Corruption views and enforcement are changing throughout the world.

Paying bribes to public officials to secure business has been so common in some countries, that the word bribe itself has developed some interesting connotations. In Japanese, the word for bribe is kuroikiri, which means black mist. In German, the word is schmiergeld, or grease monkey. In Italian, it’s busterella, or little envelope, and in the Middle East a bribe is referred to as baksheesh, or tip. This isn’t to say that it was legal in these countries and regions to bribe public officials; these countries and region are committed signatories to the OECD’s Anti-Bribery Convention and/or the United Nations Convention against Corruption.

Indeed, most countries in the world have passed regulations or signed on to supranational conventions for combating corruption. In some cases, commitments to enforcement have seemed noticeably weak and this should be expected. Corrupt practices have been a way of life in many countries and old habits always die hard. This is especially true when sources of income are threatened. However, changes are taking place.


 

U.S. puts the FCPA to work

The U.S. is leading the enforcement pack. In 2008, the claim that the Foreign Corrupt Practices Act (FCPA) was a toothless regulation was dispelled when the German government worked with the U.S. to prosecute German giant Siemens AG. Siemens was required to pay $1.6 billion in fines and other settlement fees for violations of FCPA. The investigation and outcomes placed a serious tarnish on this once lily-white brand.

Obama’s Attorney General Eric Holder said that battling corruption was one of the highest priorities of the Department of Justice (DOJ), and this focus is already showing tangible results. In 2009 and 2010, big companies like Avery Dennison, Daimler AG, BAE Systems, Avon, UT Starcom, and Lucent Technologies were all being investigated for violating the FCPA. At last count, the DOJ was investigating over 150 FCPA cases versus eight in 2001.

In January of this year, the FBI arrested twenty-one people at a Las Vegas trade show in the first-ever FCPA sting operation. In April, a Virginia businessman was given the longest prison sentence ever imposed for violating the FCPA. He was given an 87-month sentence for paying $214,000 in bribes to Panamanian officials to secure maritime contracts. His record may not stand for long. There are more than two-dozen business executives currently awaiting sentencing for FCPA violations. In another new twist, one that is not covered in the FCPA statute, the DOJ has been making extradition requests to foreign officials who have been the recipients of bribes. The targeting of bribe receivers in addition to givers is a significant development. It’s equivalent to the addict no longer being innocent.

Most recently, in July, Technip a Paris-based company, agreed to pay a total of $330 million dollars in criminal and civil penalties for violating the FCPA. They were snagged by U.S. authorities because they partnered with a subsidiary of U.S.-based Halliburton and other U.S.-based firms and they offered bribes to Nigerian officials to win contracts for building liquefied natural gas plants. At Technip, it was not their Paris-based CEO that was sentenced for this crime, but rather the CEO of another a U.S.-based joint venture partner. He probably thought that there was no hope of securing this contract without making the customary payments, and he may have been reasonably confidant that his actions, if discovered, would have been condoned. He is currently awaiting sentencing. Halliburton will also be paying $579 million in criminal and civil penalties. This case is a good reminder of how joint venture partners are not ‘arms length’ partners, and that the views and tolerance for corruption are changing.

In the Technip case, the U.S.-based CEO that awaits sentencing did admit to facilitating the payment of bribes, but it is not just the facilitators that are being held accountable anymore. In the Siemens AG case, for instance, executives and one board member were given prison sentences and the CEO was forced to step down. Finally, what is being prosecuted has changed too. It is not just the giving of obvious bribes. Officials are also investigating gifts and lavish entertainment, which clearly has the potential to dramatically increase the number of investigations. The giving of gifts and lavish entertainment has long been considered business as usual in many countries. And, no doubt there will be many cases moving forward where the question of what constitutes a gesture of appreciation and what constitutes bribery is tested.




 

Canada makes its move

The Canadians have finally joined the anti-corruption enforcement party, too. In July, Canada made history when it charged an individual with allegedly bribing an Indian official (Canada enacted its Corruption of Foreign Public Officials Act in 1999). This businessman probably thought that in India this was the only way he could secure a contract and the practice so common that it would be condoned. 

