Corporations across the globe deal in international business practices every day. When a company must to do business in countries with a high level of corruption, a company should have a plan that helps to maintain control over a key piece of intellectual property or some production process component that allows company to maintain power in the relationship. Most of these processes and practices are legal and ethical, following the laws and regulations of various international governments. Some of these practices are just the opposite, illegal in eye of American company but viewed acceptable in other cultures.Many countries are involved in bribery which makes many American companies not only unethical to give in to bribery and other corrupt business practices but unlawful.
This case is just an example and representations of what companies are willing to do and how much money they are willing to pay to enter a contract with China or their market. Most of the payments and other favors are made to establish guanxi in China. Gunaxi means “connections” and it is important part of the Chinese culture. According to Western standards most of these connections which include gifts and bribes are illegal but must be done in order to successfully deal with Chinese businesses. This case presents with various illegal and some legal types of payments.1.
List all the different types of bribes, payments or favors represented in this case under FCPA, Criminal Law of PRC and Law against Unfair Competition of the PRC. Why is either legal or illegal?The biggest incentive for Chinese official is travel. Business trips that are sponsored by International companies can be legal, where a foreign company invites an official to get to know the company better and visit a factory in the home country of the company, which is considered as legal activity. Costs of staying in expensive hotels, golfing lessons and small stops in other states in the US during the visit represent illegal incentives that are offered to officials.As mentioned in the case, Commodity Inspection Bureau (CIB) requested visits the site in the US for inspection purposes but often inspections don’t even take a place, which is also considered as illegal. If foreign companies wants to overcome dealing with CIB they need to turn to other illegal route such as buying certificate for inspections and machineries on a black market, which is also considered as illegal.
Other payments such as 3% kickback to speed of the process of setting up a subsidiary or a new business in China are required to ensure that relationships have been established and companies are easily welcomed in the country.2.For those practices that you listed as illegal classify each as lubrication, extortion, or subornation and explain your reasoning. Lubrication- relatively small sum of cash, a gift, or a service given to a low-ranking official in a country where such offerings are not prohibited by law. Under lubrication trip abroad of technical people that need to inspect the facility or equipment could be in this category. Extortion- payments extracted under duress by someone in authority from a person seeking only what he is lawfully entitled.
For example request made by CIB official, 3% kickbacks that is almost required by some Chinese companies. Free gifts and overseas trips by Chinese officials and their families fall into extortion category. The companies know that without these gifts, the contract with Chinese government would not be secured. It is almost an unspoken rule in China while doing a business, companies must bribe. American company in defense made a statement that all “these costs where legitimate costs of doing business in China” however as submitted the cost of these activities were equivalent of millions of dollars to secure a contract with China.Subornation- “ large sums of money, frequently not properly accounted for, designed to entice an official to commit an illegal act on behalf of the one offering the bribe”.
In this category all the Requests of Chinese trading officials fall into this category Allocating money for CIB inspector trip that are not required by law that inspection must be made in person and I believe this could be a violation of a subornation. All other examples of briberies and purchasing a certificate on a black market are examples of subornation. Elimination competition by paying money to the government so the other company would not enter the market is also a great example of subornationWhich of the payments, favors or bribes are illegal under the FCPA?Anyone found guilty of knowingly participating in or authorizing the payment of a bribe can be high penalized under the Foreign Corrupt Practices Act. United States publicly traded companies have been liable to the FCPA since 1977. The anti-bribery provision of the act makes it unlawful to bribe even a penny because the act focuses on the intent to bribe, rather than the materiality of it ‘’the anti-bribery provisions of the FCPA make it unlawful for a U.
S. person, and certain foreign issuers of securities, to make a payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person.Since 1998, they also apply to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States” From the research I conducted, many executives in the United States feel that the stipulations within the FCPA leave American corporations at an extreme disadvantage when competing internationally. In this case, 3% kickback will be in a grey area of legality according to FCPA. Certain payments or reimbursements relating to product promotion may be permitted under the FCPA and this 3% could be under the promotion as long as it is not forced on a company, The law states that payments to foreign officials may be legal under the FCPA only to expedite the processes that are part of performance of the duties the officials already bound to perform.
All the payments for trips and extra luxury items were performed illegally according to the FCPA law.3. Assuming that the FCPA did not exist, what is the ethical response to each of the payments, favors or bribes you have identified? Companies that will be entering into markets where bribery exist should prepare in advance and mitigate the risks associated with legal and illegal briberies. Corruption in business agreements is a serious problem; but I strongly disagree that as a business owner or executive you should have to participate in and accommodate such unethical practices in order to be successful.
However I do believe that it would be extremely foolish to engage in international business and not anticipate problems arising by failing to accommodate corrupt business requests. I understand that companies doing business internationally should have various policies and guidelines to deal with bribes when dealing with corrupt countries, but at the same, all companies that are part of the corrupted world of China will not give up their business in that country. Companies want to be ethical but if the deal can be done only with bribery that particular company will make a deal no matter what. China is powerful with cheap labor and if a company gives up a contract in order to act ethically, other company, a competitor, will get that contract or a part of foreign market.There are few solutions that companies could take into a consideration. Instead of sending officials oversees they can only do it as a part of the bonus if company meets certain sales or business requirements.
Also, 3 % kickback can also be treated as a one-time deal and one time promotion. Also if companies are already aware of obtaining a certificate from a CIB official, a company can ask ahead of time what specifications will have to be submitted before coming to China so there is no incentives for buying a certificate. If this is not an option for a company, buying a certificate on a black market will be cheaper than sending officials oversees. Companies should refuse to pay to important officials and their families or if they are going to pay, they should reward other people who are not on top of the hierarchical ladder.
4.In your review, which of the expenses detailed in the lawsuit could be a violation of the FCPA and which could be legitimate business expenses and the American Company contends? Discuss.According to the FCPA enforcement website the term “anything of value” is not defined in the FCPA nor is the statute’s legislative history illuminating. The term, however, has been broadly construed and can include not only cash or a cash equivalent, but also, among other things, discounts; gifts; use of materials, facilities or equipment; entertainment; drinks; meals; transportation; lodging; insurance benefits; and promise of future employment. There is no de minimis value associated with the “anything of value” element, and the perception of the recipient and the subjective valuation of the thing conveyed is often a key factor considered by the enforcement agencies in determining whether “anything of value” has been given to a foreign official.
Court fillings indentified many documents indicating that all the luxury gifts, apartments, chairman trips to Europe, his family sponsored trips and are illegal and most likely will be investigated for violation of the FCPA law.5.Discuss the legal/ethical issues raised by the comments by the retired Foreign Service agent and the consultant.It is important to understand that while bribery is still legal issue in China, there are different cultural contexts to be understood by Western cultures. In some countries, corrupt practices may not be looked upon with the same attitudes. Some cultures are more open to taking bribes or asking for payments of bribes.
With this type of cultural norm in a country, it would be difficult to expect that a business deal could be handled without bribery. Not only China but also many other countries place a great deal of value on gift giving. Many social occasions traditionally require gift-giving obligations but it is important for foreign investors to understand the cultural and moral differences between the gift giving and bribery.Even tough the gift giving is accepted in many counties, business corruption practices have many downsides. In order to get rid of corruption countries with high corruption index should have harsh legal consequences to keep foreign investors from indulging bribes or other unethical requests.
On the other hand companies that want to do business in high-corrupted countries should keep a strong moral code when dealing with international investments, a company can gain a reputation as an honest and fair organization. I believe that this step for foreign investor would be almost impossible to achieve because often deals equivalent of billion dollars are in hands of officials that take bribes as part of the job.
