Bribery as a Business Strategy

Your company is pursuing a big deal in a dodgy country - a "challenging market" - and things have started to unravel. You're nearing the culmination of the negotiations and, after months of business dinners and late-night-cognac conversations, Mr. Avaricio, the government official making the final decision, has stopped taking your calls. He communicates through a low-level colleague who was previously very polite, but who now seems somehow to have the upper hand, that your competitor has offered to "include Mr. Avaricio in the deal" with a 10% share to be wired to his off-shore account.

There follow the usual expressions of regret, the strongly stated preference for your company and the desire to continue what has been an "important personal relationship." This would all be possible if Mr. A. could be accommodated. And so you agree to match the competitor's 10% kick-back to the foreign official. You agree to violate US law and the laws of his country to salvage the deal. Suddenly all smiles, the emissary jots down the name of a small company you've never heard of that can be retained quickly ... this afternoon ... as a local "consultant" on the deal for the convenient sum of 10% of the total value. The following morning you return to U.S. headquarters with the signed contract in hand.

What have you just bought for you and your company?

You've bought an unenforceable contract, to begin with. Regardless of how carefully negotiated and documented, a bribery scheme is unenforceable. If the official on the inside reneges or if he is removed in a change of government, whether violent or democratic, you must begin again. If he simply stops returning your calls, you are back where you were, but poorer by 10% of the deal.

Even without a change of government, bribed officials rarely stay bribed. Once they know you're a player, (that is, that you can be played), they can move the goal and have confidence you'll follow. Suddenly, there are unnamed others who also require payment: colleagues in his department, officials higher up the chain, inspectors, investigators, judges. You'll never meet these people, but with enough money Mr. A. can take care of them for you. A particular favorite of the Mr. A's of the world is to require additional bribes to secure the release of his country's payment to your company. You've performed as promised and delivered the goods, but now it seems the folks who pay the bills want their cut.

Shorn as it is on the front end, throughout the period of the contract and then again when it comes time for payment, your company's profit on this deal is suddenly paper thin. Negligible profits are the best outcome to hope for.

If your side deal is uncovered, and angry competitors and whistleblowers make that increasingly likely, you've bought a substantial fine. Fines levied against U.S. companies in the hundreds of millions of dollars are no longer unusual. Fines levied against individuals are smaller, but must be paid by the individual himself and can be ruinous.

You may also have bought your company a shareholder class action suit, the cost of which can quickly surpass an SEC or Department of Justice enforcement action.

You've almost certainly bought years of business disruption as teams of lawyers and forensic accountants span out across your global operations to determine whether this is an isolated event or a pattern of conduct. The fees and travel expenses associated with the investigation will surpass the cost of any fine imposed.

It will be almost impossible to conduct business overseas during the period of the investigation; every consultant will be suspect and many will be asked to stand-down on marketing efforts while the lawyers determine whether they are legitimate or simply shills.

Remedial measures may be adopted or imposed that will take years to implement and millions of dollars to roll-out.

These are hard, measurable business costs. Yet all of these costs assume only a U.S. enforcement action. The country in which the official is bribed, the country of Mr. Avaricio, may also join the fray. Due process in that country may not be all that you would hope.

Alongside the fines, you may well have secured your own place in prison. The U.S. Department of Justice has expressly stated that proceeding against individuals is now a priority. Proceeding against individuals in the country in which the violation occurred is always a possibility and we've seen the death penalty used in cases of bribery in more than one country. An added irony: the proceedings, and the numerous defenses against them, often give rise to demands for bribes as well.

In the eyes of the public at large, you have branded your company as corrupt. Even those who don't know the details know that German engineering giant Siemens ultimately settled for over a billion dollars after engaging in widespread commercial bribery. Communities ravaged by corruption generally know who the offenders are.

In the eyes of bribe seekers, you have branded your company as a compliant and promising target. Whether you intend to pay or not, that reputation will ensure delay and negotiation over every aspect of every deal while local officials test your resolve in an effort to secure their cut.

Fines. Imprisonment. Delay, uncertainty, risk and expense. Not exactly a case study for business school.