A Traveler’s Guide to Gifts and Bribes
Prepared by Edward Branham in partial fulfillment of the requirements of
Financial Management Policy, BUS 5840
Florida Technical Institute 10 May 2015
Cultural traditions involving contracts and business relationship in foreign countries may appear to one raised in the United States as borderline, or blatant violations of ethical and legal codes such as the Foreign Corrupt Practices Act (FCPA). Bribery has been such an entrenched way of life in some cultures for so long, that there are slang terms: ‘mordida’ in Mexico, ‘baksheesh’ in some Arab countries, and so on. This may become a problem for U.S. managers working in foreign countries in several ways. This paper outlines the major provisions of the FCPA, explores some competitive and cultural implications of the Act, and provides some strategies for cooperating with local realities while not violating the FCPA.
First, we will explore some of the major provisions of the FCPA. According to the U.S. Securities and Exchange Commission website (2015), there are three major points to the Act:
a) Applicability: The Foreign Corrupt Practices Act (FCPA), enacted in 1977, generally prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business. The FCPA can apply to prohibited conduct anywhere in the world and extends to publicly traded companies and their officers, directors, employees, stockholders, and agents. Agents can include third party agents, consultants, distributors, joint-venture partners, and others.
b) Record Keeping: The FCPA also requires issuers to maintain accurate books and records and have a system of internal controls sufficient to, among other things, provide reasonable assurances that transactions are executed and assets are accessed and accounted for in accordance with management's authorization.
c) Enforcement: The sanctions for FCPA violations can be significant. The SEC may bring civil enforcement actions against issuers and their officers, directors, employees, stockholders, and agents for violations of the anti-bribery or accounting provisions of the FCPA. Companies and individuals that have committed violations of the FCPA may have to disgorge their ill-gotten gains plus pay prejudgment interest and substantial civil penalties. Companies may also be subject to oversight by an independent consultant.
Fadiman (1986) explains that the FCPA does not prohibit a number of types of payments. For instance, one may pay a government official what is called ‘grease’, something to convince the official to perform their normal duty. The line between what constitutes a bribe grease depends on the country, business culture, and context. According to Wagner & Disparte (2012), for the U.S. government to attempt to apply America's definition of what constitutes acceptable business behavior - in America - in a one-size-fits-all approach to doing business abroad makes little sense in a world where no single standard effectively applies -- to anything, and it runs counter to the government's stated objective of making American business more globally competitive.
IMPACT TO U.S. BUSINESS COMPETITIVENESS
The Foreign Corrupt Practices Act appears to create a competitive disadvantage for U.S. firms in a number of ways. Here are a few examples:
a) Wagner & Disparte (2012), point out that many countries do not place FCPA type requirements on their business, and in some countries bribes are even tax deductible. This first places a U.S. company at a disadvantage in getting a competitive piece of business by not allowing similar influence to be bought. Then it reduces the cost and profitability impact on the company paying the bribe. If the government was not subsidizing the bribe in this manner, the company may not be as ready to pay the bribe, or to pay as significant an amount.
b) The FCPA has a tendency to lock U.S. businesses out of