"We're trying to draw the line between bribes where the company pays off government officials directly or indirectly, and routine fees and payments that are part of doing business in some part of the world." —Senator Frank Church
"[O]ne may well ask whether the present degree of reliance on the criminal sanction in the field of economic regulation may not be misplaced." —Herbert L. Packer
Recent disclosures of several large bribes by major American companies have triggered a storm of criticism about the ethics of corporate business practices.
In April, the world's leading banana marketer, United Brands Co., admitted payment of a $1.25 million bribe to an official of the Republic of Honduras to secure a reduction of a significant new export tax on bananas. United Brands' banana properties in Honduras supply about one-fourth of the company's total banana production.
In May, it was reported that Gulf Oil Corp. stated in secret testimony to the Securities and Exchange Commission that it had been compelled to pay $4.2 million to foreign politicians to operate in their country. Gulf would not identify the country for fear of placing its $700 million investment there "in severe jeopardy."
Bribery is so widespread throughout the world that kickbacks are virtually a way of life for multinational corporations.
Disclosures of payoffs have had some notable political ramifications:
• The Honduran chief of state, General Oswaldo Lopez Arellano, was ousted in a bloodless coup after he refused to let his foreign bank accounts be examined by a commission investigating the United Brands bribe. The $1.25 million payment was reported to have been intended for Lopez, but no formal charges have yet been filed against him. According to Time, what seems to be the prevailing sentiment about Lopez was expressed by a governmental employee: "I love my general. He wasn't the best President in the world, but he is the best any of us can remember."
• Multimillionaire John B. Connally, former Governor of Texas and Secretary of the Treasury under Nixon, was acquitted of bribery charges after a three-week trial in April. Connally was accused of receiving $10,000 from the Associated Milk Producers, Inc., the nation's largest dairy cooperative, as a payoff for influencing Nixon to increase federal milk price supports in 1971, when Connally was a member of Nixon's cabinet. Associated Milk Producers' chief lobbyist testified at the trial that he gave attorney Jake Jacobsen $10,000 for Connally in 1971, but Connally swore that he rejected the payoff. Connally never denied pressuring Nixon to increase price supports—which resulted in millions of dollars of increased costs to consumers—and claimed that his acquittal showed "the system working." Once considered a top presidential contender, Connally said his experience "is going to make me more deeply committed" to public service, and he is now expected to try for a political comeback.
BRIBERY—RIGHT OR WRONG?
At present, it is not illegal under federal criminal statutes to bribe a foreign official, but federal tax laws prohibit the deduction of bribes as business expenses and the reporting provisions of federal securities laws are violated by failing to disclose significant payoffs as bribes.
A source close to a probe being conducted by the Senate Foreign Relations subcommittee on multinational corporations stated: "The real question is whether foreign payoffs should be entirely outlawed by the U.S."
We would frame the issue differently. The broad issue is: what conduct should be designated as "criminal" in a free society? The basic function of the criminal law is to protect an individual's person and property, and it is immoral—and counterproductive—for the criminal law to attempt to regulate an individual's private moral conduct. Criminal punishment should not be inflicted unless conduct is widely recognized as wrong or immoral, and it involves unjustifiable harm to others. Even if conduct is deemed immoral, it does not necessarily justify the infliction of criminal punishment. For example, as Professor Packer has observed, even if it is considered immoral—and harmful—to break a promise without any excuse, "we do not put promise-breakers in jail."
What about bribery? It is important to draw a distinction between two different types of payoffs. If the payoff is made to remove improper obstacles to voluntary business activity, the payoff should not be a crime (e.g., a bribe paid to censors to allow the sale of a newspaper critical of the government). If the payoff is made to gain a business advantage—either by receiving a subsidy or by restricting the right of others to engage in noncoercive business activity—the payoff is immoral and should be outlawed (e.g., a payoff to obtain an exclusive license to operate a taxicab company).
This is, in many ways, a radical view, which is based on the libertarian premise that no individual or entity has the right to initiate the use of force against another.
Many instances of bribery are merely increases in the cost of doing business because of improper governmental restrictions. For example, price controls which restrict prices from reaching the free-market level commonly cause shortages resulting in bribes for favored treatment. Such bribes result from the artificial shortage brought on by price controls and—from an economic standpoint—are merely a means of circumventing distortions caused by governmental action. What should be prohibited is the price control—not the bribe. There is no sound justification for inflicting criminal punishment against commercial bribery—although a civil remedy should be recognized to allow recovery by shareholders for waste of corporate assets, or by an employer to recover unauthorized payoffs made to an employee.
We cannot criticize United Brands Co. for using a payoff in attempting to reduce the coercive Honduran export tax on bananas; the largest banana-exporting nation, Ecuador, has no tax at all, and consumers of United Brands' Chiquita bananas simply do not benefit from tax increases on products they purchase.
According to the chairman of Gulf Oil Corp., the company got nothing in return for its sizable payoffs—which were made under "severe pressure"—"except perhaps, the unfettered right to continue in business." We do not quarrel with Gulf's position that its payoffs were "used in an effort to further a corporate purpose believed at the time to be in the best interests of the company and its shareholders."
Indeed, bribery is so frequently a routine business cost to protect a company's right to do business, that in many countries with oppressive laws prohibiting, regulating or taxing voluntary, productive activities, there would be little business conducted in the absence of concealed bribes—to the detriment of consumers and investors alike. In this context, bribery is not only a "nonvictim" crime—where there is no victim to complain to the police—but it may also be a vital means of keeping the economy viable.
The real crime is not bribery, but the use of coercion by political officials against voluntary business activities. In our judgment, the conduct of John Connally in arranging special privileges for a private business, the Associated Milk Producers, should be outlawed—whether or not he pocketed $10,000 for his efforts. Truly meaningful reform will be to let private citizens conduct their affairs without government intrusion—and to invoke the criminal sanction against politicians who seek to impede voluntary business activity or to bestow special benefits on private companies.
This article originally appeared in print under the headline "Political Payoffs".