Apr 06, 2015

Just “Say No” to Bribery, but Prepare First. A Front-Line Story

Today’s Q and A is with Mike Kenealy. 

Hello Mike, and thank you for joining us for this Q and A. First, perhaps you can share with today’s readers more about your perspective and experience.

MK: Hi Richard, thank you for having me as a guest on your blog. To start, I work for Groupe Insiders, where I serve as the CCO of Insiders Integrity. We work with and advise multinational companies on how to achieve effective global anti-bribery compliance. My areas of expertise include compliance strategy, compliance program testing, complex due diligence and cross border investigation. I can be reach here via LinkedIn  here, via Twitter here and via e-mail at [email protected]

As far as my perspective, I have spent the better half of my twenty-three year career living and working in high risk and low integrity countries, so I see things from the reality of real-world operating conditions on the ground. Richard, as you well call it, the “front-line.”

Thank you Mike, so with that said, I understand that you have a front-line story about what can happen when you say “no” to bribery.

MK: Yes Richard, several years back, a multinational client was having problems due to a labor dispute at their manufacturing hub in Southeast Asia. Once in country, the client quickly outgrew its manufacturing facility. In fact, due to strong sales, the client opened a second manufacturing facility in the same country soon after their first went online. They also on-boarded many sub-contractors to help meet product demand.

When I was called in-country, the client was already in the process of building its brand new manufacturing facility in China. The client planned to halt production at their original factories in order to move their operations. After the move out, the client’s biggest sub-contractor had agreed to come in and take over the original factories; thus there would be no long term loss of local employment.

Mike, why were you called in country, and under what capacity?

MK: The company’s general counsel was concerned because the company’s CEO was alone in country. All of the expat staff was flying out due to safety concerns and the GC wanted someone with some experience to assist.

While the sub-contractor had planned to keep all of the existing trained and skilled laborers, both companies failed to notify the workers and the local community of their grand re-organization plans. As such, the local community and workers protested the move.

The day before I arrived, the client’s GC reported that they could not access their factories or corporate office, senior management was under serious threat and there were concerns of possible looting.   To worsen matters, the client did not pay their employees’ wages, a meager $2.25 per day, as scheduled. But the client’s deeper problems all stemmed from bribery.

In what respect Mike? Who was asking for the bribes and for what purpose?

MK: Richard the bribery started when the locals saw an opportunity to extort money from a foreign company. It started with permits, and then customs came with their hand out because the client operated in duty free facility that required customs officials on site. At the same time, the police joined in demanding money to provide security.

Then what happened?

MK: The client was having daily meetings with local community and religious leaders, union officials, as well as local and national government officials trying to come to resolve the situation; however their demands were truly insane. For example, at one point they were seeking a hospital, a billion dollars and cases of orange flavored Tang ©, the powdered drink mix! All of these people saw an opportunity to make money and there was nothing the client could do about it at that point in time given conditions on the ground.

Soon, the locals were looting the client’s factories. People were now living in the compounds of the client’s own facilities; they were cooking with open flames while surrounded by very highly flammable materials.

The local police demanded bribe payments in order to intervene, asking for hundreds of thousands of dollars. Within very short time, one of the client’s facilities was burnt to the ground. It was a complete loss. The second facility remained occupied by the protestors. After about a month, the remaining protestors had decided to move on, leaving the factory abandoned; however, there was still thought to recover equipment that was not carried away or completely destroyed, or so the client thought.

The client arranged for trucks and movers to go out to the facility to remove what was recoverable. The client informed the local police chief who immediately asked for $30,000 dollars to make sure that the rural jungle roads would be clear and safe. The client refused to pay.

The move was still scheduled and that night the US owner of the company, their local partner, the landowner, local attorneys, senior company management, and a member of the US Embassy all were present. Once on scene, we quickly gained access to the facility and documented the remains. After about an hour, we were informed that the police stopped the trucks on the highway and instructed them to return. The police chief soon arrived demanding money from the client. The client once again refused to pay. The chief left and soon the locals started arriving at the factory to protest.

The situation was very quickly getting out of hand. The locals were agitated and all were in fear of our lives. Soon truckloads of police started arriving. This was not a good scene.

