From 2009 to 2013, global pharmaceutical company Novartis allegedly bribed Chinese healthcare workers repeatedly to increase sales of Novartis drugs. The company settled these bribery allegations in March 2016 by paying $25 million to the SEC.
The alleged misconduct included buying expensive trips for doctors, treating them to lavish meals, and lying about the expenses in accounting documents to hide financial misconduct. These types of offenses are startlingly common in the corporate world, and recent estimates indicate that global businesses pay approximately $1 trillion in bribes to public officials each year. These bribes are more than unethical; they are completely illegal.
The Foreign Corrupt Practices Act (FCPA)
The FCPA, officially instituted in 1977, prohibits bribery and related accounting offenses to secure favors from foreign officials or entice them to act in opposition to their professional responsibilities. All companies with securities listed in the United States are legally responsible for ensuring that any branches, personnel or subsidiaries in foreign countries are FCPA-compliant.
Many countries around the world have similar legislation and have joined international coalitions to address corporate bribery.
Bribing foreign officials or professionals poses a myriad of legal and ethical risks. Among them are gaining an unfair advantage over compliant businesses with assets abroad, skewing the market, limiting consumer options and dangerously impacting politics and foreign policy.
Companies who engage in bribery may use the excuse that the practice is common and widespread in many countries around the world, so refusing to engage in it could hinder business prospects. The financial advantages they see in conducting business in countries with comparatively lax labor laws and other perceived legislative loopholes may outweigh their ethical concerns.
Such excuses are not tolerated by the Justice Department. The American Association for Justice explains it this way: “Congress does not consider bribery a “cost of doing business” abroad, nor a proper way by which to edge out competition in foreign markets.”
If corporations cannot find a way to conduct business abroad legally, they should not conduct business there at all.
Many companies still take the risk, however, and have faced federal lawsuits as a result.
Aside from Novartis, some of the major companies fined or sued for alleged FCPA violations in the last several years include Wal-Mart, Bristol-Myers, Goodyear, Avon, Hewlett-Packard and Siemens.
Siemens scandal exposes corporate bribery epidemic
Engineering company Siemens was at the forefront of the one of the most infamous FCPA cases in history. In 2008, the SEC sued Siemens for creating and sustaining what appeared to be a flagrant bribery scheme. The company allegedly earned over $1 billion in profits by bribing officials and business people in Argentina, Bangladesh, China, Vietnam and Russia. As a public company, the scale of this purported fraud was unprecedented.
Siemens paid $1.6 to resolve the allegations, which also included charges that the company paid kickbacks, using a United Nations program as a cover, to Iraqi officials in order to secure greater sales in the country.
The SEC’s investigation into Siemens and its alleged violations suggested corruption from top to bottom, and a correlated commitment to cooking the company’s books to hide the bribery. The people who perpetuated this scheme were not outliers; multiple reports have indicated that bribery was a widely accepted practice at Siemens and that employees at every level were involved.
Dodd-Frank and FCPA
Combating corporate corruption is a long-term battle, and it is not without complications. Fortunately, some legislative measures have been taken since the recession to uncover FCPA violations.
The Dodd-Frank act, which features a whistleblower program, was also extended to domestic whistleblowers that report FCPA violations. This is an important piece of legislation, because it isn’t as easy as it may seem for the government to spot this type of fraud, particularly when foreign officials are at the receiving end of the bribes. Bribes act not only as an incentive for government officials to favor the company in question; they are a sort of automatic “hush money.” Government officials are unlikely to report a fraud scheme that they, themselves, participated in.
Whistleblowers are essential in spotting and reporting FCPA violations, and the fact that their activities are supported by Dodd-Frank gives them the opportunity to earn a reward for their honesty, as well as much-needed legal protection. The statute of limitations for FCPA whistleblower reports is 5 years.
Stopping corruption in its tracks
Bribery has impacted almost every major industry, and its prevalence around the world is astonishing. According to the Mintz Group, which published a revealing interactive map on the topic, the countries implicated in the most FCPA violations include Nigeria, China, Russia, Egypt and Saudi Arabia.
A sympathetic view of U.S.-based companies that violate this law would be that they are simply playing by the “rules” of the countries in question. The fact is, though, that bribery is one of the most inherently corrupt and corrosive practices in business. It may facilitate matters in the short term, but over the long term it can have a damaging impact on everyone involved—including the fraudulent companies themselves.