I signed up for an International Investments class which meets on Friday and (gasp) Saturday mornings for 3 hours. Last Saturday we discussed cross border real estate deals and project finance for infrastructure investment, both compelling topics. But, I was completely unprepared for our final discussion.
The professor wrote our textbook, and at the end his chapter that we covered that day was a short essay on bribery and the FCPA. The gist of the discussion in the book was don't bribe people. The professor opened the discussion by asking us what is wrong with bribes?
Well, we came up with things like it damages predictability, hurts the ultimate quality of the project, and weakens the rule of law in the country where you bribe. All good answers, but he challenged us to come up with reasons why bribery is morally wrong. The short answer is that there is no good reason. Attitudes towards bribery tend to be governed by cultural norms. In some cultures there is an entitlement to bribes, in others, civil servants are paid so little that they are almost expected to take bribes. That doesn't excuse big governmental fish from taking bribes, though, just small fry.
This presents problems for those from, say, America, who might refuse to bribe because they say it is wrong. It is not necessarily wrong, and if you claim this as your excuse for not bribing somebody your excuse might fall on deaf ears. Fortunately for Americans and citizens of EU member states, we can refuse to bribe because we have laws such as the FCPA which will land us in jail if we bribe. This is a great excuse, and foreign officials will understand.
But, sometimes the deal gets stuck, and you need an alternative to bribery that won't land you in the slammer courtesy of the FCPA. The following is for educational purposes only in order to be aware of what others will try to, and probably can get away with. Remember, he who must bribe is typically peddling a crappier product, or didn't do their time tables right.
Bribery Alternative 1
This sort of alternative tends to arise in infrastructure investments requiring project finance. If you have a significant governmental roadblock, you could allow an authority to have equity participation in the project courtesy of a loan from another member participating in the project. The terms of the loan might call for the termination of the equity interest in the project if interest payments on the loan have not been made for a period of time. These are probably not illegal under any sort of bribery laws.
As a slight modification, you could setup a family trust for the authority figure in another country if they don't want their own local authorities to find out about the arrangement.
Bribery Alternative 2
They call these facilitating payments. Say you've got a turbine sitting in a shipping container at a port of entry. The port guy says it'll take him until next week to do the inspection. Assuming your shipping container actually contains a turbine and is not full of AK-47's, it is probably not bribery by any legal standard to give him a tip to speed up his completion of a service that you're already entitled to.
4 comments:
Bribery is morally wrong for the same reason that every other crime can be said to be wrong - it gives you an advantage to which you are not entitled.
Okay, the word 'entitled' is a bit tricky, obviously you can say you've bought title to the advantage with your money, which may have been earned honestly.
Still, I don't buy this. Yes, plenty of foreign businesses in China end up paying money to the government which they shouldn't have to, but they do this because they think they have no choice. Morality doesn't come into it, and most people would be able to spot these two devices for what they are.
FOARP,
First, I never specifically mentioned China...
If we roll with George Carlin on this, things are morally wrong when you take something from somebody else. In the case of bribing, there is no taking, just an extra amount of convincing. And if you look at a single instance of bribing, there is no real wrong that has occurred. You could even argue that you're only living up to your fiduciary duty to your shareholders if you bribe potential partners for contracts if there are no laws preventing bribery.
Bribery becomes trouble in the problems it causes in the aggregate. If nothing can get done w/o bribing then you're looking at the complete break down of the rule of law which prevents the stable, predictable business environment which makes business such a pleasure in the US and other long stable economies.
Americans or EU folks who pay bribes get what they deserve because they're breaking a law they should know about. You always have a choice, and prison probably totally sucks.
@Will Lewis -
Apologies for assuming you were talking about China.
Back in the eighties there was a move to nix a buy-out of a British company by an American one. One of the arguments which in all seriousness was made before the Monopolies and Mergers Commision was that, once the British company was wholly owned by the American one, the British company would no longer be able to pay bribes to government officials in the third world. Of course, this was in the days before EU regs banning such activity were in place, but even then it was treated with the disdain it deserved. So yes, bribes can be a part of business, but one which is going to be pretty hard to explain to the folks back home -as the Saudi Arabia/BAe scandal showed.
Bribery cannot be said to be immoral unless everybody pays them - or at least everybody who can afford to pay them pays them, in which case they are simply taxes or government salaries with a different name. This may not even have the negative effect on the economy which you discuss, if the same bribes are demanded from all for the same service. This is, I believe, a fair approximation fo the situation in Russia and more than a few other countries.
If only part of the population pay bribes, but the other part tries not to and suffers as a result, then those that attempt not to pay bribes are clearly the victims of those that do. The immorality of bribery then becomes clear.
FOARP,
I think you're coming at it from the wrong angle. As between two parties bidding for a project, if one bribes and the other does not and the bribing party is awarded the contract, then the victim is not the party that lost the contract; the victim is the people that the completed project was to benefit. The perpetrator is not the one who pays the bribe, though, but the one who takes the bribe.
The economics of bribery make little sense, except for the government official who is going to benefit. If we're both bidding $1m for a project, and you bribe $100k [ ;) ], then that bribe is built into your bid and you're just going to do $900k worth of work, whereas I'll do $1m worth of work, or my materials or workmanship is $100k better. And, government officials are supposed to work for the people, right? So they're violating the duty of their job which is a moral decision, and the party who bribed was just trying to get a job by improving their negotiating position.
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