Just Say No

Spring 2013

"Just Say No"
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If only fighting bribery were that simple.

By Vadim Liberman

Just Say No

Vadim Liberman is senior editor of TCB Review. His ethics are beyond reproach.

An electricity company demands a "special charge" for connection to the grid. Customs delays goods, pending an "expedition tariff." An agent offers proprietary bid-evaluation criteria for a "consulting fee." A police officer imposes a "tax" to cross the border. A "consultant" volunteers to help reinstate mysteriously stalled client payments.

No argument: Bribery—that is, offering, promising, giving, authorizing, or accepting any undue cash or other benefits in connection to obtaining work or other improper advantages—belongs nowhere in business. Yet it's everywhere. The incessant threat—the opportunity—of bribery (or extortion, depending on who's asking) means that you must be ready when, not if, faced with shadowy business people or "businesspeople."

"The allure of bribery is built into our DNA, and many people under stress are tempted to go for shortcuts. If you can outsmart the competition, it's almost irresistible, especially as the rule of law lags behind," explains Georg Kell, executive director of the U.N. Global Compact, which aligns the work of businesses with the United Nations. In today's hyper-caffeinated marketplace, with fewer new latitudes to conquer and little latitude for error, you can empathize with anyone—that's everyone—scrambling not to fail.

Sure, some employees look to pack their own pockets, but most bribe for the perceived good of the organization. "There's often a belief, especially by foreign nationals working for U.S. companies, that if you're advancing corporate interests using company money, you're being a good employee," says Mike Koehler, assistant professor at Southern Illinois University School of Law and author of the FCPA Professor blog. Indeed, 15 percent of surveyed CFOs worldwide admit they're willing to pay cash to win or retain business, according to a recent Ernst & Young study.

"People convince themselves that bribery is appropriate to solve short-term business problems," explains Toby Bishop, director of the Deloitte Forensic Center. "Unfortunately, white-collar crimes rationalized in this fashion lead to penalties far worse than failing to make a sale."

no4Look, you know bribery is wrong. Just say no to it. But if a first lady couldn't persuade children to keep off the grass with such jejune advice, stringing together words in a corporate handbook surely won't convince businesspeople, especially when they believe they're acting for the good of the company and competing on uneven ground, against competition that doesn't follow the same rules.

Ultimately, you want to do the right thing, but is it right to jeopardize millions of dollars and thousands of jobs so you can hold your head up high? Or too high in the clouds? "It's naïve to say, 'Just don't bribe,'" Koehler says. "We're talking about conduct throughout the entirety of human history." For just as long, people have wrestled with ending the never-ending dirty business of bribery. In the meantime, it's worth pondering your organization's role in the cleanup.

Forget the Suitcase

About 69 percent of compliance officers say their companies are highly or moderately exposed to bribery, according to risk-management consultancy Kroll. (The rest are probably naïve.) Furthermore, the World Bank estimates that last year $1 trillion were paid in bribes, and observers say that corruption adds up to 10 percent of the total cost of doing business globally. Bribery's tentacles poison every industry, especially public works and construction, utilities, real estate, oil and gas, and mining. Likewise, bribery particularly taints procurement, bidding, sales, establishing presence in new markets, and licensing.

Nowadays, you can't leaf through an issue of Bloomberg Businessweek without encountering some company in some country in some scandal—most recently the Las Vegas Sands Corp., which in March acknowledged committing "likely violations" of the Foreign Corrupt Practices Act. The New York Times' massive "Wal-Mart Abroad" series last year resulted in investigations by the SEC, Justice Department, and the Mexican government. Technology, social media, globalization, highly interested interest groups, and a vigilant media have placed bribery under a microscope—and a telescope. "What in the past might have been a minor embarrassment in a remote subsidiary now becomes highly visible," says Deloitte's Toby Bishop.

The economically unscrupulous companies that bribe their way into markets don't have to worry about quality since they can bribe around quality controls, which hurts everyone.

With more big brothers and big everyone scrutinizing every dollar changing hands, it's become harder to camouflage behaviorsyet never before have there existed so many ways to do so. Suitcases stuffed with cash are for amateurs. "Today, bribery is much less brazen than a decade ago," suggests Alexandra Wrage, president of TRACE International, an anti-bribery nonprofit. "In the past, I'd be in fairly opaque countries where people would blatantly negotiate bribes in restaurants. Now, they're more covert. Also, when you don't know if the other person is open to the idea of bribery, you have to dance around the issue more and use gentle language that you can back away from."

Modern schemes use offshore accounts, shell companies, trumped-up subcontractors, inflated contract terms, and odd commission structures. In particular, the outsourcing of bribery to third partiesadvisers, consultants, subcontractors, business partners (feel free to add quotes around each of these)makes bribery harder to detect and easier to accomplish. Indeed, 52 percent of executives say that the use of intermediaries creates a significant risk for corruption, according to a Deloitte study. Furthermore, 43 percent say managing such relationships is a significant challenge for them.

"It's very easy now to send large amounts of money to the other side of the world using intermediaries so that tracing this becomes very difficult," explains Patrick Moulette, head of the anti-corruption division at the Organization for Economic Cooperation and Development. For example, "during a bidding process, a government official with corrupt intent may express an interest in your company as a target for being a supplier of a bribe and suggest that you retain a specific consultant as a business partner. That can be code for, 'You hire that consultant so that some of that fee is funneled back to me and you will win the contract,'" says Glenn Ware, a principal at PricewaterhouseCoopers. Similarly, paying lobbyists to arrange meetings with public figures or hiring agents to liaise with local authorities can disguise underlying corruption and distance bribers from final recipients.

As if bribery weren't enough of a gamble, in China, one real-estate developer organized high-stakes poker games between government officials and professional players he hired to represent him. He allowed officials to play on credit and instructed the poker players to lose as a means of transferring his money to the officials.

It's a positive sign that bribers must now resort to creative card tricksmore aggressive legal enforcement has left little room to hide under the table. But let's face it: Prominent scandals teach some bystanders not to reject bribery but to do it more surreptitiously. The offense lies not in the bribe but being stupid (or unlucky) enough to get caught.

The reality may even be that more people get away with bribery than don't. With such odds, isn't bribery just good business?

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The Conference Board Review is the quarterly magazine of The Conference Board, the world's preeminent business membership and research organization. Founded in 1976, TCB Review is a magazine of ideas and opinion that raises tough questions about leading-edge issues at the intersection of business and society.