It May Not Seem Like A Good Thing …

It takes a lot of lip gloss. photo: KaurJmeb

By kekepana.com/blog

… but one of the best things to happen to American business in international trade was the Foreign Corrupt Practices Act (FCPA). Of course, Avon Products might disagree. The U.S. Department of Justice is currently investigating Avon for expenses in China that even the company says may have been “improperly incurred.” Avon is assisting Justice with the investigation, which has already cost the cosmetics firm more than $100 million and the jobs of several former employees.

Justice has stepped up its enforcement of the FCPA in recent years. The Act, broadly, outlaws under-the-table payments to foreign officials for favorable decisions of treatment on contracts. That statement way oversimplifies things – and FCPA has an exemption for payments such as greasing the wheels to move a perishable cargo out of the hot sun at a tropical port. But if you make a payment to win a contract, you can assume your company will be in Justice’s sights. For Justice, it is a matter of doing their job, plus it helps that enforcing the FCPA has turned into a reliable revenue source. Justice has collected nearly $2 billion in fines in 2009 and 2010. Profitable targets in the past few years include such behemoths as Johnson & Johnson, Tyson Foods, Chevron, Kellogg Brown & Root, Siemens and Daimler.

What is amazing to me is that companies, after all the years FCPA has been in place (it has been around since 1977), have not glommed on to the idea that FCPA allows them to creatively avoid demands for bribes. They can simply refuse to make the pay-offs! And blame it on the FCPA! Their obvious concern, of course, is that without bribes they will lose big contracts to competitors who will bribe.

That’s true as far as it goes, but I have seen companies refuse to make bribes and still win contracts because they are offering the best product at a good price. In fact, American firms can point to the FCPA and its massive fines as ample reason not to bribe – and say they will apply the savings to the bid prices they will offer. In some of the markets I have worked in, that approach actually increases the company’s “face” and makes them look like a strong, reliable business partner. There may even be some relief on the other side of the table that they have finally found someone they can deal with without subterfuge.

Hard to believe, I know, but I have seen it happen.

For smaller firms, it is even easier to turn down a bribe. An FCPA fine could put you out of business and you can say so. And, while a big firm may feel driven to pay to protect its future position in a given market, a small exporter can simply leave. There are plenty of markets where you don’t have to bribe. You don’t need to do it.

So what is the cost of making the bribes? Well, there is the initial bribe itself. Then there is the slippery slope that is created: once you agree to pay, you can never again say you won’t. All your credibility is shot. And there is the ever-growing prospect that Justice will catch up to you. Avon has already spent $100 million and they haven’t even gone to court yet. Were those contracts really worth it? Only to Avon’s defense lawyers.

Other countries are just beginning to catch on. it was only a few years ago that many European countries allowed their companies to deduct the cost of overseas bribes as a legitimate business expense. The United Kingdom has finally passed an FCPA-style anti-bribery law that goes into effect today.