Monthly Archives: June 2014

“Countering Small Bribes.” A Personal Perspective on the  Guidance by Transparency International

“Countering Small Bribes.” A Personal Perspective on the Guidance by Transparency International

First, whenever I read a paper, book or guidance about “how to pay a bribe,” or  “how to avoid a bribe,” etc., it is always with some degree of skepticism. I often wonder how an organization or person can have a perspective on how bribery works in the field without actually interviewing or “walking the walk” with those on the front line who are facing risk and corruption. Thus, I ask, does “Countering Small Bribes” by Transparency International (TI, Lead Author, Peter Wilkinson), accurately reflect the “real world” dynamics around small bribes as they impact organizations and individuals? 
 
In a word: “Yes.”  In two words “Incredibly accurate.”
 
As the paper states in the introduction, “paying small bribes feeds a climate of corruption, which creates an unstable operating environment for companies.” On an organizational level, that is entirely accurate, and as I share my views, I will attempt to supplement the TI work with how small bribes impact the thinking of those in the field. Accordingly, I hope to use this post as an attempt to carry the TI guidance to a more personal level, and I will utilize the TI paper as a functional and illustrative guide to my own experience and perspective. I hope that by bringing a personal view to the guidance,  I can somehow (humbly) enhance its value to other organizations, teams, and individuals who encounter this unfortunate dynamic in their own work on the front lines of international business.
 
Why even bother to pay a small bribe? It’s all about the “pinch-points.”
 
From the field perspective, there is a distorted view of small bribes relative to risk and reward. Why? Because as the TI paper well states, small bribes are often paid at “times of operational vulnerability” to eliminate potential “pinch-points” in a transaction.   Thus, when a front line business person considers the risk of getting caught in small bribe activity, relative to the reward of eliminating potential “pinch points” to completing a transaction, the thinking may not be as complicated as one might project.
 
 If the compliance community has a hard time contemplating why a front line businessperson would take such a large risk (civil, criminal, reputational) for a small bribe, lets first go to the TI definition of why a small bribe would even be paid all:

  • “To obtain performance or to speed up a function to which the payer has legal entitlement.”
  • “To induce an official or employee to perform a function improperly such as a falsification of records.”
  • To give improper preferential treatment.”
All of the above usually fall under the latter part of a transactional cycle. In other words, these are all events which are needed to complete a transaction as opposed to securing one. As the TI paper describes quite well “a bribe demander will use explicit or implied threats of delay, inconvenience, business cost or some other undesirable outcome.”   These are all articulated “pinch points” which occur downstream in the chronology of a transaction. So, how is it that a sole foreign official can wield such leverage and potential damage?
 
Procurement structures which foster bribery
 
In my experience, the only way a bribe demander can leverage operational vulnerability to secure a small bribe is if the local procurement structures and protocols allow for such discretionary authority. In some countries, those procedures are actually inherent in the procurement process, and make for an atmosphere of endemic corruption risk.
 
As an example, there was one country where once the ordered product was released for shipment, the supplier would receive 95% payment on an irrevocable letter of credit, paid into the suppliers bank, upon presentation of shipping documents at the point of origin (asleep yet?).  In the world of international commerce, this is as financially secure as it gets. But wait, the other 5% would be paid upon inspection at the end-user (destination) warehouse. Here are additional elements:

  • If the product does not pass inspection, the vendor may be banned for a period of five years.
  • If the product does not pass inspection, the supplier is responsible for having the entire shipment re-boarded and returned to the point of origin. That is the logistical and financial responsibility of the supplier.
  • If the product does not pass inspection and the order needs to be remanufactured, there is a delay clause of 1.5% per month penalty until the goods are returned, remanufactured, reshipped, an inspected again.
  • If the inspection takes too long to complete, (there are no timelines in the procurement regulations, it is totally at the discretion of the end user) the letter of credit may expire, and the goods are now financially unsecured.
·    But most significantly, the vendor is neither present nor informed in advance, as to when the goods are to be inspected, so there is no guarantee whatsoever that the inspection will be in line with accepted industry norms, e.g. ISO standards,  or with qualified and experienced personnel.
 
The risks here multiply like a chain reaction. What do you think goes through the mind of someone at the front line in this territory when a small bribe is demanded to “remove the pinch-point” by getting the goods inspected expeditiously and the payment released? Also, lets add that whatever incentive compensation the employee has based on this transaction is certain to be withheld until final payment has been secured. While TI has sound policy and governance recommendations as to how industry can counter these dynamics, my purpose here is to elevate how real they are at the field level.
 
In this type of environment, as TI states “small bribes are often systemic…” and “demands are made at times of vulnerability” as the government “functions have engrained cultures of demanding small bribes for routine actions.”  In my experience, it is corruption leverage at its worst. Also, as TI adds, and with incredible accuracy, in such environments “bribe demanders can create or heighten vulnerability by inventing bureaucracy.” Indeed, it can get to the point where in the field you start to think “I don’t know what is official and what is not,” so, the solution of “what does it take to make all this go away” starts to win out over more compliant and social thinking.
 What is the psychological impact of small bribes to those on the front line of business?
 
