Ethics of Bribery Arora Martinez California Southern University

Ethics of Bribery

Arora Martinez

California Southern University

Abstract

This research paper analyzes the effects of bribery on
the ethical decisions corporations and individuals within those corporations.  It explains the difference between a gift and
a bribe, and how to determine where the line is.  Bribery, while accepted in some host
countries, is considered illegal.  The
laws and regulations in place may hinder firms that are conducting business
ethically, but have also brought attention to the dark side of bribery.  The laws hold the people and corporations
involved for the inappropriate behavior. 
Bribery influences more than just corporations.  It can lead to the breakdown of a host
countries economic system and development. 
Developing countries suffer because money that could be used to benefit
the greater good will end up benefiting one person.  This in the long run leads to more poverty,
and less prosperity.  Grease payments
have been continued because they are a cost of getting services that everyone
is required to pay.

Keywords:  bribery, grease payment, ethics,
business, corporations

Ethics of Bribery

Bribery is the act of taking or receiving payment (monetary
or not) with the intention of influencing the actions of the recipient.  It is one of the oldest forms of corruption
in the world.  It is estimated to be two
to five percent of the world’s gross domestic product.  Worldwide bribery is considered an illegal
activity; however, in some countries paying a bribe is still expected.  Many nations are working to eradicate this
corruption, and laws have been passed by the United States, the Organisation
for Economic Co-operation and Development (OECD), England, and Canada to help
fight bribery.  Multinational corporations
need to follow the regulations in place, create a safe environment to report
bribery, create a code of ethics that is supported from the top down, and provide
training to their personnel.  The effects
of bribery are not only felt by the organization, but by the host country and
its people. 

What is the Difference Between a Gift and Bribe?

It is important for corporations, and its employees to
understand the difference between a gift and bribe.  Three things must be considered when
determining if something is a gift or a bribe: 
1) the size; 2) the nature; and 3) the motivation behind the thing being
given.  Many firms have regulations in
place on what is acceptable to receive and give without crossing any ethical
lines.  These regulations help provide
guidance when faced with different situations. 

Gift

A gift is an item that is given
freely without expecting anything in return. 
Many firms have a monetary limit a gift can be worth before having to
report it.  “Some companies are not ready
to risk harming their company’s reputation while some companies accept gifts
and donate them to non profit organizations as charity” (Synergy, 2015, para.
3).  It is important to know the standard
of the business, and in the case of multinationals the host country.  An example would be if it is a national
celebration, and it is customary to give a small gift then it would be
considered acceptable.  Which means that
if it is standard to the industry, then it is probably acceptable. 

Bribe

While free dinners and small gifts are acceptable; gifts
that have implied expectations attached are not ethical.  Bribes are gifts offered to retain or obtain
business by giving the giver an unfair competitive advantage.  This unfair advantage gives competitors not
willing to pay the bribe a disadvantage in doing business in the host
country.  “It eliminates competition
based on quality and service, and provides only competition for the good will
of the agent or employee who is bribed” (Federal Trade Commission, 1930).  It is difficult at times to distinguish when
a gift becomes a bribe, but is essential to do so to avoid abuses in
government.

Adopting a no gift policy would technically ideal because it
would save much confusion on what is allowed and not allowed.  However, there are host countries where it is
acceptable and expected that small gifts will be given while doing
business.  These gifts help foster
relationships with the host countries.  Bribery
is more common place in developing nations whose laws are not as solid as those
that have regulations renouncing bribery. 

Legislation

Following the Lockheed scandal during the late 1950’s to the
1970’s, Congress passed the Foreign Corrupt Practices Act (FCPA) in 1977.  For nearly 20 years the United States was the
only country that had enacted anti-corruption regulations.  In 1997, the OECD members (made up of its 29
members and five other countries) signed the OECD Convention Combating Bribery.  Nineteen hundred and ninety-nine the Corruption
of Foreign Public Official Act was enacted in Canada (McLaughlin, 2001).  In addition, The United Kingdom passed the UK
Bribery Act in 2011.  Generally speaking,
the laws above do not allow for bribery by local firms representing the country
locally and abroad, or by outside countries doing business inside these countries. 

Foreign Corrupt Practices Act

            The United States was the first
country to take a hardnosed stance on bribery. 
In 1977, there was an international bribery scandal involving the
Japanese Government and Lockheed.  The
Foreign Corrupt Practices Act was signed into law because of Lockheed’s
actions.  The Act criminalizes bribery,
and makes it illegal to “…direct payment to foreign officials or politicians
but also the payment to other people – facilitating agents –  who would pay on the firm’s behalf” (Cuervo-Cazurra,
2008, p. 636).  This Act applies to every
American business in any country, and any foreign business doing business
within the United States.  It ensures
that U.S. corporations keep accurate records, have effective internal
accounting processes in place, and disallows bribery of foreign officials and
politicians. 

            However,
some saw this law as a detriment because what the U.S. was not willing to do
other countries were willing to do because it did not go against its
ethics.  Since corporations were not
allowed to pay bribes any longer, corporations were missing out on millions of
dollars in contracts.  This was a competitive
disadvantage.  In addition, the law did
not address “grease payments” that are paid out.  Grease payments are payments that companies’
payout to bypass the waiting time of getting basic services established.  Items that are necessary for day to day
operations.  It is a payment that
everyone needs to pay not just that corporation, and it does not lead to a
competitive advantage. 

