No longer is this the case. While stricter anti-bribery oversight and enforcement has resulted in fewer companies offering payments in a country for preferential treatment, it has not curtailed the practice of corrupt government individuals asking for one. The payments typically are billed as “surcharges” and “commissions” to help companies mask skirting the law.
“Paying a bribe comes at a cost, but not paying a bribe also comes at a cost— in `lost’ contracts, slow licensing timeframes and other unnecessary delays and bureaucratic roadblocks,” says Montero. “Further incentivizing a bribe is the knowledge that a competitor will pay one and get away with it.”
He’s referring to companies in countries not signatory to the OECD’s Anti-Bribery Convention or bound by the FCPA and similar laws. Such companies, says Daniel Wagner, CEO of consultancy Country Risk Solutions, “not only are legally permitted to pay bribes, they’ll often receive a tax deduction for the amount paid, which puts their competitors at a distinct advantage.” Among countries permitting tax deductions for bribes showed to be a necessary part of a transaction are Austria, Belgium, France and Germany.
This preferential treatment is a “competitive injustice” to companies that will not stoop to paying a bribe, says Jim Nelson, president and COO of Parr Instrument Company, a manufacturer and global seller of chemical reactors and pressure vessels in 75 countries. “It hurts us financially and ticks me off personally when I find a competitor that’s not bound to the FCPA paying a bribe without a care in the world,” says Nelson.
“Bribery is a continual problem,” says Jon R. Tabor, chairman and CEO of Allied Mineral Products, a global manufacturer of monolithic refractory products for a myriad of industrial applications. The company has 12 manufacturing plants in eight countries, including China, India, Russia, Chile and Brazil, and a sales presence in more than 100 countries. “We’ve been asked and refused to pay bribes in Russia, China, India, and elsewhere,” Tabor says. “Once you start paying, you get a reputation for it and it never stops.”
Davidson agrees. “You pay just one person and the word gets out, and now you’re expected to pay everyone,” he says. “It’s like quicksand—you put your foot into it, and it gradually sucks you in.”
Why do companies risk their reputations in committing these crimes? They figure they’ll get away with it, says Montero. “In my research, I discovered that only about 20 percent of companies [that engage in bribery] ever get caught,” he says. “While the fines may look astronomical, they’re miniscule relative to the value of selling in an overseas market.”
The good news is that fewer companies are taking the risk. “The fines are an impediment, but it’s really the risk of imprisonment and disbarment from a country [to procure business in the future] that are starting to make a positive difference,” says Patrick Moulette, head of the anti-corruption division of the OECD’s Directorate for Financial and Enterprise Affairs.
Since the OECD Anti-Bribery Convention entered in force in 1999, 560 individuals and 184 business entities have received criminal sanctions for foreign bribery. At least 125 of these individuals were sentenced to prison, with 11 of them receiving five-year terms. At present, more than 155 criminal proceedings are underway against 146 individuals and nine businesses.
Refusing to pay a bribe does not always mean a company will face hurdles getting its products into a foreign region. In countries like India, where the asking of small bribes by low-level customs agents is common to get goods off a dock and into commerce, not paying the bribe stalls the proceedings temporarily. “It doesn’t mean you can’t transact business in the country; it just means it will take a bit longer,” says Bill Pollard, a partner at Deloitte Risk and Financial Advisory, who specializes in anti-bribery due diligence and post-bribery detection.
Blowing the whistle on a government employee who asks for a payment doesn’t necessarily speed up the delay. Davidson recalls once being asked for a kickback by a customs agent. “I went over the person to his superior and told him what happened,” he says. “Two days later, I got a call from the same customs agent. He doubled the payment. That told me people up the chain were getting a percentage.”
Despite the prevalence of such practices, beyond a peek at an organization’s anti-bribery policies, board members rarely are apprised of what is going on in the trenches. “Board members need to be confident that not only is a robust program in place, but that it is effective and embedded throughout the organization and particularly in high-risk regions,” warns Passman.
Montero agrees, pointing out that directors must balance their interests in growing business abroad and maintaining the commitment to ethical practices. “Board members should realize that some markets are simply so corrupt that bribery cannot be avoided; in such cases, they should walk away and concentrate on those segments where the company can both thrive and adhere to sound compliance,” he says.