Global Landscape: Anti-Bribery Legislation in The Developing World

by Danielle Collazo, Featured Contributor

 The global business process landscape is not as fortuitous as it once was for MNCs.  The Foreign Corrupt Practices Act (FCPA) was established to eliminate the facilitation of foreign corrprivate_sectoruption and to ensure accurate accounting practices among corporations in 1977, though enforcement has significantly ramped up in recent years.  In 2010, the UK instated the UK Bribery Act of 2011, which shares the same end goal as the FCPA, though the two doctrines have some notable differences.  Each doctrine was executed with the objective of eliminating bribery and corruption; on the other hand, the FCPA and UK Bribery Act add new hurdles to entering or retaining business in markets that promote corrupt business practices.

Comparison of FCPA and UK Bribery Act

UK Bribery Act

  • Adequate procedure defense protects executives from bearing the responsibility of a lower-level employee’s breach of the law so long as adequate procedures that make all employees aware of anti-bribery laws are in place
  • Has no affirmative defense for “bona fide expenditure” related to enticing clients
  • Outlaws bribing or accepting bribes to/from anyone to encourage improper behavior
  • Uncapped fines.

FCPA

  • Adequate procedures defense is not recognized, but allows for defense of “bona fide expenditure”
  • Acts of non-compliance abroad are grounds for sentencing executives to jail time in the U.S.
  • Prohibits the act of bribing foreign officials with “anything of value,” but does not cover accepting bribes
  • FCPA narrows its legislation to bribes with the intention of obtaining/keeping business, as opposed to generally improper behavior
  • Capped fines.

Should adequate procedures be added to the FCPA?

I do not think the adequate procedures amendment is necessary.  Since the FCPA scope is limited to bribing foreign officials, it seems highly unlikely that a low-level employee would have the resources to offer large payments to foreign officials.  The employee would have to request the funding from either the company or an individual source.  As long as a solid oversight/audit team is in place, which it should be, such a request would be investigated and/or denied.  The plausibility of an average employee having motive to pay a lump sum of money out-of-pocket to a government official to make a small commission on a sale is unlikely.  Therefore, if bribery by a mid-level sales professional was discovered, it is reasonable that they did not act alone and management was responsible for deriving the scheme.  With an adequate procedures amendment, mid-level personnel have the potential to become a loophole and serve as “runners” for corporate bribery, making the FCPA ineffective.

Impacts of Anti-bribery Legislation

The obvious choice at first glance is to go down the righteous path of corporate compliance.  However, the long-term effects of this could play out unfavorably for developing economies and constrain worldwide economic growth.  While preventing bribery is of course important, the affects that a mass exit of MNCs would have on a region include community deterioration, increasing the power of corrupt leaders, and isolation from the developed world.

An article in the Economic Times, Strict anti-bribery laws in US, UK making foreign companies less competitive in India, detailed that MNCs are put in a difficult position when they must decide between engaging in acts of bribery or adhering to the laws of anti-bribery acts.  The number of DoJ/SEC cases related to FCPA compliance doubled between 2008 and 2012, with one of the most notorious cases involving seven executives from Siemens AG when the corporation was required to pay $1.6 billion in a 2011 settlement (for details see here:  http://www.sec.gov/news/press/2011/2011-263.htm).

The article quotes Rohit Mahajan, senior director for Deloitte Touche Tohmatsu, stating that “global retailers are known for opening and running retail stores but despite competitiveness in doing so, they are not able to open stores due to those licenses… that is why a lot of the (foreign) corporates are struggling in India.”

When MNCs establish franchises in new regions, jobs are created, local shops are supported by corporate employees, and the corporation is able to invest in infrastructure and social improvement programs in the area (e.g., fund a new public bus line, fund local non-profit events).  Additionally, MNCs may choose to support local businesses by carrying their products in their stores or acquiring promising businesses.  However, domestic competition puts MNCs in an unfavorable competitive position, as the playing field is tilted in favor of those who have the freedom to engage in unethical business activity when government officials request it in select high-growth developing regions (e.g., South Africa, Mexico).  If MNCs see continuous attrition, the logical next step would be to exit that country market.  While domestic competitors may be able to win tenders through bribes, these smaller domestic companies are no substitute for the plethora of resources corporations bring to the country, enabling impactful CSR programs.

I think the outcome of MNC and domestic competition will be determined by the extent to which government officials value compliance and ethical business.  Country leaders may continue to promote unethical business practices and support domestic competitors that would have limited opportunities at flourishing in an ethical business world, which would put citizens at a severe disadvantage in terms of job opportunities and deter foreign investments in unstable markets.  The other option, which may not be seen as the better choice until the first is exhausted is for country leaders to realize that disallowing bribery could entice MNCs to establish operations in the region, while also stabilizing the markets which would draw in foreign investments, making domestic and foreign competition fair. However, according to Dr. Shane Creel “a move along those lines would require a cultural shift to occur within the host country’ (personal communications, December 3,2013). While countries like China are making a clear effort to shift away from bribery-based business, it is yet to be seen whether in the long run Westernized laws will triumph over centuries of corrupt political leaders.


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Danielle Collazo
DANIELLE is a Biotech consulting industry professional with a passion for business integrity and compliance. She currently supports the CEO of a boutique biotech consulting firm in company operations, training, and market research. Danielle graduated with a Master's in Business Ethics and Compliance (GPA: 3.94) from New England College of Business in 2013 and attained My BA in Communications from SUNY Albany in 2009. Her areas of specialty are strategy, problem solving, implementing contingency/remediation solutions, and strategies to create a compliant corporate culture. She grew up on Long Island and currently lives in the greater Boston area.
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