Bribery: no + $ = yes

Bribery Stock Image
Some might say bribery makes for a bitter choice, you either break the law, or you lose the deal.

It is a formula as old as business itself – the bribe, the backhander that greases the wheels of commerce. Rolls-Royce has recently learned to its great cost, however, that nowadays it is also a ticket to massive fines and reputational damage.

As Brexit beckons, and manufacturers are being encouraged to conquer new markets, Nick Peters suggests companies have much to learn from Rolls-Royce’s misadventure.

Everybody’s at it. “In some markets, particularly the Far East, it’s not possible to do business at all without these types of payments,” was typical of the response I got when I canvassed opinion among manufacturers.

So that makes it alright, then? It can do, if you don’t mind being investigated by a network of closely connected law enforcement agencies around the world, losing your job, your business and quite possibly your freedom.

Handcuffs Stock Image
It may be a poison at the heart of global business, but bribery is as prevalent today as it has always been.

Some might say it is a bitter choice. You either break the law, or you lose the deal. It is a compelling point. Self-righteous legislators and regulators sit in their ivory towers, passing draconian laws that shackle pioneering business people trying to earn themselves and their country a few quid.

Post-Brexit, a new breed of merchant-adventurers will be at the forefront of the UK’s charge into world markets. What’s the plan – send them off with fanfares and then arrest them when they come home with deals in their pockets?

Needless to say, the picture is nothing like as simple as that, even though you will probably not be surprised to learn that President Donald Trump is a member of the “Why should US companies suffer when everyone else is doing it?” camp.

On the one hand, bribery is undoubtedly a poison at the heart of global business. Far from being a victimless crime, it directly impacts the well-being of populations in emerging markets, it distorts proper competition and it can lead to the downfall of any business person foolish enough to think that it’s an easy shortcut to making their numbers.

On the other hand, experts around the world agree on one thing. No matter how many solid and enforceable laws are passed, and no matter how many companies have introduced rigorous anti-corruption systems, bribery is as prevalent today as it has always been. Indeed, everyone really is at it.

Gold plating?

President Trump’s rather typical fast-and-loose attitude notwithstanding, the United States has been at the forefront of worldwide efforts to crack down on bribery. Working through international organisations like the United Nations, the US has won the high-level argument.

Bribery PQ - March 2017The Foreign Corrupt Practices Act (FCPA) has been in force in the US since 1977. With the near-global agreement on the United Nations Convention Against Corruption (UNCAC) signed in 2003, every national signatory is now obliged to make bribery a crime. (Whether such laws are universally enforced is, of course, a completely different matter. And there is concern in the US that Mr Trump’s relaxed attitude may weaken US leadership on this issue.)

In the UK, our version of the FCPA is the 2010 Bribery Act. In the same way that Whitehall has a reputation for ‘gold plating’ EU legislation – making it even more rigorous than intended – it has been argued that the UK went too far in passing what has been described as “the toughest anti-corruption legislation in the world”.

It even outpaces America’s FCPA, which allows for certain ‘facilitation payments’ to be made in return for, say, permission to berth your ship in a foreign port. The Bribery Act makes that a criminal offence. On that basis, it’s a miracle anything ever gets done, and it would not be too great a leap of cynicism to suggest that the law is being honoured more in the breach.

Understandably, UK companies resentfully feel their hands are being tied by the same government that wants them to earn the nation an overseas crust. But if you find yourself nodding in agreement, consider this from Alexandra Wrage, founder of the US-based TRACE International anti-corruption consultancy.

“It fascinates me that some companies are still prepared to say, ‘Why can’t we do it, everyone else is doing it?’” she told me. “They don’t say that about child labour or trafficked labour or polluting the environment, all things that would make it cheaper and easier to do business internationally, but nobody’s advocating that!”

Indeed, they are not, but then bribery is such a potent force. It turns no to yes, lines pockets all round and gets deals done.  But there’s always a price, because once you choose corruption, it’s hard to stop.

You’re mine now – I own you

Government anti-corruption advertising in India (Source: Anti-Corruption Bureau, Maharashtra).
Government anti-corruption advertising in India (Source: Anti-Corruption Bureau, Maharashtra).

In a world where bribery is almost universally a crime (only 16 nations have not ratified the UN Convention including, oddly, Japan, although it has signed it), it doesn’t matter how lax the anti-corruption regime may be in a particular country. The moment a bribe is paid, the law has been broken, and the payer has become a criminal.

“Entrepreneurial bribe-takers are notorious for renegotiating the deal that you thought you had,” Alexandra Wrage told me. “They come back, and they keep coming back, to renegotiate. None of the original agreement is enforceable now because the whole thing is tainted by crime to begin with.”

Peter van Veen from UK-based Transparency International, agrees. “With larger contracts, especially when it involves government officials, the bribe can be up to 30% of the value of the contract. These are not trivial amounts of money. And you’ve got no guarantees of course that those officials aren’t going to try to skim more money and more profits at a later date as you are now at their behest and at their mercy.”

Corruption in ethically-challenged foreign markets is often worst among government officials, who are the ones doing the big deals and commanding the big bribes. Corruption and patronage are simply a way of life, but that doesn’t mean entire societies should be so tainted.

Resistance

“You shouldn’t underestimate how much indignation there is around corruption,” Alexandra Wrage told me. “I talk to people in local markets and they’re furious, because we in the US or the UK say ‘Well, you know it’s just a problem that’s out there, and it’s terribly unfortunate, but there’s nothing we can do about it…’ No, these people are living it, they’re being shaken down when they need a driving licence or when they need their child vaccinated and they are angry about it.

Neill Blundell, Head of Corporate Crime & Investigations at the UK- and US-based law firm Eversheds Sutherland,
Neill Blundell, Head of Corporate Crime & Investigations, Eversheds Sutherland.

