David Wolf of Wolf Group Asia,did a post on the China Stock Blog, entitled, “Dirty Dealings In China: Lucent Was the Warning Shot,” [link no longer exists] discussing the United States’ Securities and Exchange Commission’s (SEC) investigation of Lucent for possible violations of the U.S. Foreign Corrupt Practices Act.
Wolf wonders whether China information the U.S. government gleans from Lucent will lead to more investigations of U.S. companies doing business in China. Wolf talks of having “regularly” heard “rumors of shady deals and payoffs, stories of children of prominent Chinese officials setting up technology consultancies to act as bag-men between U.S. tech firms and telecommunications operators.” Wolf discusses how kickbacks are part of the fabric of doing business in China:
Indeed, you needn’t look very hard to find corruption in business in China. A young lady here in the Hutong took a call from a reputable Chinese insurance firm yesterday. The agent at the other end of the phone, mistakenly thinking that the car the woman was responsible for insuring was a company car, offered her a 30% discount on the insurance, and an immediate 20% kickback on the premium to be paid in cash to the woman. This was not an offer between two people well-acquainted with each other. It was done sight unseen as if nothing could be more natural in the course of business.
Wolf then discusses how Chinese PR companies pay reporters about 1RMB per character to run positive stories about their clients, of which 25% of those fees is, in turn, kicked back to the individual media relations person at the agency.
I am far from an expert in the Foreign Corrupt Practices Act (and the lawyer in my firm who I would consult on this is presently somewhere in the mountains of Mongolia (and completely inaccessible), but it is my understanding that the FCPA applies only to payments (either directly or indirectly) to government officials. The FCPA’s anti-bribery provisions make it unlawful to offer or make a payment of anything of value directly or indirectly to a foreign official, international organization official, political party or party official, or any candidate for public office, for the purpose of influencing that official to assist in obtaining or retaining business (15 U.S.C. §§78dd-1 to -3). A covered company can be held liable for payments made on its behalf by agents or distributors.
In countries like China, where so many of the largest companies are state-owned, the chance of a “business” payment violating the FCPA is great.
Wolf concludes his post by asking a question and issuing a warning:
How many executives are going to realize that it’s time to start cleaning up the nonsense – big and small – that’s taking place in their companies?
Lucent was the warning shot, folks. Time to start taking care of business – before the Feds come calling.
One of the things I have always found troubling about Westerners doing business in emerging market countries is that they sometimes take an almost perverse pride in discussing payoffs to government officials. It is as though their having paid a bribe is a symbol of their international sophistication and insider knowledge. Yet, countless times when I am told of the bribe, I know the very same thing could almost certainly have been accomplished without a bribe.
I firmly believe paying bribes is not only bad for one’s sleep patterns, it is bad business. And go ahead and call me naive, but I also believe that most American companies agree with me on this. (I refer to American companies here because the overwhelming bulk of my conversations regarding bribery have been with those at American companies).
If you are interested in reading more about corruption in foreign markets, and why it is to be avoided, I suggest reading “Saying No To Corruption And Make It Your Market Advantage,” an excellent post on the Going Global blog. He says don’t do it. I concur.
What do you think?