Transparency International just came out with its most recent report on country enforcement levels against foreign bribery (h/t China Bystander). In other words, this is a report on how actively various countries enforce their laws against engaging in bribery overseas. Examples of these laws would be the Foreign Corrupt Practices Act (FCPA) in the United States and the United Kingdom Bribery Act.

The report groups the 36 largest countries in terms of foreign trade into three categories: Active Enforcement, Moderate Enforcement, and Little or No Enforcement. Denmark, Germany, Italy, Norway, Switzerland, United Kingdom, United States engage in active enforcement.  Argentina, Belgium, Finland, France, Japan, Korea (South), Netherlands, Spain, and Sweden engage in moderate enforcement. Australia, Austria, Brazil, Bulgaria, Canada, Chile, Czech Republic, Estonia, Greece, Hungary, Ireland, Israel, Mexico, New Zealand, Poland, Portugal, Slovak Republic, Slovenia, South Africa, and Turkey engage in “little to no enforcement.”

I had no idea there was such a disparity between countries like the United States (active enforcement) and Canada (little to no enforcement).  I am also surprised to see Italy in the active enforcement category and new Zealand and Austria and Australia in the little to no enforcement category.

How advantaged in China business are those who come from little to no enforcement countries as compared to those who come from active enforcement countries?

  • Aric

    I would guess it doesn’t make much difference in the end. I’m no expert but couldn’t a US company, for example, just hire a local company to handle such ambiguous ‘marketing expenses?’

  • Mark

    I would imagine that the countries that engage in enforcement are the ones that can afford to, whether by virtue of resources or limited/particular industries that are easy to monitor. For example, I would imagine that aside from clothing and wine (small market) there is not a wide range of product in China that needs to be monitored from this standpoint.
    Not just that, I recently attended an expo event at a “little to no enforcement” country’s pavilion. Judging by the words spoken at the gathering by representatives, there is more an interest in making China look good to facilitate (read as: respectfully request) additional trade with China than there is in disciplining their own companies for actions that are likely more a function of local culture (i.e., corruption) than corporate deviance on the part of their domestic firms.
    As far as the Canadians, a surprise to me as well. But, I perhaps they are comfortable letting the American and European players make a scene and carry the water on this agenda. They are seldom confrontation-driven people, except on the ice.

  • Scambuster

    It all about ‘enforcemnt’. Whether a country is on the ‘Active’ or ‘Not Active’ list is really of little relevance in the real world of doing business in China or anywhere else for that matter. Just because a contract states “there shalt be no corruption’ doesn’t actually stop it. It can help to award contracts to more worthy participants in the cases where a ‘freindly’ supplier may not be be capable to deliver a service but they get the deal anyway and then sub it to a third party and pick up a neat margin for doing…well nothing. It can also be grounds to prosecute an offender or at least fire them, but not much else.
    One large struggle is to overcome ‘local tolerance’ of what is often a custom or accepted practise of ‘gratuities’ when doing business in developing countries. In the earlier years of opening China, local folks earned a pitance, so free: dinners, gifts and maybe a holiday were normal in the course of business. The ‘contractual’ effort will stop most of this blatant minor graft, but in no way stops the substantial deals going on behind closed doors. This practise is not restricted to China or any other country in particular and occurs in the West as well as the East. When auditors and management close one method of corruption, another is invented in it’s place. Such is life.

  • Dan,
    I was just asking myself a similar question, but I was taking it from the angle of where would China b today if 15 years ago it had developed and enforced regulations at the same level as the US system (Note: I am only using the US as one baseline, and you could easily insert a different country).
    Could China have grown as fast? Would it have grown in the same sectors in the same way? Would that model have been better for China from an economic perspective, and at the same level of proportion that it has been? Would the number screwed by that system have been more than, less than, or equal to the current “oil on the tracks” system that has clearly played a large part in the last 15 years?
    On no level am I suggesting that corruption is acceptable, but I think that it is important to ask these questions so that one can understand why you see (or don’t see) reactions to different cases. It is the framework that decides the level of enforcement of regulations, how close that enforcement comes to the “inner circle”, and whether or not it is a bump and run or a systemic change.
    Getting back to answering your question though, I would say that Chinese firms are probably at a disadvantage when entering a highly enforced market, just as an American firm is at entering a highly fluid market like in China. Where the systems are equal, I would say that the Chinese market still would hold more risk than others as there is still the scare the monkey factor and law of numbers that amp up the risk level for when things change.

  • First, thanks for the H/T. My own post pointed out that China is a signatory to the UN Convention Against Corruption but hasn’t passed the enabling domestic legislation (it is the 36 countries that have that are rated for enforcement by TI ). I also noted that there were five multinationals, a mix of U.S. and European companies, who were involved over the past five years in cases involving bribery in China brought under the U.S.’s Foreign Corrupt Practices Act so perhaps the question you pose is moot.