“You get used to it.”
 
As a compliance professional recently shared with me when talking about the impact of small bribes, “when people get used to day-in, day-out events as minor, in terms of corruption, and that thinking becomes commonplace, especially in regions where local laws are not enforced, and local culture does not find it objectionable, that is now a very large problem.” And that is my personal narrative to the TI paper. While impact of small bribes is substantial to an organization, to those on the front lines, it is a dangerous and perilous gateway to tolerating greater corruption.
 
Thus, I agree with TI, that eliminating the tolerance for small bribes, for international personnel, is going to go a long way to close the gate to risk on a larger basis, as it eliminates a potential source of confusion as to “what does management really want?” As the TI guidance asks, “do the small bribes link to or pave the way for other corruption or risk?” Inasmuch it fosters a thinking of “this is the way it is done,” it is indeed a dangerous path to greater risk and a no-tolerance policy is going to help to mitigate that thinking.
But what are the solutions? Are there any which are realistic at the field level?
 
Yes, and the most important solution is the one where TI guides organizations “not penalize employees who refuse to pay bribes” and that organizations should be  “prepared to accept any resultant costs or delays.” In some cases, that might mean withdrawing from the business opportunity and officially registering concern with the supervisory authorities.
 
I would also add to the TI section on “communication and training” that a regional dynamic needs to be incorporated into any training program, tailored to the territory where the individual or group is working. Especially in the case of small bribes, the local culture will often have an impact on not only how the bribe is demanded, but on the disguised language that might be used to deliver the request, and finally, even to the person who might be demanding the bribe on the behalf of someone else.
 
While too complicated for a larger treatment in this essay, I would simply emphasize that training should not be a one size fits all model. It is critical that training be programmed to the peculiarities of each region. Also, as TI recommends, talk to people at the field level and find out more about what risk issues they are confronting in their work. Your own employees are your best source of information when it comes to encountering risk. As the TI paper asks in its Principle 4, Checklist “are local teams used to contribute to design the programs to counter small bribes?” Indeed, bringing a front line team into the design process, breeds “buy in” and “ownership” from those who are ultimately responsible for policy execution.
 
As I have previously shared, corporations may have to be willing to take a step backwards in business forecasts and sales growth plans, including withdrawing from some market sectors, to take a step forward in eliminating small bribery risk. Indeed, in some situations it might be the only responsible and possible solution. As the TI paper states “a radical solution may be to withdraw operations from an area, market or country.”
 
In perhaps my only disagreement with the TI paper, my view is that it might not be so radical.
The Illusion of No Victims: The Final Component of “Rationalizing Bribery.”

The Illusion of No Victims: The Final Component of “Rationalizing Bribery.”

As Andy Spalding, Assistant Professor at the University of Richmond School of Law and Senior Editor of the FCPA Blog stated in a recent guest post on The Global Anticorruption Blog, “Most of us would agree that overseas bribery is not a victimless crime.”  Professor Spalding adds “the principal victims of overseas bribery are the citizens of those countries…whose governments have been corrupted.” Indeed, there has been a great deal of writing about the impact of bribery on issues such as governance, standards of living, and even violence, as recently reported with respect to a gangland style murder of a former public official in Trinidad and Tobago.
In a June 24th 2014 interview with the Wall Street Journal, Alexandra Wrage, President of Trace International, stated, “in fact, bribery is a precondition for terrorism. You see tainted pharmaceutical products getting onto foreign markets because of bribery. You see all sorts of problems that are much larger than the business community but that affect the business community because you all have employees working overseas.” Andrew Feinstein, author of The Shadow World, shares some of the horrors that corruption has brought down upon ordinary citizens in his book, and I asked him to reflect more about his thoughts on the victims of corruption, irrespective of market sector.  Mr. Feinstein responded:
“My view is that bribery and corruption affects myriad victims. First, in the purchasing countries taxpayers have to pay for the cost of the bribes that are often simply added to the price tag. For people on the economic edge, money is spent on items where the bribes are biggest (weapons, grandiose building projects, etc.) at the expense of dire socio-economic needs or benefits. In addition, the practise of governance and the rule of law is undermined to both enable, as well as to hide, bribery and corruption. This corrosion of democracy and good governance impacts citizens in both buying and selling countries.”
Is thinking at the front line level so elevated?
So, I ask, to an international businessperson or team, operating at the front line of overseas commerce, is the thinking as broad or as attentive as Professor Spalding, Ms. Wrage and Mr. Feinstein would argue? Relating to my own experience, as the final post on “rationalizing bribery” and the perfect storm, I would state not. Unfortunately, for those operating on the front lines of international business, especially in high risk areas, the thinking is more of “who is being hurt?” as opposed to “who am I hurting,” by engaging in corrupt behavior and transactions. As the title states, it is only an illusion, but at the front line of international business, bribery often appears to be entirely victimless.
In fact, there may be cases, where due to the bribe, the end user pays less money for the product, as inside information passed corruptly allows a vendor to lower the price of the goods or services to secure a contract. In such cases, the businessperson might rationalize the corrupt behavior as a “win-win.” He or she secures the contract on behalf of the company, management is pleased with the completion of the sale, and the end user ends up saving money.  Again, while it is only an illusion, from the field perspective, this view will often prevail above the broader considerations of local standards of living, regime violence and good governance.I consider this an under reported but dangerous component of the rationalization process, as an international businessperson might see bribery through a distorted view of somehow providing value to both the company and the country.

