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The Resource for the Global Finance Profession

The Bottom Line: Unnecessary Evils

  • By Elizabeth Johns
  • Published: 2011-05-11

Some financial professionals might assume that extensive gift giving is a natural part of doing business in emerging markets. For example, when Germany’s Daimler AG was fined $185 million in China as punishment for bribery, some Westerners complained that “without paying the right bribes to win contracts, it is hard to compete with local companies who are good at milking the system,” Beijing Today reported last month.

Finance pros take heed: An increase in anti-corruption enforcement actions in the U.S. and new U.K. business regulations that go into effect this summer, said to be the toughest in the world, are making the straight and narrow the preferred path.

In fact, Corporate Counsel publication reports that foreign bribery charges in the U.S. nearly doubled last year from 45 cases in 2009 to 76 cases in 2010, including 23 cases against corporations.

Just last month the U.S. Securities and Exchange Commission highlighted a flurry of anti-corruption actions, most notably against Johnson and Johnson. The company allegedly violated the Foreign Corrupt Practices Act (FCPA) when employees of a subsidiary company bribed medical personnel in several European countries and paid kickbacks in Iraq to obtain business. The FCPA prohibits any U.S.-based company from paying bribes to foreign government officials to facilitate business.

The company evidently learned of improprieties at its subsidiary and alerted U.S. authorities, cooperating fully in the ensuing investigation. Even so, Johnson & Johnson must pay a $21.4 million penalty to resolve criminal FCPA charges and $48.6 million to settle the SEC’s civil charges.

Thomas R. Fox, who writes the “FCPA Compliance and Ethics Blog”, thinks there are clear stages that must be followed for a safe and effective business relationship with any foreign partner: business justification, partner due diligence, engagement due diligence, and ongoing management of the relationship. Red flags at any stage are an indication that the relationship should be terminated.

Writing for the SEC,  Robert Khuzami, Director of the Division of Enforcement said in a statement, “The message in this and the SEC’s other FCPA cases is plain – any competitive advantage gained through corruption is a mirage.”

The Bottom Line column appears on the last page of Exchange magazine.  

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All rights reserved.

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