The World Bank lends tens of billions to countries every year. And, every year, between 27 percent and 55 percent is wasted by corruption. Now the organization has decided to use public shame of companies allegedly involved in the misuse of funds. It probably sounds like a problem remote from the work of most people.
However, the issue of corruption, of bribery, is more complex, subtle, convoluted, and pervasive than most people in business realize. And with it is the reality that even if you have an advanced business degree, you may be unprepared for reality. Businesspeople can face significant trouble and even criminal prosecution for actions they never directly took.
For an example, look over to Wal-Mart, which is being rocked by allegations of paying $24 million in bribes to Mexican officials. Purportedly done by top people in the company’s largest foreign subsidiary as part of a campaign to expand business, an alert came to the main office in 2005, according to the New York Times report.
That was bad enough, but after an internal investigation, the company allegedly went into full cover-up mode, trying to hide the situation. The person who supposedly was responsible for the bribery in Mexico became vice-chairman of the entire company a few years later. According to the Times, top Wal-Mart officials worried about the potential repercussions of providing new fodder for criticism.
At question was a possible violation of the U.S. Foreign Corrupt Practices Act of 1977, or FCPA. The law makes it illegal for companies to bribe officials of other countries. What makes the FCPA a big potential problem for American companies and managers? They don’t have to be directly involved in bribery. It is enough for someone in a subsidiary, or even a third party representative contracted by the company, to a payment to gain competitive advantage or secure business.
Under the FCPA, companies have a duty to actively control what is done in their names; blissful ignorance is no excuse. Neither is working for a foreign employer if that company’s stock is publicly traded in the U.S. The penalties for breaking the FCPA can be severe. Fines have run into the hundreds of millions of dollars for corporations. Individuals, including officers, directors, employees, and agents, can be fined upwards of $250,000 and receive jail time of as much as five years.
The United States is not the only country that has stringent laws against corruption. The U.K.’s Bribery Act of 2010 is considered even more stringent, with maximum imprisonment of 10 years and literally unlimited fines. Because the law establishes jurisdiction if any part of the act takes place on U.K. soil or potentially if there are employees in the U.K., many companies could come under its reach. To protect their companies and themselves, managers should research these statutes and similar ones and understand what is necessary for compliance.