Doing Business Abroad: Illegal Payoffs Can Take a Toll

Bribery of government officials is widely viewed as a major problem that, left unchecked, can draw in large and small companies as they compete to win foreign jobs or get approval to enter a new market.

The cost to a company of paying bribes to win business goes far beyond the payment itself. The fallout from such payments include:

• Pushing the cost of doing business above market rates.
• Adding uncertainty about a company’s ability to continue operating in the market. If corruption is discovered, a business could be barred from bidding for future government contracts.
  
• Exposing an enterprise to extortion by the person who received the bribe, as well as others who may be aware of the corruption.

Bribery also brings the risk of criminal and civil charges, as well as severe penalties. For instance, under the Foreign Corrupt Practices Act, businesses can be fined as much as $2 million. Officers, directors, stockholders and employees can be fined as much as $100,000 and sentenced to up to five years in prison. Employers cannot pay fines for individuals.

In a civil case, companies and individuals acting for the business can be fined up to $10,000. The court can also impose an additional fine as high as $500,000, depending on the circumstances of the case.

Once corruption takes root in a company, it is difficult to eradicate. The best move is to ensure it doesn’t start. Doing business overseas can be profitable without corruption. To help minimize the potential for illegal business practices at your company, consider the following:

Consult with your accountants before entering a new market. They can provide your business with information on the types of corruption that are most prevalent in the market and give you advice on how to avoid them.

Contact your attorney for help understanding the Foreign Corrupt Practices Act. The law applies to both public and private companies and is the primary tool the federal government uses to fight corruption by U.S. businesses. (See the link below for the basics of the law and an example of how the statute was applied in one bribery case.)

Write a clear and concise code of conduct for your business that includes anti-corruption provisions. Distribute the policy to every employee, supplier and contractor. Have them acknowledge that they have read and understood it. The best practice is to require them to take an annual, comprehensive test on the policy.

Focus on education. All training should include anti-corruption education. For example, when training managers who oversee foreign sales, hold extensive discussions on how to avoid corruption and to recognize its warning signs. Management should “trust but verify” if the company wins a seemingly unattainable contract in a foreign market.

Invest in oversight. Hiring your accountants to fight corruption sends a clear signal to employees, regulators and others that your business has a zero-tolerance policy on corruption. Oversight can be part of a regular audit and can include checking e-mails (without violating employees’ rights) and interviewing personnel, suppliers and contractors about their compliance with your company’s code of conduct. Auditors may also examine cash payments and look for such inconsistencies such as a vendor receiving $10,000 when past payments ranged between $1,000 and $3,000.

The Legal Elements of Bribery

The Foreign Corrupt Practices Act prohibits bribing foreign government officials to obtain or retain business. According to the Justice Department, violations of the law’s anti-bribery provisions involve five elements:

1. Who. The provisions potentially apply to any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm. The law also potentially applies to those who order, authorize, or help someone violate or conspire to violate the law.

2. Corrupt intent. The person making or authorizing the payment must have a corrupt intent, and the payment must be intended to induce a person to misuse an official position. The law does not, however, require that a corrupt act succeed in its purpose.

3. Payment. The law bans paying, offering, promising or authorizing to pay money or anything of value.

4. Recipient. The prohibition covers only corrupt payments to a foreign official, a foreign political party or party official, or any candidate for foreign political office, regardless of rank or position.

5. Business Purpose Test. The law bans payments made to obtain or retain business, or direct business to any person.

The Justice Department has a procedure under which you can get an opinion from the Office of the Attorney General on specific questions related to the law. Contact your attorney for more information.

In the long term, the benefits of paying bribes can pale in comparison to the financial, legal and reputation costs a business can incur once corruption is exposed. With the right actions and proper guidance, your business can avoid these risks and still make a profit.

This article appeared in Walz Group’s September 14, 2022 issue of The Bottom Line e-newsletter