For its part, the UK has traditionally been an enforcer of anti-corruption, but they have also strengthened their stance. They don’t want to be viewed as tolerant of corruption and they also believe that a strong stance on bribery will make them more persuasive when trying to influence developing countries of the need to stamp out bribery in their countries. Earlier this year, the UK enacted the Bribery Act of 2010. The Act replaces the UK’s antiquated law for dealing with bribery, which was difficult to apply and consequently to prosecute. In it, they have instituted measures that hold corporations liable if they fail to prevent bribery, and similar to the U.S., they are prosecuting those that give or receive bribes.

The focus on givers and receivers introduces the reality of double jeopardy. This is because a U.S. or UK company with operations in another country, such as China, can run afoul of anti-bribery regulations in both China and the U.S. or China and the UK. Triple jeopardy is a possibility too, if a U.S. and UK joint venture are involved in corrupt practices in China. Alleged violators can rest assured that if they are acquitted in the U.S. this will have no effect on prosecutions in the UK or China. They should also consider that in some countries, like the UK and the U.S., there is a presumption of innocence, which is not shared in many other countries even when the accused is represented with the finest lawyers launching a brilliant legal defense.   

There is an adage in business that you get what you measure. In June, the OECD published the first official data on the enforcement efforts of the thirty-eight signatories to the OECD Anti-Bribery Convention. The data illuminates both the increased enforcement efforts in some countries, the lack of enforcement in others, and great variations in rates of convictions and acquittals. It can be seen that individuals are being prosecuted more frequently than legal entities or the companies that employ them. It also indicates that active-enforcer Germany has a high rate of acquittal, but active-enforcers Italy, Korea, Japan, and Hungary have very low acquittal rates. 




 

Enforcement in China

China, a non-signatory to the OECD’s Anti-bribery Convention, has been stepping up its efforts as well. Corruption is so pervasive in China that it has been alleged to be behind significant public safety disasters and the collapse of financial institutions. Before the Internet, it was easy for officials to hide or paper over the true causes that caused these calamities, but not now. Even in Internet-censored China, it is impossible for the officials to control the mega volumes of information that are streaming through the Internet. 

In 2009, China instituted a nationwide whistle blowers corruption hotline. Beijing also amended their anti-corruption provisions by extending liability to the relatives of public officials. The latter is to clamp down on domestic corruption, but they have also demonstrated that they have no fear of going after western companies and they have no fear of publicizing these measures either. As evidence, an Australian mining executive from Rio Tinto was recently sentenced to a ten-year prison sentence in China for taking bribes and infringing commercial secrets. This executive was probably astounded to be held criminally accountable for what he knew to be an ordinary business practice, even if it was illegal.

In 2009, China ranked 79 out of 180 countries on Transparency International’s corruption index. By American standards this is rampant corruption. So then, what happened here? Has China decided that it too wants to be a stringent prosecutor of corruption to demonstrate that it is aligned with some of its larger trading partners when it comes to clamping down on corruption? Or, was this jail sentence a warning that in some countries selective enforcement is alive and well? Was it possibly influenced by Rio Tinto spurning a proposed investment by Chinalco, a Chinese company? Is it possible that this action could have been influenced by China’s intense negotiations with Rio Tinto over the price of iron ore that were not particularly pleasing to China? Another theory says that China was retaliating against the Rio Tinto executive because he had given up his Chinese citizenship to become an Australian. It’s really hard to tell what exactly happened, yet it serves as a good lesson for every business person today. It’s one thing to be fully informed of the regulatory environments of host countries; it’s another to understand how politics, history, local preferences and social cultural influences can affect how laws are applied. It’s also important for business people to realize that toothless regulations can gain teeth at any moment, and they can bite down at anytime and on anyone.  wt



Kathleen Brush has her Ph.D. in management and international studies. She is the author of Leadership=Motivation=Productivity=Innovation: Get ready for the latest global business challenges.