Western Focus on Bribery

Before the Enron and WorldCom crises to most Americans the word corruption meant bribery. Now in the domestic context fraud has moved to the more prominent spot in the headlines. However, during the 1970s for US companies engaged in international markets, bribery became a national issue with public disclosure of political payoffs to foreign recipients by US firms. At the time, the United States had no laws against paying bribes in foreign countries. But for publicity held corporations, the Securities and Exchange Commission’s (SEC) rules required accurate public reporting of all expenditures. Because the payoffs were not properly disclosed, many executives were faced with charges of violating SEC regulations.

The issue took on proportions greater than that of nondisclosure because it focused national attention on the basic question of ethics. The business community’s defense was that payoffs were way of life throughout the world: If you didn’t pay bribes, you didn’t do business. Consider this situation circa 1978:

Suppose your company makes large, high priced generators for power plants and a foreign official promises you a big order if you slip a million dollars into her Swiss bank account. If you are an American and you agree, you have committed a felony and face up to five years in prison. If you are German, Dutch, French, or Japanese, among others, you have merely booked another corporate tax deduction – the value of the bribe and you have the contract as well. In fact, French tax authorities actually have a sliding scale of acceptable commissions paid to win business in different countries. The Asian deduction is 15 percent, although that drops to between 8 percent and 11 percent in India, where apparently it costs less to buy officials. It is important to note that bribes usually violate the laws in the countries here the bribery takes place. In countries where bribes can be deducted as a business expenses, the laws clearly state they apply only to transactions outside that country.

The decision to pay bribe creates a major conflict between hat is ethical and proper and what is profitable and sometimes necessary for business. Many global competitors perceive payoffs as a necessary means of accomplishing business goals. A major complaint of US businesses was that other countries did not have legislation as restrictive as does the United States. The US advocacy of global anti-bribery laws has led to an accord by the member nations of the Organization for Economic Cooperation and Development (OECD) to force their companies to follow use similar to those that bind US firms. To date 33 of the world’s largest trading nations, including the United States have signed the OECD Convention on combating the bribery of foreign public officials in international business transactions. In Latin America, the organization of America states (OAS) has taken a global lead in ratifying an agreement against corruption. Long considered almost a way of business life, bribery and other forms of corruptions now have been criminalized.

Leaders of the region realize that democracy depends on the confidence the people have in the integrity of their government, and that corruption undermines economic liberalization. The actions of the OAS coupled with those of the OECD will obligate a majority of the world’s trading nations to maintain a higher standard of ethical behavior than has existed before. Unfortunately India, China and other Asian and African countries are not members of either organization. The actions of the OECD and OAS reflect the growing concern among most trading countries regarding the need to bring corruption under control. International business people often justify their actions in paying bribes and corrupting officials as necessary because corruption is part of their culture, failing to appreciate that it takes two to tango – a bribe giver and a bribe taker.