A Bribery Ban Backfires

Until 1977, there was no country that criminalized the practice of bribery abroad.

Until 1977, there was no country that criminalized the practice of bribery abroad. But that year, President Jimmy Carter signed a law making the United States the very first. In due course, this measure eliminated corruption from every nation where our corporations operate.

Yes, it did—right after Carter got a tattoo and a Harley. In fact, bribery remains a way of life in much of the world, including rapidly developing countries where American multinationals need to be. These firms often are forced to choose between following age-old local custom in order to compete and obeying U.S. law, which may leave them high and dry.

That could be the explanation behind the behavior attributed to Wal-Mart in its effort to expand in Mexico. The New York Times reports that the company's internal inquiry found "evidence of widespread bribery" and "suspect payments totaling more than $24 million"—in apparent violation of the Foreign Corrupt Practices Act.

The scandal hit the world's biggest retailer like a ton of bricks. It lost $10 billion of market value literally overnight. The Justice Department had already launched an investigation, and congressional committees may not be far behind.

If you think this is a case of greedy Americans corrupting innocents abroad, think again. In its annual Corruption Perceptions Index, the watchdog group Transparency International ranks Mexico 100th from the top, out of 183 nations and territories. On a scale of zero ("highly corrupt") to 10 ("very clean"), it gets a score of 3, which I would read as "pretty sleazy." (The U.S. was 24th, at 7.1.)

If you want to reach the Mexican consumer, you may have little choice but to grease some palms. The Times interviewed a former high executive of Wal-Mart de Mexico who offered insight: "Bribes, he explained, accelerated growth. They got zoning maps changed...Permits that typically took months to process magically materialized in days. 'What we were buying was time,' he said."

Sure, executives can refuse to pay bribes. But while they get old waiting for permits to clear, they will lose business. They may also get to watch less scrupulous competitors swoop in. Those rivals may not have to fear the possible legal consequences quite so much, if they hail from countries with more permissive standards.

China, for example, didn't get around to passing its law making it a crime to bribe foreign officials until last year. But a spokesman for the British anti-corruption group Global Witness told the South China Morning Post, "It remains unclear whether the Chinese government is serious about prosecuting individuals and companies who have broken the law." Not a sure thing, since China is rated only slightly cleaner than Mexico.

The question is why it's the duty of the U.S. government to dictate business practices in nations with very different business climates. You would think the Justice Department has plenty to do enforcing American laws on American soil without trying to sanitize the rest of the world.

Our idea of appropriate business practices ought to prevail in America, but less developed countries are entitled to do things their own way. If Mexico doesn't police bribery and can't change its economic culture, why should Uncle Sam take on the job?

One effect of the anti-bribery law has been to scare U.S. investment away from corrupt countries. But as one study found, it didn't reduce the overall amount of investment in these locales: Corporations from more tolerant countries were happy to take up the slack.

If other governments were brave and vigilant in fighting graft, there would be no need for American prosecutors to step in. Foreign prosecutors would be happy to issue indictments. It's only in vice-plagued nations that the FCPA makes a difference.

But the difference is not necessarily a positive one. Andrew Brady Spalding, a professor at Chicago-Kent College of Law, says the law often amounts to imposing economic sanctions on particular countries. By deterring American companies from investing in such places, we deprive their citizens of goods and jobs that would improve their lives.

When extortionate officials block Wal-Mart from opening stores in Mexico, ordinary Mexicans suffer. Economic growth is a good thing, even when it's lubricated by graft.

If the goal is to make ourselves feel good, this law is a success. It's a failure only if the point is to actually do good.

Steve Chapman blogs daily at newsblogs.chicagotribune.com/steve_chapman.

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  • El Guero||

    Interesting post. Unfortunately (or fortunately) this is the case especially with societies practicing exclusive economic systems. Think about it this way. If the rebels fought in accordance with the common rules of war during the American Revolution would we be here today. I'm a fan of "fair play" but sometimes in order to succeed we must go with the flow as it were.

  • ||

    Carter is a stereotypical liberal dimwit. That anyone could even think a law such as the FPCA would do anything except hobble U.S. businesses is laughable. You cannot do business in Mexico at all without bribery. Hell, you can barely walk down the street without having to bribe someone. Another 'intentions count results dont' law.

