The scenario plays out all too often in emerging markets: A company wants to get a new facility up and running as quickly as possible and assigns a manager to deal with regulatory obstacles. The local official who could unjam things suggests getting together over a nice meal rather than simply meeting in the office. The conversation at the table might focus on obscure zoning issues, or unpublished changes to regulations, or something equally inscrutable. What these issues have in common is that they “need to be resolved” before the project can move forward. The official makes it clear that for $500, he can make them go away. The payment would be illegal, but the company will gain millions in revenue by opening the facility sooner, and the manager has thousands of dollars in bonuses riding on the project’s success. What should he do?
Compliance officers would like to think this is an easy decision. It’s not. In April the New York Timesreported that a 2005 internal investigation at Walmart (a client of our firm) found evidence that executives in the company’s Mexican subsidiary paid more than $24 million in bribes to officials in “virtually every corner of the country” to clear the way for the rapid expansion of the retail empire. The allegations are unusual only in that knowledge of wrongdoing is said to have subsequently reached the top of the organization; unlawful payments to foreign officials are certainly no aberration. In the U.S. alone, the Securities and Exchange Commission and the Department of Justice are currently investigating more than 80 companies for potential violations of the Foreign Corrupt Practices Act. European authorities have stepped up enforcement of antibribery laws, too.
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