The Perils of Bribery Meet the Open Palm

By Paul Burnham Finney

New York Times 

Martin R. Morrison, president of Fare Audits, a travel-consulting firm far removed from the murky world of payola that plagues international business, heard that bribes were tax-deductible in Germany. "Am I the only one who's naïve about what goes on during foreign business trips?" he asked. Probably not, but American business executives do walk a fine line in doing deals overseas. On the one hand, both the United States and Europe are cracking down on corporations that make illegal payments to foreign officials. On the other, companies that do not play along in the estimated $1 trillion-a-year game of oiling the wheels of contract negotiations can put themselves at a competitive disadvantage.

"The bribes aren't back alley," said Robert C. Blume, a partner at Gibson, Dunn & Crutcher, a Washington law firm that specializes in compliance with federal antibribery legislation. "They're direct. Many American companies get in trouble because they don't do due diligence and check out the foreign agents they use." Petty corruption has always been a part of traveling to certain parts of the world, of course, with bureaucrats, corporate managers and police officers none too subtle about expecting a reward for easing your way. The travel writer Robert Young Pelton devoted an entire chapter of his advice book, "The World's Most Dangerous Places," to the ins and outs of greasing palms.

"If you meet with an African dictator about selling more product, it's normal to leave behind a laptop or an expensive plane ticket to Paris," Mr. Pelton said in a recent interview with CSO, a newsletter for corporate security officers. American law does, in fact, permit "facilitating payments for routine government actions" (reportedly capped at about $500), like expediting a visa request.

More problematic are the bigger payoffs sometimes demanded for getting deals done, and American executives negotiating them - or hiring local intermediaries to negotiate them - need to exercise extreme caution, experts say. A list of recent cases, sent by Gibson, Dunn to its clients, in which the Justice Department took action for various violations of the antibribery law, includes Monsanto, the St. Louis agribusiness conglomerate; ABB, the Swiss engineering company; Schering-Plough, the Kenilworth, N.J., pharmaceutical giant; and InVision Technologies of Newark, Calif., a supplier of bomb-detection systems for airports that was acquired by General Electric late last year.

The answer to Mr. Morrison's question is, no, international bribes are not tax-deductible in Germany. European countries, as well as Australia, Japan, Mexico, New Zealand and South Korea, have eliminated such tax dodges since the Organization for Economic Cooperation and Development passed an Antibribery Convention in 1997, which the 30 members have ratified. It came none too soon for American multinationals, which for 20 years had been bound by the Foreign Corrupt Practices Act and its prohibition of "questionable and illegal" payments to foreign officials, a law that they complained tilted overseas competition in favor of Europe.

The parade of prosecutions has grown longer since the corrupt-practices law was strengthened in 1998 to include "foreign companies and nationals" doing business in the United States and since the Justice Department and the S.E.C. began working together more closely to bring criminal and civil suits against violators. Some examples are:

• In June 2002, Gautam Sengupta, a foreign national who had worked as a task manager at the World Bank in Washington, pleaded guilty to a Justice Department charge that he had directed World Bank-financed projects to a Swedish consultant in exchange for kickbacks. I
• Early in 2003, J. Bryan Williams, a former senior executive with Mobil Oil, pleaded guilty to evading taxes on more than $7 million he received for negotiating oil deals in Kazakhstan.
• In March of this year, the Titan Corporation, an intelligence and communications company in San Diego, pleaded guilty to violating the corrupt-practices act and agreed to pay more than $28 million to settle charges that included making $2.1 million in payments to the election campaign of Mathieu Kerekou, president of the West African nation of Benin.

Daniel Kaufmann of the World Bank, a veteran dispenser of third world loans, estimates that illegal transactions cost the world economy some $1 trillion a year. The Sarbanes-Oxley Act of 2002, which was enacted to attack accounting fraud, like off-the-books bribes, is a new weapon in the anti-corruption battle. Many American corporations are upgrading their compliance departments, adding "foreign corrupt practices" to their portfolio of concerns, says Jay G. Martin, a lawyer who is vice president and chief compliance officer at Baker Hughes, the Houston oil field services company.

Breaching the law can lead to corporate fines of as much as $2 million and individual fines up to $100,000, as well as jail time. An easier way out might be voluntary disclosure and settlement with the Justice Department. One way to make a payment legally would be to get preapproval from the Justice Department and the S.E.C., as Goldman Sachs did before agreeing to pay a $67 million fee to Beijing power brokers to smooth the way for a joint venture in China.

Fewer than 100 cases have been prosecuted since the Foreign Corrupt Practices Act became law. Critics complain that the government goes too easy on some companies, citing a $300,000 fine that International Business Machines paid to the Securities and Exchange Commission in 2000 to settle charges that its Argentine subsidiary had paid bribes totaling $4.5 million to an Argentine bank. "I'd recommend more prosecutions and less jail time," said Allan Gerson, a lawyer who specializes in international law. He added that unfavorable publicity is often an effective penalty.

Transparency International, an antigraft watchdog in Berlin, publishes an annual corruption perceptions index, which generally ranks the Nordic countries and Singapore as the least corrupt, and places like Azerbaijan, Myanmar, Nigeria and Paraguay judged most crooked. Some specialists say that roughly two-thirds of the big multinationals find legal ways around antibribery statutes, like bartering goods and services.