Thoughts on Corruption

1
Thoughts on Corruption
2
Corruption Must be Evaluated Along Three Distinct
Dimensions
Host Country
Home Country
Stakes
Conscience
Reputation
Alternatives
3
FCPA The Legal Issues

• Covers bribes to high government officials
• Covers anything of value
• Covers intent as well as actual payments
• Contains record keeping provisions
• Exceptions (affirmative defenses) include
• Normal business practice or routine government
  action
• Practice is legal in host country
• bona fide expenditures for promotion.

4
Important Distinctions Ethical

• Is payment pro- or anti-competitive?
• Is payment for personal gain or to advance the
  business?
• Balance between social cost and social benefit.

5
Important Distinctions Business

• Potential for subsequent hold-up
• Is corruption well organized
• Payments to get new business vs. those to protect
  existing assets.
• What is the cost of not cooperating?
• How detailed should firm policies be?

6
The Managerial Dilemma

• Need policies to minimize firms legal, business,
  and media exposure
• Dont want to document every action in the gray
  area.

7
Updates McDonalds

• Legal -- tax collectors acting in official
  capacity
• Practical -- No choice if you want to stay in the
  country
• Alternatives -- Few

8
Updates Enterprise Investors

• Legal -- Routine action. Not high govt.
  officials.
• Practical -- No choice if you want to stay in the
  country
• Alternatives -- Few

9
Updates Alpha Media Audit

• Legal -- No. Intent is clearly a bribe.
• Practical -- Have to do something
• Alternatives --Raise the stakes. Go to Ministry.
  Find an alternative local.
• GM country manager was fired for this type of
  transaction. GM went to US Justice Dept. and was
  fined

10
Updates Saybolt International

• Legal -- No. Intent is clearly a bribe. And it
  was internally documented
• Practical Not forced to pay.
• Alternatives Go public. Withdraw
• David Mead arrested and sentenced to five years
  in Federal Penitentiary.

11
Updates Polish Charity

• Legal -- No. Contribution is clearly of value.
  Linked to approval.
• Practical Not forced to pay.
• Alternatives Make another public show of
  contributing. Point out your constraints.

12
Updates Omega Power

• Legal -- No. Sale linked to non-disclosure
• Practical Stuck. Time inconsistency
• Alternatives Few. Embassy intervention?
• Omega withdrew from Malaysia

13
Solutions?

• World Bank / IMF
• part of second generation reforms
• difficulty of monitoring
• when uncovered, penalty often seems excessive or
  misdirected
• FCPA / OECD Treaty
• lots of loopholes
• prisoners dilemma
• Transparency International
• shed light on corruption
• methodological issues with surveys
• Islands of Integrity often extremely time
  consuming

14

• Goethe, The Tragedy of Faust
• One seldom recognizes the devil when he is
  putting his hand on your shoulder.
• Benjamin Franklin
• You can always find a principle to justify your
  inclinations.