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Ethics in International Business

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See the Multimedia activity on Ethics in International Business. Then read the case study about Geletx and Jed's concerns about the office in Lima, Peru. Research the Foreign Corrupt Practices Act (FCPA) and then discuss whether this situation would be a violation of FAPA. Does this office violate the FCPA? Support your answer.

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In the Lima, Peru, office, Jed, in reviewing financial records, discovered that the commission's expense for the branch is unusually high. Geletex pays its salespeople commissions for each commercial customer they recruit for cellular or long-distance services. Jed knows from experience that some companies pay unusually high sales commissions to disguise the fact that salespeople are paying kickbacks in exchange for contracts. In the United States, such payments would be commercial bribery and a violation of Geletex's code of ethics. When Jed confronted the Lima, Peru, district manager and questioned him about the high commissions, he responded, "Look, things are different down here. We've got a job to do. If the company wants results, we've got to get things moving any way we can.

Does this office violate the FCPA? Support your answer.

The Foreign Corrupt Practices Act forbids American companies to pay anything of value to a foreign official in exchange for a ''result.'' The recent entry into force of the OECD Anti-Bribery Agreement further emphasizes the priority the international community has placed on corruption reform (http://www.commercialdiplomacy.org/ma_projects/ma_vergara.htm). Further, U.S. companies-including those that control foreign subsidiaries and foreign companies that do any business in the United States or whose shares are traded on US exchanges-are also subject to FCPA and should therefore seek to implement a comprehensive FCPA compliance program and seek to apply that program to their subsidiaries. This is because these types of business entities are subject to the FCPA. (http://www.lorman.com/newsletters/article.php?article_id=553&newsletter_id=120&category_id=8)

Therefore, in order for the Lima, Peru, office to be in violation of FCPA it would have to had bribed a government official to obtain or retain business and have a business status that fits with any of the above criteria-a U.S. company-or those that control foreign subsidiaries and foreign companies that do any business in the United States or whose shares are traded on US exchanges? and it would have had to bribe a government official to obtain or retain business. Therefore, only if the Lima, Peru, office, bribed government officials to obtain or retain business, would it be in violation of FCPA.

In fact, there are five elements that must be met to constitute a violation of the Act by Lima office, including the following:

A. Who -- The FCPA potentially applies to any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm. Individuals and firms may also be penalized if they order, authorize, or assist someone else to violate the antibribery provisions or if they conspire to violate those provisions.
Under the FCPA, U.S. jurisdiction over corrupt payments to foreign officials depends upon whether the violator is an "issuer," a &"domestic concern," or a foreign national or business.

An "issuer" is a corporation that has issued securities that have been registered in the United States or who is required to file periodic reports with the SEC. A "domestic concern" is any individual who is a citizen, national, or resident of the United States, or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States, or a territory, possession, or commonwealth of the United States. Issuers and domestic concerns may be held liable under the FCPA under either territorial or nationality jurisdiction principles. For acts taken within the territory of the United States, issuers and domestic concerns are liable if they take an act in furtherance of a corrupt payment to a foreign official using the U.S. mails or other means or instrumentalities of interstate commerce. Such means or instrumentalities include telephone calls, facsimile transmissions, wire transfers, and interstate or international travel. In addition, issuers and domestic concerns may be held liable for any act in furtherance of a corrupt payment taken outside the United States. Thus, a U.S. company or national may be held liable for a ...

Solution Summary

Based on the scenario, this solution explains if this office violates the Foreign Corrupt Practices Act (FCPA). Research validated.

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