization. The Doha Development
  Agenda and Beyond. (April 29 2002).
  http//www.wto.org/english/tratop_e/dda_e/summary_
  report_dev_opport_doha.doc