  • Jerryskids||

    Suthenboy, I don't know if you are old enough to remember Carter, but I am. The general consensus on Carter was that he was "too nice" to be President, that he was in over his head, that he was a moral man in an immoral business. If you know anything about Georgia politics, you know Carter didn't get to be governor of Georgia by being a nice guy - or stupid. He was a moralizing manipulative little prick, a nasty, tiny, petty little man who never forgave an enemy, and it was real easy to make his enemies list. He knew where a few skeletons were buried because he put them there. He may have seemed like a dimwit - rather like people thought Clinton was a rube - but you would be making a big mistake ever turning your back to that bastard.

  • SIV||

    Carter ran the last segregationist gubernatorial campaign in GA and failed to pardon his convict cook in the governor's mansion (she was convicted of murdering her husband under somewhat "justifiable" circumstances)as was the tradition.

  • Len Bias||

    "The general consensus on Carter was that he was "too nice" to be President, that he was in over his head, that he was a moral man in an immoral business."

    I can't wait to see how history treats Obama. Probably something like he was a brilliant man, too smart for this dumb, brutish country.

  • Bucky||

    'Holy Baksheesh, Batman!'

  • ||

    Yeah boo government tyranny that keeps you from paying other tyrant governments!

    OK now that this article has been thoroughly discussed, Giant Douche or Turd Sandwich?

  • ||

    Giant Douche. Less evocative of nasty imagery. I don't know about you, but I have an overactive imagination. Ugh.

  • Jerryskids||

    For what it's worth, the corruption perception index is here. They seem to be rather stridently anti-corruption, but if paying tribute to the local functionary gets you around stupid laws and is the local custom, what is the big problem? Are any of the officials Walmart bribed being charged? Did Walmart pay bribes to get them to hinder competitors' activities or just facilitate their own activities?

    If Walmart had made campaign contributions to the right people, would that have avoided the charges of illegally giving politicians money to influence their behavior?

  • Pound. Head. On. Desk.||

    For what it's worth, the corruption perception index is here.

    As someone who used to do business internationally, I found that interesting.
    Russia (2.4) was by far the most corrupt place I ever experienced. There's an odd honesty about it when it gets that bad.
    The Philippines show a 2.6, but was a much nicer place to do business in the 80s and 90s.
    I'm surprised South Korea (5.4) did so well. There's a system there you wouldn't believe... in some ways like the "good 'ol boys," but also like having the mob around.

  • Night Elf Mohawk||

    Might as well outlaw Americans taking siestas in Latin America.

  • ||

    The US is 7.1, but Australia is 8.8. Aussie Aussie Aussie, oi oi oi!

    Seriously, other countries have similar laws. These can be drawn so widely that your facilitation payment to an official in Country A (just to do his job, not do it corruptly) can get you and your company prosecuted under Country B's law, even though you're not a citizen of Country B, your company isn't incorporated in Country B, or even your company's parent isn't incorporated there. Doing business (and hence having assets) in Country B is enough. So you as a US citizen could be liable under the UK's Bribery Act for paying a Mexican official to do his damn job, as long as the company that pays you (or even has you as an agent) has the requisite link with the UK

  • Night Elf Mohawk||

    oi oi oi!

    It is literally impossible for me to hear this or, apparently, read it without thinking of "TNT."

    And now this topic kinda makes me think of "Dirty Deeds Done Dirt Cheap."

  • ||

    in a perfect world our national anthem would be Jailbreak

  • Night Elf Mohawk||

    In a perfect world, Bon Scott would still be alive.

  • Cyto||

    Yeah, but then we wouldn't have "Back in Black", which is one of about 50 albums on my "10 best albums of all time" list.

  • Night Elf Mohawk||

    Sure we would. They were already writing it. It wouldn't be exactly the same, but it would still kick ass.

    I've probably bought that album cassette CD music 15 times by now.

  • Concerned Citizen||

    Bon Scott ruled. Their live album, If You Want Blood, You've Got It is one of the best live albums.

  • Matrix||

    To be fair, I'm sure Chicago is the main reason it is so low. If Chicago were to disappear, I'm sure the number would shoot upward significantly.

  • Ragnar||

    WalMart screwed up by not incorporating in Mexico. Then they would be able to funnel money to the shadow WalMart and bribe away.

  • ||

    nope, that would be captured by the FCPA and the parent company in the US would be liable to prosecution

  • Rich||

    We don't do bribes.

    We do subsidies, tariffs, taxes, and bailouts.

  • Rich||

    Oh, and penalties.

  • Zombie Jimbo||

    A stick instead of a carrot. It's just that the stick is painted orange and shaped like a carrot. Still hurts when it hits your business.

  • sarcasmic||

    Make sure you have paid government officials for all the proper permits and licenses, that you've paid all the applicable taxes to the government, that you are in compliance with all government regulations, that you've paid for all the necessary government inspections, and after all that it might be a good idea to have a few lawyers on retainer.