A Presentation to Compliance Professionals: Rationalization Not Justification

A Presentation to Compliance Professionals: Rationalization Not Justification

On Thursday June 12, 2014, I was asked by Mike Kenealy (FCPA IntegrityCOO) & Craig Chadwick (Global Secure Summit) to address a group of Compliance Professionals from the financial sector in NYC. In my presentation, I shared my experiences from the field of international sales, including encountering foreign bribery, cooperation, and finally, my perspective on current compliance challenges. A group of the attendees remained after the presentation, where we discussed the challenges of  aligning strategy, compensation & compliance, so that they all speak to the same message of anti-bribery compliance.  That discussion was in the context of how and why compliance efforts fail at the field, especially in the environment of a public company, where profit and sales growth over the short and long term are critical for return on investment and shareholder value. 
I was very much impressed as to the questions asked by the attendees who remained. Clearly, they understood the challenges that their international front line business groups face, and they were very much focused on “what can we do to help.”  Furthermore, as the conversation progressed, they acknowledged how incentives and sales forecasts could actually contradict or distort the messages of compliance and ethics, especially from the perspective of those operating in high risk international  environments.  We talked about the importance of listening to those in the field and how, as I shared, “the more disturbing those conversations might be, the better they are progressing.”  They clearly grasped how front line international business people are the most important element in executing an anti-bribery and corruption program, and how it is the responsibility of compliance professionals to give them the tools of success. 
Rationalization is not justification
I could see from the feedback that I have received since the presentation, that there was indeed value to the practitioners in hearing a voice from the field of international sales, as I spent a great deal of time explaining my own perfect storm of “rationalizing bribery.” There was more than one question asked, as to “what were you thinking,” and I believe that the components of my “rationalization” model helped to break that down in a way which was understandable, relevant and engaging. There was also a great deal of discourse on my discussion of corrupt third parties and how it is often difficult to detect their “circle of lies” when it comes to investigations and vetting. 
But, as I shared at the start of my presentation, almost as a preamble, rationalization is not justification. I knew what I was doing was wrong,  and accepted responsibility  for my conduct, including the loss of liberty.  Now, the question remains, does that experience bring value to other individuals and organizations in their own  compliance challenges? Based on the dialog after the presentation, it certainly did on June 12th, and if it continues to  helps others, I remain open to future opportunities.
Thank you again to FCPA Integrity and GSS for the invitation.

Is Anti-Corruption a Business or Legal Issue?

Is Anti-Corruption a Business or Legal Issue?

Used with permission from Mak Yuen Teen

On June 5, 2014,  Philippe Montigny, President of Ethic Intelligence (www.ethic-intelligence.com) asks exactly that question in an editorial (here).  My own perspective of compliance remains much along the lines of those such as Mr. Montigny and that of Professor Mak Yuen Teen (National University of Singapore), whose article I discussed in a recent post (here).

On June 4th 2014, I addressed an internal audit and investigatory group at a global hedge fund, where I discussed my experience through international sales, cooperation, and sentencing. I concluded my presentation by sharing my thoughts on current compliance challenges and asked the attendees for feedback relative to my own journey and their  professional challenges. What I found interesting is that many of the questions from the audience during the presentation addressed a number of the issues which are now starting to rise in the compliance debate, including “what is the role of corporate strategy and compensation when trying to drive compliance policies and procedures to the front line of the business?”

These questions were encouraging, as I am starting to see a gradual shift in the debate from the specifics of compliance, including “tone at the top,” “third party management,”  and “how to organize a compliance department,” (among others) all of which have a fundamental and valid place in the compliance discussion, to one of looking at business strategy as the primary foundation of compliance. Lately, we see in the news companies such as GSK and Citibank which are edging the discourse away from the “rogue employee,” model or as Professor Mak calls it, “plausible deniability” towards one where business strategy itself is coming under scrutiny, sometimes from regulators, sometimes from shareholders, and often,  both.

In any case, while the details of a compliance program are not to be ignored, if the business strategy itself supports contradictory messages to the field between the “means” of compliance and the “ends” of winning above all else, then as Mr. Montigny concludes, compliance programs will “continue to be perceived by employees and other stakeholders as providing window dressing only.”

Or, as I recently asked Donna Boheme @donnacboheme on a tweet, “when does the paradigm shift with respect to the “rouge employee” concept.” Her response “when #boards stop accepting #lame excuses +demand accountability from management.” Sometimes the limitations of a tweet  make the points of a message so much more relevant!