Bribery
Bribery
Extent No discussion of the impact of MNEs would be complete without mentioning the disclosures in the 1970s of payments to governmental officials variously described as "scandalous," "improper," "extorted," "unauthorized," "questionable," and "illegal." Inquiries by the Securities and Exchange Commission (SEC) revealed that such payments amounted to several hundred million dollars.32
While much of the criticism has been vented against MNEs (especially those from the United States), it is interesting to note how widespread the practice has been. The investigations showed that officials in industrial as well as developing countries, foreign as well as U.S. nationals, communists as well as noncommunists, have all participated in bribery.33 Bribery is commonplace in many countries, and international firms have conformed.
Motives By far the biggest motive for the outlays was to secure business that otherwise might not be forthcoming at all or to obtain it at the expense of competitors. Payments were mainly for governmental contract sales, and some of the higher fees were in the area of aerospace. Second in importance were expenditures to facilitate governmental services that firms were entitled to receive but that officials otherwise would have delayed. Such services included product registrations, construction permits, and import clearances. Some firms acknowledged payments in order to reduce tax liabilities, and one (General Tire) paid to keep a competitor from operating in a specific country (Morocco). A group of rubber companies made payments through the Chamber of Rubber Manufacturers in Mexico to get the government to approve price increases that were controlled. Some companies reported payments because of extortion: These included Mobil's payments to forgo the closing of its Italian refinery and expenditures by Boise Cascade, IBM, and Gillette to protect the safety of their employees. Some of the payments were contributions to political parties, a practice that is legal in certain foreign countries but not allowed in the United States.
Methods Most payments were in cash, but in some cases they included products made by the company, such as ITT's gift of a color television set to the managing director of Belgium's state telephone system. Some payments were made directly to governmental officials by the firms; however, most involved the use of intermediaries and/or organizations in third countries. The methods were diverse: For instance, a person influential in a purchasing decision or a relative of that person was sometimes put on the firm's payroll as a consultant; in other cases, that person was paid as a middleman at a fee that exceeded normal commissions. Another common practice was to overcharge a middleman or governmental agency and rebate the overcharge to an individual, usually in a foreign country, in order to evade taxes or exchange control. One firm (Pullman) even used its auditor to effect payment to a governmental official.
Some Consequences Bribery scandals resulted in the replacement of chiefs of state in Honduras, Japan, and Italy. Prince Bernhard of the Netherlands resigned all his public functions after charges that he had accepted a $1.1 million payoff. Officials were jailed in a number of countries, such as Venezuela, Iran, and Pakistan. Sri Lanka canceled orders for Lockheed aircraft because of that firm's scandals elsewhere. Many observers contend that these disclosures helped the political parties in many countries that opposed large defense outlays.
Foreign Corrupt Practices Act In 1977 the United States passed controversial legislation making certain payments to foreign officials illegal. Part of the controversy surrounding this legislation has been due to its vagueness and seeming inconsistencies. The vagueness stemmed from the fact that two different U.S. agencies could prosecute firms; however, the Justice Department since has published its interpretations of the laws and the Securities and Exchange Commission (SEC) has ceded its enforcement to the Justice Departmerit.34 One of the seeming inconsistencies is that it is perfectly legal to make payments to people to expedite their compliance with the law but illegal to make payments to other governmental officials who are not directly responsible for carrying out the law. For example, a $10,000 payment to a customs official to clear legally permissible merchandise would be legal, but even a small payment to a governmental minister to influence the customs official would be illegal.35 The reason for allowing the expediting payments is that in many countries governmental officials will delay compliance of laws indefinitely until they do receive payments, although these payments may themselves be illegal in the country where they are paid.
Some of the objections are more fundamental. For the United States to impose its standards on its firms operating in other countries may be viewed in some cases as just another extraterritorial infringement. In fact, it may be viewed as a double standard in that U.S. governmental aid frequently is given as a bribe, with the understanding that the recipient country will grant political concessions in return. Furthermore, there is little effort to blame donors or suspend these government-to-government programs when it is discovered that officials in recipient countries have siphoned off aid funds for themselves.
Although the actions of U.S. MNEs have been highly publicized, U.S. MNEs did not invent bribery. At present there are still at least two unknowns: (1) to what extent do domestic firms and MNEs of other countries engage in the activities for which U.S. MNEs have been criticized? and (2) to what extent is business lost to those other firms as U.S. MNEs are heavily regulated in their activities abroad?
