Bribery for Business

Cracking Down on Bribery for Business

On January 19, 2007, the managers of seven multinational corporations operating in China received some bad news: the Shanghai police announced the rest of 22 business people on suspicion of bribery.

Shady deals are nothing new in China-the country's complex anti-bribery laws are not open in force rigorously-but the arrest came as a shock to the multinational corporations.

In many respects, China's laws resemble the U.S. anti-bribery law, the Foreign Corrupt Practices Act (FCPA) of 1977. The FCPA prohibits payments to foreign officials for the purpose of obtaining or keeping business. However, the FCPA alone was insufficient because of considerable concern that U.S. companies would be operating at a disadvantage against foreign companies who routinely paid bribes. In some countries companies even were permitted to deduct the cost of such bribes as business expenses under taxes.

In 1997, the United States was among the Organization for Economic Cooperation and Development (OECD) members who signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Today, nearly 40 countries pledge compliance with the OECD agreement that prohibits corporate bribery to obtain business.

Not all competitors uphold the same standards in international trade. In the survey published in October 2006 by control risks and the law firm of Simmons & Simmons, more than 40% of the 350 respondents said they had lost new business at some point during the prior 5 years because a rival had paid a bribe. What is more, most respondents had little or no understanding of their own countries anticorruption laws. This could explain why many companies wrongly assume that they can circumvent the laws by hiring local intermediaries, who may then pay local officials and business contacts on their behalf. Unknown to these companies, both direct and indirect payments are illegal in many jurisdictions.

Criminal sanctions against bribing foreign officials can result in a fine of up to $2 million for corporations. Officers, directors, stockholders, employees, and agents are subject to a fine of up to $100,000 and imprisonment for up to five years. This seems a very stiff penalty for running afoul of law that prohibits payments to Chinese officials of more than 200 renminbi ($25.80)-less than the cost of dinner at many restaurants in Shanghai.

What are some steps multinational corporations can take to make sure that their employees are in compliance with local anti-bribery laws?