Bribery as a Business Model
Gottlieb Daimler: What would he think?
Bribery may get you some deals, but it always comes back to bite you where it hurts. And it is about to bite Daimler, which appears to have run afoul of America’s Foreign Corrupt Practices Act. The U.S. Justice Department filed a case Monday that alleges that Daimler paid tens of millions of dollars in bribes to win contracts in 22 countries during a decade that ended with 2008. Why should it be the Americans that prosecute the case, and not the Germans where Daimler is domiciled? You’ll have to ask Berlin why they weren’t watching (my suspicions are not kind). The Justice Department had jurisdiction, however, when the alleged bribery began to involve Daimler subsidiaries and plants in the United States. And, as you will recall, Daimler owned Chrysler for much of the decade in question. I don’t know if their Mercedes production in Alabama is involved in the case or not.
Non-Americans and many U.S. citizens don’t realize how tough the Foreign Corrupt Practices Act is. To grossly simplify things, the FCPA outlaws any payment of any kind that is designed to favorably impact the outcome of purchasing decisions overseas. The Act recognizes that bribery and other forms of corruption exist worldwide and actually allows certain types of payments. But once your payments begin to involve somebody who makes the decision on whether or not you get the business, you are toast in the eyes of the law. Exceptions are allowed for so-called facilitating payments that don’t affect if you get the contract, e.g., things like greasing someone’s palms to move your perishable cargo out of the sun in a tropical port. (See the very useful Layperson’s Guide to the FCPA from the Justice Department.)
I spent years in South East Asia and often got questions from U.S. companies about the FCPA. These companies, understandably, were worried that foreign competitors who pay bribes would get the business and the poor schnooks from America would get left out. Actually, just the opposite proved the case. In a major procurement competition, we discovered that one of our non-U.S. competitors was offering bribes and presented our evidence to the buying government. Our competition was promptly tossed out and the U.S. company won a mega-buck contract – precisely because they followed the FCPA to the letter.
I have seen U.S. companies use the FCPA as an unassailable defense when they have been approached by bribe-seekers, enabling them to respond that the business wasn’t enough to risk lengthy jail terms and huge fines when they return home. This is generally respected overseas and makes negotiations far more straight-forward.
The ability to use the FCPA as an excuse not to bribe saves companies from starting down the slippery slope of bribery. Once it becomes known on the grapevine that a company pays bribes, that firm will get asked for bribes in every subsequent competition and will find it nearly impossible to stop paying. Not good for the bottom line.
Daimler is about to learn the benefits of staying clean. Many countries, including some developed nations in western Europe, have even allowed companies to deduct the cost of bribes from their corporate income taxes. I guess they simply see bribes as a marketing expense. They are about to find out different.
By the way, the markets in which Daimler is said to have made improper payments include China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia, Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan and Vietnam. Seems widespread enough.
Whew! That was quick! Just as I finished drafting this post, news came across that Daimler offered yesterday to pay $185 million in fines to make the FCPA charges go away. This is a company practiced at making quick payments!
