Publication: Financial Times Issued: Date: 2007-04-05 Reporter: Patti Waldmeir

Bribery is Not Just a Cost of Doing Business

 

Publication  Financial Times
Date

2007-04-05

Reporter

 Patti Waldmeir

 

For decades, bribery has been just another cost of doing business in much of the world. But now, the US government is trying to alter the economics of global corruption.

Since the dawn of the modern era, costly hookers and extravagant shopping sprees have been a staple of international commerce. Bureaucrats' wives have received pedicures and facials, party officials have scored villas and love nests; it all seemed a cheap price to pay for a lucrative slice of a third world market.

And for 30 years, it has all been illegal, under a 1977 US law, the Foreign Corrupt Practices Act (FCPA), which covers every company that is US-based, US-listed or does business in the US - including foreign companies that do no more than issue their stock in America.

Suddenly, many more companies are realising that they ignore this law at their peril. More companies are facing costly investigations for overseas bribery - and finding that what, in their fathers' generation, might have seemed like harmless acts of foreign palm-greasing, today can cost them millions.

Legal experts agree that those charged with enforcing this law - the US Department of Justice and the Securities and Exchange Commission - have stepped up their scrutiny of such practices in recent years. As the Financial Times reported last week, twice as many new overseas bribery investigations were launched last year as in the previous year. And compared with the end of the previous decade, the atmosphere is incomparably tougher: from 1995 to 2000, the DoJ averaged fewer than one completed investigation a year.

The cost of being caught has risen too: earlier this year, three subsidiaries of Vetco, a British oil and gas provider, paid $26m for the privilege of paying $2.1m in bribes to Nigerian officials. And as the Vetco case suggests, it is not only American companies that need fear the long arm of this law: whether it is UK companies bribing Africans, or Americans bribing Chinese or Norwegians paying off Iranians, the penalties are stiff. Washington wants to make sure that everyone within the reach of this law - including distant foreign subsidiaries of companies that list on US markets - understands the risks of being naughty abroad.

At a time when all the financial gurus are spouting off about the costs of complying with Sarbanes-Oxley and warning that an over-cautious US enforcement environment is hampering the competitiveness of US markets, the cost of regulatory compliance with US anti-bribery laws is also placing a burden on US companies.

Not surprisingly, this renewed focus on US anti-corruption law has scarcely turned everyone who does business overseas into an altar boy overnight. In many parts of the world, government officials still expect to share in the largesse: if American companies and their agents will not grease the appropriate palms, foreign companies are willing and able to do so.

Many foreign companies are flouting their domestic law in engaging in such activities: it is not just America that, officially, disfavours bribery. Corruption is out of favour worldwide.

The Organisation for Economic Co-operation and Development (OECD) and the United Nations have passed anti-bribery measures in recent years: providing free pedicures and subsidised love-nests in return for commercial favours is illegal for many companies that do business in the civilised world. Even France, which used to sanction foreign bribes by making overseas bribery tax-deductible, no longer approves of such activity, at least officially.

Does that mean corruption has been banished from the face of the earth? Hardly.

Has the statute had a deterrent effect? The number of cases we are seeing suggests that the answer is no: people are more sophisticated in the way they structure their illicit payments," says Claudius Sokenu, a partner at the law firm Mayer, Brown, Rowe & Maw and former senior counsel to the enforcement division at the Securities and Exchange Commission.

"People no longer go around with a brown paper bag full of money openly paying bribes." They have become "more creative" about how they pay the costs of doing business overseas, he says.

Nothing wrecks a perfectly decent and potentially rich country like official corruption: bribery and greed are the scourge of all the new world players, from South Africa to China. But US companies represent only one fetid drop in the sordid bucket of public corruption worldwide.

We puritanical Americans have done our part to clean up democracies overseas - on the grounds that bribery is bad for free markets, investor confidence and democracy worldwide. Now it is time for the rest of the world to put their law enforcement where their values are: Americans merely disadvantage their companies (and a few unlucky foreigners) by prosecuting them for overseas corruption.

If the world thinks bribery is bad - as it manifestly does, at least at an official level - now is the time to say so, not just by making laws against it, but by prosecuting the offenders *1.

With acknowledgements to Patti Waldmeir and The Financial Times.


*1       Without fear or favour, whoever they are, big fish or little fish.