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.

Rationalizing Bribery: Corruption Has No Witness.

This is part three of my four part series on how I "Rationalized Bribery."  It addresses the reality that there are usually no witnesses to overseas discussions involving an actual or potentially corrupt transaction.

As tweeted by Ben DiPietro, Wall Street Journal Reporter,  @BenDiPietro1 during my interview with Wall Street Journal Reporter Chris Matthews at the April 23, 2014 Dow Jones Global Compliance Symposium (DJGCS):

"bistrong: usually no witnesses when sales person deals with third party vendors and talk turns to bribes."

For the most part, front line sales, marketing and business development personnel travel alone to their overseas territories.  Agent meetings (maybe including a public official) also usually occur without anyone else present. 

You Get Close, You Get Comfortable

Adding to "lack of witnesses" dynamic is the relationship which develops between an overseas employee and in country intermediaries.

The tradition and cultures of many countries leads to a great deal of social interaction outside of work hours.  My own relationships with agents developed and grew over the course of ten years.  We had obligatory evening meals, often in the home of an agent.  Over time, I even took vacations with agents and their families.  Some agents insisted I not stay in a hotel, but as a guest in their home. We became friends and as these relationships grew so did the level of comfort in the conversations.

During the course of my sales travels, casual discussions led (on a number of occasions) to the agents explaining to me, in barely masked language, that they were paying bribes to win contracts.  One of the first times this happened to me, I was on vacation with an agent I had known for years.  I had no reason to suspect he was corrupt, but on this vacation, he explained to me how he was "paying tolls" to win contracts.  

As I shared at the Dow Jones Symposium, the agent had presented me with a dilemma.  I have won contracts with this agent in the past.  I am hoping to secure future contracts.  And now he tells me about paying bribes (I didn't need to clarification as to the "wink and nod" language).

For Compliance Professionals, this is a simple "call home" moment.  Withdraw from all transactions with this agent, and inform Legal and Compliance.  Simple, right?  Not necessarily for sales or marketing employees, as the thought process can be far more complicated.  This is where the rationalization process can take hold and dictate decision-making.

For a sales, country manager, or marketing person, it is more than just walking away from a transaction, it means walking away from the entire third party relationship.  For these employees, there are not just short term financial consequences, but also the loss of all future deals, sometimes with regional implications.

As an example, see my post on Cisco and Russia (see post), where once the Cisco employee allegedly heard talk among agents about paying bribes, he was reported to have walked out of the room, not to report the conversation or undo the deal, but just to maintain deniability.

Add in Procurement Instability and Financial Incentives to Create the Perfect Storm.


As Ben DiPietro @BenDiPietro  tweeted during the DJGCS:

"bistrong: to pay a bribe or sever a relationship is more complicated decision than compliance people think."

In other words, when the employee hears talk of corruption, he or she might rationalize going forward due to vague language and lack of witnesses.  Add in procurement instability (see prior post) and incentive compensation (see prior post) to create a Perfect Storm for a bad decision – "I am not going to see this tender come back for quite some time.  If I lose it, a large part of my forecast and bonus projection will be gone, so why make trouble?"

As Maryam Hussain states in Corporate Fraud, The Human Factor, "it is often the case that a narrowly defined objective – an ever growing sales target to achieve bonus, a consistent progression of earnings per share to maintain an upward trending share price – takes precedence over everything else and can lead to employees stepping over the line to achieve the goals that have been set." Furthermore, the impact of not having a witness to these events can have an tremendous impact on that "stepping over the line" moment. 

As I have shared before, if the C-Suite preaches compliance but the sales incentive package awards "winning the sale" above all else, how will that employee determine whether management wants compliance or sales?  

Private conversations between agents and corporate personnel are not the red-flags that get picked up in an audit or routine review. These red-flags are only seen and heard by the international sales, marketing and business development teams.

I invite comment to how training and compliance programs address such scenarios.  Up Next: One more element to complete the "Perfect Storm of Rationalization."