    But there's no bribery in the U.S.

    Anyone can start a business. Easy as pie.

  • ||

    You forgot the campaign contributions that are not legally considered bribes.

  • db||

    It was only later that I learned that Wal*Marts migrate south for the winter. Here. To Mexico.

  • Jerry||

    Not all bribes are made equal. If they bribe to get a certain government contract, than yes, that should be a big fucking deal.

  • C. S. P. Schofield||

    I have to say that when I learned of the NYT story about the case my reaction was to think that the headline should have read "New York Times thinks Wal Mart is icky, produces no evidence"

  • T||

    I used to work at a company where we had to fill out our FCPA questionnaire every year as part of our compliance program. Did you bribe anybody this year? Are you sure? Are you really, really sure?

    The whole thing was a bad joke. You hand a bucketful of cash to a local and he bribes everybody and you ignore the fact it's happening.

  • West Texas||

    Our idea of appropriate business practices ought to prevail in America, but less developed countries are entitled to do things their own way. If Mexico doesn't police bribery and can't change its economic culture, why should Uncle Sam take on the job?

    This. I have never understood what the supporters of this law think they are accomplishing except for patting themselves on the back for being so morally superior. Who gives a fuck if Mexico can't fix these problems? How the hell is that anyone's business in the U.S.?

  • C. S. P. Schofield||

    There is a raft of idiots who A) are violently against what they are pleased to call "imperialism" and B) just LOVE to meddle in matters that are none of their damned business. They are called "liberals".

  • Ron||

    Bribery exist in The U.S. as well it's just called something else. I'll give a prime example. If you want to build a building anyone can claim there is a plant or animal or something of value on that land so in order to get your permit all you have to do is pay a fee to be determined to an environmental group to offset the damage. As a building designer I've seen this happen and the poor potential owners has to comply or keep making interest payments on property he can't use. The same game just a different name.

  • Death Rock and Skull||

    This is all zoning laws fault. Fuck zoning laws.

  • J_L_B||

    Economic growth is a good thing, even when it's lubricated by graft.

    When that was written, a PR executive somewhere shuddered for reasons unknown to them.

  • Stephdumas||

    I think Jimmy Carter might have lots of nightmares if he comes to Quebec. http://www.cbc.ca/news/pointof.....nsive.html

  • Enjoy Every Sandwich||

    It kind of reminds me of that scene in Back To School where Rodney Dangerfield's character goes to some kind of Business 101 class and takes apart the smug professor "teaching" the class by explaining the reality of what it takes to get business done.

  • C. S. P. Schofield||

    Best thing I've ever seen Dangerfield do. The diving was silly, but that business class was spot on.

  • Concerned Citizen||

    Don't be dissin the Triple Lindy. That dive is hard as fuck. As good as the business class was, the history class was even better.

  • Jdre||

    First, corruption is not only wrong, but it is economically inefficient. It's pretty hilarious reading this article in this magazine. For example, rather than the most efficient corporations being awarded contracts, inefficient corporations may be awarded contracts by paying a higher bribe. Moreover, bribery is economic waste. Not only is it not 'earned', but it is usually stashed in some off-shore haven to avoid scrutiny. (minor grease the wheels payments are usually not covered if it is standard practice in the country anyways)

    Second, it really is a misconception that the FCPA undermines the competitiveness of US corporations. The US has been a strong advocate through the OECD to get other states to implement the same rules. Most of the developed world has and enforces similar rules. Moreover, any country that does any business with the US (even being listed on a US stock exchange) falls under the US rules. Therefore any likely competitor of US firms is pretty much under the same regime.

  • Jdre||

    First, corruption is not only wrong, but it is economically inefficient. It's pretty hilarious reading this article in this magazine. For example, rather than the most efficient corporations being awarded contracts, inefficient corporations may be awarded contracts by paying a higher bribe. Moreover, bribery is economic waste. Not only is it not 'earned', but it is usually stashed in some off-shore haven to avoid scrutiny. (minor grease the wheels payments are usually not covered if it is standard practice in the country anyways)

    Second, it really is a misconception that the FCPA undermines the competitiveness of US corporations. The US has been a strong advocate through the OECD to get other states to implement the same rules. Most of the developed world has and enforces similar rules. Moreover, any country that does any business with the US (even being listed on a US stock exchange) falls under the US rules. Therefore any likely competitor of US firms is pretty much under the same regime.

  • GovernmentGreg||

    Fuck you.

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