I instructed the client’s local managers to blend into the crowd and make their way out of the area to safety; however it was impossible for us foreigners to do the same.  The local police detained the owner of the company. My self and two other Americans decided to find safety in a car; however hundreds of people soon surrounded the car and were attempting to flip it.

The crowd broke up and there was a man brandishing a handgun, demanding that we unlock the car doors.   We complied and he and another local got into the car. They informed us that they were the police and that they were taking us to our boss at the police station. The crowd parted and we were driven to a local police station.

After arriving at the police station the Chief arrived and informed us that we were in big trouble because our boss refused to pay the price he set for the trucks to be allowed access to his area. He informed us that we were going to be detained while they investigate the matter. This chief knew the matter inside and out. He was detaining us for not giving into his outrageous bribery demand.

Luckily, the US Embassy became aware of the unlawful detention because they were also detaining one of their people. After 4 days of being kept awake, with little real food or water, countless interviews with no interpreter, line-ups and yet more interviews we were taken out of the small office and put into one of the client’s company vehicles. Note, the local police had seized 3 brand new SUV’s which they were now using as their own. We drove for about two hours and were not told where we were going. The police officers in the cars were just smiling and giggling the entire trip.

So, what happened?

MK: We finally arrive a notorious Penitentiary. This was not a welcome sight. Soon we were ordered out of the cars and made to walk like ducks while being hit with wooded sticks. We were led to a room were the police robbed us of all our valuables, including cash, jewelry, cellphones and shoes.

We were forced to sit in a squatting position in the hot Asian morning sun with 88 other prisoners waiting to be processed into the penitentiary. The prison was built over a century ago to house 830 people. At the time, the prison had over 4000 inmates. Prison conditions were deplorable, it was over populated and men were forced to sleep on top of each other.   Prisoners were locked down 14 hours a day and without access to toilets or running water. Dead bodies were getting carried out by hand, no stretchers, daily.

Fortunately, the US Embassy found out where they had taken us and arrived on scene that afternoon demanding our safety. The prison warden called us into his office. He explained that he knew why we were here and that we had no charges against us. The warden assured us that If we played by the rules, everything would work out and that he would make sure that we remained safe.

Over the next month, US Embassy and Military Officials, corporate lawyers, outside counsel, etc., visited us and were working towards our immediate release. The US Embassy called our situation a kidnapping and assured us that they were doing everything in their power to get us out. Unfortunately, the police chief held all of the power. Making things more problematic, the Chief’s brother was an even more powerful three star Police General and together they now wanted to get paid.

After 31 days locked up in a foreign hellhole, we were finally released. It took a full year before the police returned the clients company vehicles; all were junk and had an additional 100k miles on them.

So, Mike, there can be some serious consequences to refusing to pay bribes.

MK: Without question, Richard. Simply saying no, the compliance “solution” is not always easy, especially when there is much stake, including liberty and well being.

In retrospect, if the client, in this situation, had a much better understanding of the local culture and had communicated its intentions with its local employees early on this entire disaster could have been avoided. It was the lack of communication from the company that allowed the corrupt locals officials to both manipulate and incite my client’s local work force. Given that my client had acted ethically as well as responsibly by planning to insure that employees remained employed when the sub-contractor took over the factories, this was both an unfortunate and avoidable chain of events.

As for other companies operating overseas, the key lesson to be learned is that corrupt officials are often little more than thugs who do not take no for an answer. Going into these situations with a “rational” mind-set, and not considering the low-integrity culture beforehand, presents peril to all parties.

As such, companies operating in high risk/low integrity countries thus need have a highly attenuated as well as nuanced understanding of the local culture, anticipate that bribes will be demanded and thus must educate their employees what to do in the face of shakedowns and – most importantly – report all incidents of attempted bribery to local anti-corruption officials. In some cases, organizations might have to consider the strategic and economic implications of not entering the market at all due to corruption risk and physical security, which is now a dynamic that is becoming more prevalent.

Thank you Mike, a very cautionary tale but one which I hope other organizations will consider. As you have demonstrated, saying “no” to bribery, while a compliance “no brainer” requires much more than one word to execute. 

Photo courtesy of Mike Kenealy. Not to be distributed without permission.

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