The OECD Convention on Combating Bribery 1997

            Until 1997, some governments
felt that bribery should be dealt with by the foreign governments receiving the
bribes.  These ideals put the U.S. firms at
an unfair disadvantage because non-U.S. firms could bribe the public officials
without repercussions.  The OECD, in
1997, passed a law signed by its members and 5 other countries would not allow
bribery in their countries.  The law
would not allow the following types of corruptive behavior

·        
Kickbacks

·        
Bribes could no longer be tax-deductible

·        
Firms needed to be aware of bribes paid by
subsidiaries and other business partners on its behalf

·        
Accounting standards would be stricter regarding
off-the-book payments

·        
Instituting stricter regulations against
corruption (Hamra, 2000)

The OECD Convention has non-criminal
rules for preventions such as cooperation between its signatories and
transparency.  Each of the signatory is
required to enact laws that criminalizes certain behaviors like bribery.  Many countries have established ethical codes
of conduct. 

            As
mentioned above with the FCPA, the OECD Convention did not address the
legitimacy of grease payments.  It has
determined that in some cases it is necessary to pay a little extra is the cost
of doing business.  However, the required
payment must be required to all that do business in the host country. 

Corruption of Foreign Public Official Act

            Canada enacted the Corruption of
Foreign Public Official Act in 1999 based around the U.S. and OECD policies
that were in place.  It “applies persons
and companies and makes it a criminal offence for persons or companies to bribe
foreign public officials to obtain or retain a business advantage” (Gan, n.d.,
para. 1).  While Canada is not known for
receiving and accepting bribes, it does happen. 
Individuals that violate this law face up to five years in prison, and corporate violators can be given millions in fine (McLaughlin,
2001).  In the future, Canada is looking
at ending the exception for facilitation payments, but that has not been
discussed by the U.S. or OECD. 

UK Bribery Act

            The
United Kingdom enacted the UK Bribery Act in 2011.  Its’ Act replaces the regulations on bribery
that are well over 100 years old.  Just
like the U.S. and Canada, the UK’s act pertains to all UK citizens regardless
of the country they are doing business in. 
“The law prohibits the acts of bribery or being bribed, the bribery of
foreign public officials and the failure to prevent bribery by company
employees or other performing services for an organisation” (Ligorner et al.,
2012).  Under this act facilitation payments
are not allowed.  In addition, individual
violators may face up to 10 years in prison and/or unlimited fines, and
corporations face unlimited fines as well.

            Creating
legislation, and holding corporations and individuals responsible for their
actions are key steps in curbing bribery. 
Following through with the discipline for unethical decisions can only
benefit the world’s economy. 

The Downside to Bribery

While corporations may benefit from bribery in the
beginning, the action cause harm to more than the corporation.  The only ones that benefit from bribery is
the person or people receiving the bribe. 
Corporations may end up being required to pay larger sums of money to do
business. 

Corporation Reputation

Corporations make the decision to behave ethically when it
is faced with having to pay bribes.  Even
laws in place do not necessarily always keep decisions on the straight and
narrow.  When corporations behave
unethically (i.e., taking or receiving bribes) it diminishes it standings with
the people with whom it does business.  “Corruption
ultimately breeds more corruption, as bribes give bureaucrats more incentive to
raise red tape and regulatory hurdles, which in turn opens companies up to pay
even more” (Tseng, 2012, para. 6).  Bribery
adds to the cost of doing business, and there is no corresponding value that is
added with the money spent.  The
possibility of bribery accusations can affect the share price of a firm.  In some instances, a corporation’s reputation
is all it has when doing business. 
Bribing may damage the reputation of for many years, and some
corporations may not be able to bounce back. 
In addition to the corporation’s reputation, the reputation of the
leadership suffers.  Leadership essentially
says that unethical and illegal behavior is the right way to do business, and
that the preservation of self is more important than how the job gets done.

Developing Countries

The main issue in developing countries with bribery is it
increases the poverty levels.  Some officials
take advantage of a situation, and keep the bribe for themselves takes away for
the further development of the country.  World
Bank Group President Jim Yong Kim said, “Every dollar that a corrupt official
or a corrupt business person puts in their pocket is a dollar stolen from a
pregnant woman who needs health care; or from…education; or from communities
that need water, roads, and schools” (The World Bank, 2013, para. 4).  By following corrupt measures in doing
business corporations are depriving people of living the way they choose.  According to utilitarian ethics, bribery is
wrong because it does not benefit the greater good, but is an act of
self-interest.

Conclusion

Good business practices and good ethics go hand in hand.  If good decisions are made, poor decisions
may be kept to a minimum.  “There is a
direct correlation between behaving ethically and creating long-term
shareholder value”, said Bill George, a professor at Harvard Business School (Silverthorne,
2008).  A firm is required to do business
so that it benefits the stakeholders.  Benefitting
the stakeholders is ethical because in turn business decisions will begin to benefit
everyone who does business with that firm. 
It will be known in a positive light. 
Corporations need to set up a code of ethics that is followed by top
management down to the lower level of employees.  It will need to ensure that all levels
receive training to ensure what is expected from employees and managers
alike.  In addition, corporations need to
realize that by giving into the demands of corrupt government and people it
adds to the lack of development of developing countries.  Keeping greasing payments to a minimum, or
eliminating them completely, may show that such actions will not be
tolerated.  Which in turn may lead the
host countries to do business so it benefits the greater good.

 

 

References

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