“I was at an event in India and a young manager in his early 30s became really passionate about it. He said India has stepped forward to take its place on the global economy and we’re still talking about these shakedowns for small sums of money. ‘It’s just embarrassing, it’s time for us to leave this behind,’ he said”

Neill Blundell, Head of Corporate Crime & Investigations at the UK- and US-based law firm Eversheds Sutherland, also works in countries to help companies and their local and expatriate staff comply with the Bribery Act. “We’ve run workshops in various high-risk jurisdictions and my colleagues and I have been really heartened by the attitudes of the local workforces. We found them much more open to how they should do business properly than some of the expat managers who can still have ‘old school’ attitudes on how to win business, which caused us some concern.

“However, the local workforce will do what their managers tell them because sometimes their whole economic well-being depends on it. I’ve interviewed local people who’ve been in tears and said they didn’t want to do wrong, but what can they do? I feel for them, because you know the business will have to sack them, even though you know they’d have done it by the book if they hadn’t been told otherwise by their managers.”

As Blundell suggests, UK companies are rendered most vulnerable to corrupt practices by the people who represent them in foreign markets, whether agents or expatriate staff. (The Act is very clear – if corrupt business is done by a third-party, no matter how informal the connection, and you gain an advantage, the UK company can be liable.)

“These expats, wherever they are from, can become like little gods in these countries,” he said. “Some have run away from something at home, such as a bad marriage or a bankruptcy. Something put them on the road, so they’re a hardy bunch and as result not always as controllable as some of the execs you might have in the developed world.

Bribery PQ2 - March 2017“It’s difficult to find people to run operations in far-flung, high-risk jurisdictions where you could be kidnapped, so you end up with a certain type, the type to look after themselves not the business. Corrupt officials are always looking after themselves and corrupt expats are often in the same category and willing to take a risk to win business.”

And this is the point. Bribing your way to a deal may help you make your numbers, but is this the kind of business you, or your customers, really want?

“If you really believe in the free market, you want a good product to sell at a reasonable price,” Wrage said. “And if what you’re doing instead is taping a bunch of cash to your product because you don’t think it will sell otherwise, that is an admission of failure.”

Distortion

The fact is that those holding out their hands for sweeteners – usually the aforementioned government officials – do not care whether the deal is right for their country. It’s just another opportunity to line their pockets.

“The quality and the specification of the product becomes secondary to the bribe,” Peter van Veen of Transparency International said. “And so, the domestic market and the public at large, start to lose out on key services because they’re specifying the wrong product, or it isn’t needed. It might be a white-elephant construction, it might be aircraft that they don’t need, whatever the case may be.

“Ultimately, those markets might be competing on what’s the largest bribe someone’s willing to pay. If that’s not what you’re interested in, and I suspect most companies aren’t, then they are not the right markets to be entering. Take telecommunications for example – there are some markets where the large telecom providers are just not willing to bid for contracts, because they don’t believe they can win a spectrum contract or a contract to offer a mobile service without paying a bribe. As a result, none of the companies with the expertise and the technology are in that market, so they end up with some unknown company, local or otherwise, offering a very poor service for that local population.”

Alexandra Wrage, president & founder, TRACE International.
Alexandra Wrage, president & founder, TRACE International.

“There is an extraordinary social cost to bribery,” Alexandra Wrage of TRACE International said. “Not just to the local communities. With globalisation it’s everywhere – tainted pharmaceutical products crossing borders, health standards being undermined, buildings collapsing. This isn’t just a local problem, in a world where countries are truly multinational and operating everywhere.”

Are the times a-changing?

Clearly, we live in different times from the days when bribes were the accepted commonplace, even if they are still very much in living memory, as the Rolls-Royce case demonstrates.

“No culture celebrates theft,” Alexandra Wrage claims. “Bribery is theft and the message that is being promulgated over the last few years means the whole world is talking about how you move away from these levels of corruption. There are of course still a handful of kleptocrats who think it’s a fantastic thing, but on the whole, average citizens and countries are fed up with it and they won’t thank corporations who come in and spray cash around.”

Neill Blundell is less optimistic. “Yes, it is higher up the agenda at government-level and in companies,” he said, “but I’d be sceptical that there is less going on, because the world has globalised tremendously in the last 20 years. This has increased the threat, because many more companies are looking for new opportunities in difficult parts of the world, particularly in the emerging markets and places across the African continent, which they need to enter for their survival and expansion. It places them at more jeopardy.”

In jeopardy?

Is corruption something that can happen to a company? Indeed, it can. Companies contemplating the apparent riches to be earned in the post-Brexit free-trade nirvana that the UK government has promised could very well find themselves up to their necks in corruption, even if they start out with the best of intentions. Sales people will be dealing with highly-practised crooks who have perfected the art of the shakedown, which may not make itself apparent until well into an otherwise promising negotiation. It takes guts to walk away.

Transparency Internation Bribe Payers Index 2011 - LinkBut only when enough businesses walk away from outstretched hands, and enough local populations demand an end to the corruption that blights their lives, will bribery start to succumb to the combined weight of global indignation.

And anyway, even if bribery is still prevalent, is it worth the risk? Whoever you speak to, whether it is lawyers like Neill Blundell, consultants such as Alexandra Wrage or campaigners like Peter van Veen, the answer will be same. If you want to protect yourself, your company, your staff, your reputation from sanctions that encompass reputational disaster, bankruptcy or prison, you need to be completely up to speed with the Bribery Act, and that means rigorous internal procedures and training.

It’s a big, inviting and profitable world out there, and it offers rich opportunities for manufacturers, particularly those from the UK who have such a great reputation for excellence and innovation. The prize can, will and should only go to those who play by the rules.