Fact Number One: American residents – including corporations and their international subsidiaries – are subject to the application of the Foreign Corrupt Practices Act, a federal statute that imposes possible stiff fines and prison time for offenders. Basically, it makes bribing a foreign official into granting a discretionary favor or bestowing a discretionary benefit (or avoiding a detriment) on the bribing individual or company. Bribes range from the standard envelope stuffed with cash to covering travel, golf fees, lavish travel benefits, hookers, and gifts. This statute is serially enforced and while it tracks parallel laws in other Western nations, it is more strictly applied (however serially) than the “wink wink” enforcement of such laws in many other countries. And if you think hiring a “consultant” to act as an intermediary to “take care of business” – even if your contract proscribes FCPA violations but you know or should know that economic benefits are flowing to a government official – you are not exempt from the long arm of the law. You can’t hide behind a corporate barrier; individual executives go down too.
Fact Number Two: In much of the developing world, failure to bribe effectively means you cannot do business in so many nations unless you have something that the government officials want so much, they will leave you alone.
Fact Number Three: Virtually every country on earth makes bribing government officials a crime with severe sanctions.
I’m seeing the video game now, except this “game” is played out in real life every day. Americans lose out all the time as nationals from other countries secure contracts that should have gone to the better-qualified Americans because smart American managers stay on the right side of a murky line. It’s life. But I’d like to focus on one country – the Peoples Republic of China – that faces corruption issues every day, an issue that eludes even the highest ranking officials who really do want to end these economically inefficient practices.
Every year approximately 150,000 people are convicted of some form of corruption in China. But without a payoff, lots of business just doesn’t get done. The typical “joint venture” structures required in many facets of Chinese law for foreigners to do business on the Mainland creates clear opportunities for abuse, particularly when the Chinese side of the equation just sits there and accumulates benefits as a de facto passive partner. And who your “partner” is and which government officials you have relationships with very much determines the risks of doing business in China without getting hauled away to a Chinese jail charged with corruption, just as a herd of Australian/Chinese businessmen recently found out in a mining investment scandal that rocked both nations.
Picking the wrong horse to be your ally can be fatal. Take the case of Huang Guangyu, purportedly one of if not the richest individual in China. Huang, a high school dropout, began selling electronics goods and eventually owned a chain of about 1,300 “Gome” stores throughout China. Huang generated a worth of an estimated $6.3 billion. “But government prosecutors say he did it illegally, and a court in Beijing has convicted him of insider trading, leaking inside information and bribery….In addition to a 14-year prison sentence, Huang was also fined $88 million and had some of his assets seized, lawyers told Bloomberg News.
“In 2008, Huang was No. 1 on the Hurun Report's China Rich List. According to the report, 19 of the 1,330 executives on its rich list in the past decade are in jail or are awaiting sentencing on charges like bribery. Some observers have dubbed the phenomenon ‘the curse of the rich list.’… The report's publisher, Rupert Hoogewerf, told the BBC that Huang was a brilliant businessman but not a good enough politician… ‘Huang Guangyu was quite strange in so far as he didn't really cultivate his political contacts assiduously,’ Hoogewerf said. ‘You find that at the very top of the Chinese political establishment there are quite a number of different factions. He started cultivating faction A, and faction B got jealous and took him down.’” AolNews.com (May 18th). D’oh!
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