  • Bryan

    Regarding Canadians,
    CSIS (Canadian Security and Intelligence Service) created quite a kerfuffle last month when the Director, Richard Fadden publicly stated that numerous public elected officials (including some cabinet ministers) were under the influence of foreign governments, most specifically, China. This accusation…of course, was met with much criticism given high levels of cynicism in the population in regards to anything to government says.
    Canada has been sending piles of B and C-list politicians (low level Provincial and Municipal types) to China over the past 5 or 6 years. Many of these guys have never left the country before and would be ripe for such ‘flattery’.

  • Eric Wheldon

    One man’s corruption is another man’s lobbying…
    Who are we, in the West, to tell Asian countries what they should and should not be doing in terms of what we perceive as corruption?

  • Aric,
    I believe it does make a difference in the end. FCPA enforcement is big business and it’s booming now that the DOJ, lawyers and accountants can see how much money is to be made. The sizes of fines being handed out and the possibility of being re-prosecuted on the Chinese side will mostly likely have a clear effect on the business landscape here. In the past two years I’ve seen increasingly more proactive disciplinary action by multinationals against their own local hires for such infractions as paying off city government officials for zoning permits.
    In 2007 I saw a case with three companies competing to set up manufacturing facilities in Beijing. Two of the companies were from little to no enforcement countries and had managed to get manufacturing set up within 3 to 5 months. The third company (from an active enforcement country and stinging from recent bribery investigations) was still stuck in a 2 year time frame (mostly licenses, zoning, certifications) and hired an experienced local manager to oversee the process. The local hire did finally cut a year and half off the start up time but was informally disciplined for suspicion of greasing wheels, and promptly resigned. Companies from countries with little or no enforcement, particularly those companies which don’t do significant business with the U.S., will have a very clear advantage here in certain situations.
    You wrote “… couldn’t a US company, for example, just hire a local company to handle such ambiguous ‘marketing expenses?'”. From
    “Foreign companies sometimes can get tripped up by using local middlemen to help secure deals. Hiring representatives can be an entirely legitimate way to cut through red tape. It can also lead to questionable practices. “Often the third party is created solely for paying the bribe; there is no other business reason,” said Nathaniel B. Edmonds, assistant chief of the Justice Dept.’s fraud section, during a talk at an anticorruption conference in Shanghai on June 23. What’s more, under FCPA a U.S. company is as liable for the actions of a middleman as it is for its own employees. ”
    For a more technical overview of FCPA:

  • rc

    Excellent topic. I had no idea some of these countries were so hypercritical. Good to know, but for what I am not yet sure.

  • Mary Smith

    How much influence does bribery laws in your home country really have when doing business overseas anyway?

  • Barry Grossman

    Anyone who spends 100 or so hours wading through the mountains of nonsense available over the internet about Foreign Corrupt Practices and Bribery of Foreign Officials will eventually realize that the millions of printed words on this subject come almost exclusively from:
    1. Legal and Accounting Professionals selling compliance programs;
    2, Well meaning academics debating legal niceties or doing generalised historical studies; and
    3. Bureaucrats who would have us believe that the OECD and UN schemes for ostensibly criminalizing corrupt foreign practices are little more than a PR exercise by first world nations.
    The reality is that there is no meaningful enforcement of foreign bribery legislation in signatory countries. I challenge anyone to contradict this assertion. In fact, in 10 years there has been fewer than 200 convictions world wide under the OECD scheme and almost all convictions occurred in only 5 countries, with most of the 38 signatory countries having had no prosecutions at all. In fact there is not even an international agency or mechanism through which individulas can report cases of bribery, let alone instances in which law enforcement agencies in signatory countries have refused to investigate clear cases of froeign bribery.
    Some estimates claim that bribe payments account for up tp 3% of global economic activity. We know that corruption and bribery is rampant in developing countries throughout South America, Africa and Asia. Yet in 10 years there has been less than 200 convictions under the OECD scheme world wide. That is an outrage. Are the OECD and UN schemes that traget foreign corrupt practices just a hoax?
    The only message going out loud and clear is that if businesses elect to advance their interests by bribing foreign officials, they face almost no tangible risk of criminal prosecution in their own jurisdiction. Indeed, while I am no statistician, I imagine the odds of ever being prosecuted for bribing a foreign public official are smaller than the odds that radiation from our sun will cause the earth to collapse on itself in 2012.
    It is not my intention to insult anyone, but maybe those people who are making a global industry out of talking about FCP legislation should spare us yet more rhetoric and drivel that seems to be more about career advancement than anything else, or alternatively start saying something a bit more meaningful.