Extent No discussion of the impact of MNEs would be complete without mentioning the disclosures in the 1970s of payments to governmental officials variously described as "scandalous," "improper," "extorted," "unauthorized," "questionable," and "illegal." Inquiries by the Securities and Exchange Commission (SEC) revealed that such payments amounted to several hundred million dollars.32
While much of the criticism has been vented against MNEs (especially those from the United States), it is interesting to note how widespread the practice has been. The investigations showed that officials in industrial as well as developing countries, foreign as well as U.S. nationals, communists as well as noncommunists, have all participated in bribery.33 Bribery is commonplace in many countries, and international firms have conformed.
Motives By far the biggest motive for the outlays was to secure business that otherwise might not be forthcoming at all or to obtain it at the expense of competitors. Payments were mainly for governmental contract sales, and some of the higher fees were in the area of aerospace. Second in importance were expenditures to facilitate governmental services that firms were entitled to receive but that officials otherwise would have delayed. Such services included product registrations, construction permits, and import clearances. Some firms acknowledged payments in order to reduce tax liabilities, and one (General Tire) paid to keep a competitor from operating in a specific country (Morocco). A group of rubber companies made payments through the Chamber of Rubber Manufacturers in Mexico to get the government to approve price increases that were controlled. Some companies reported payments because of extortion: These included Mobil's payments to forgo the closing of its Italian refinery and expenditures by Boise Cascade, IBM, and Gillette to protect the safety of their employees. Some of the payments were contributions to political parties, a practice that is legal in certain foreign countries but not allowed in the United States.
Methods Most payments were in cash, but in some cases they included products made by the company, such as ITT's gift of a color television set to the managing director of Belgium's state telephone system. Some payments were made directly to governmental officials by the firms; however, most involved the use of intermediaries and/or organizations in third countries. The methods were diverse: For instance, a person influential in a purchasing decision or a relative of that person was sometimes put on the firm's payroll as a consultant; in other cases, that person was paid as a middleman at a fee that exceeded normal commissions. Another common practice was to overcharge a middleman or governmental agency and rebate the overcharge to an individual, usually in a foreign country, in order to evade taxes or exchange control. One firm (Pullman) even used its auditor to effect payment to a governmental official.
Some Consequences Bribery scandals resulted in the replacement of chiefs of state in Honduras, Japan, and Italy. Prince Bernhard of the Netherlands resigned all his public functions after charges that he had accepted a $1.1 million payoff. Officials were jailed in a number of countries, such as Venezuela, Iran, and Pakistan. Sri Lanka canceled orders for Lockheed aircraft because of that firm's scandals elsewhere. Many observers contend that these disclosures helped the political parties in many countries that opposed large defense outlays.
Foreign Corrupt Practices Act In 1977 the United States passed controversial legislation making certain payments to foreign officials illegal. Part of the controversy surrounding this legislation has been due to its vagueness and seeming inconsistencies. The vagueness stemmed from the fact that two different U.S. agencies could prosecute firms; however, the Justice Department since has published its interpretations of the laws and the Securities and Exchange Commission (SEC) has ceded its enforcement to the Justice Departmerit.34 One of the seeming inconsistencies is that it is perfectly legal to make payments to people to expedite their compliance with the law but illegal to make payments to other governmental officials who are not directly responsible for carrying out the law. For example, a $10,000 payment to a customs official to clear legally permissible merchandise would be legal, but even a small payment to a governmental minister to influence the customs official would be illegal.35 The reason for allowing the expediting payments is that in many countries governmental officials will delay compliance of laws indefinitely until they do receive payments, although these payments may themselves be illegal in the country where they are paid.
Some of the objections are more fundamental. For the United States to impose its standards on its firms operating in other countries may be viewed in some cases as just another extraterritorial infringement. In fact, it may be viewed as a double standard in that U.S. governmental aid frequently is given as a bribe, with the understanding that the recipient country will grant political concessions in return. Furthermore, there is little effort to blame donors or suspend these government-to-government programs when it is discovered that officials in recipient countries have siphoned off aid funds for themselves.
Although the actions of U.S. MNEs have been highly publicized, U.S. MNEs did not invent bribery. At present there are still at least two unknowns: (1) to what extent do domestic firms and MNEs of other countries engage in the activities for which U.S. MNEs have been criticized? and (2) to what extent is business lost to those other firms as U.S. MNEs are heavily regulated in their activities abroad?
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