Category: Bribery and Corruption

Is There More White Collar Crime Today?

Sam E. Antar, the convicted felon and former CEO of Crazy Eddie, puts forth the theory that the bad economy is accusing white collar crimes to float to the surface: Is there really more white collar crime today? No.

The Madoff scheme is an example of a scheme that fell apart whent he markets went south. A combination of decreased asset value (at least the few that he actually had) and increased redemptions due to the declining markets prevented him from being able to cover up the scheme.

Mr. Antar draws the parallel to the NYPD pulling more bodies out of the water during the spring months than other months. The warmer spring water just makes them float. The bodies sink in the colder winter months.

The current crash in economic markets is going to cause more bodies to float.

Data on Bribe Demands in China

An anonymous online survey by TRACE International found that, of those business people visiting China who were asked for more than one bribe, almost 20 percent reported that they had been solicited more than 100 times.

TRACE set up an online bribe-reporting system that allows people to file reports in different languages about bribe demands. The first report by its online system (called BRIBEline) covered data it collected in China from July 2007 to June 2008.

  • Eighty-five percent of the bribes were solicited by someone tied to the Chinese government. That includes
    • 11 percent requested by a Communist Party official
    • 11 percent by a police officer
    • 11 percent by someone in the court system and
    • 52 percent by officials from another government branch.
  • Seventy-three percent of people who reported being asked for a bribe in China said they were asked more than once.
  • The bribe requests ranged from less than $20 (3 percent) to more than $500,000 (6 percent), with 22 percent of them asking for more than $10,000. Some 12 percent asked for gifts, entertainment or hospitality, while 4 percent asked for more business, and 3 percent requested sex.
  • Fifty-four percent of the demands were to induce action to which the business was entitled, such as timely service or avoidance of some kind of trouble.

The Cumulative Effect of Gift Giving

The line between holiday gift giving and corruption is very gray. You need to be concerned that traditional holiday gifts are not actually holiday corruption bribes.

Not only should you look at an individual gift, you need to look to gifts to the organization as a whole. One excessive gift may seem over the top to the recipient. But what happens when the gift-giver does the same for many people in the organization. One gift of $100 may be a little much. But if 25 people get similar gifts from the same gift-giver, then you have a $2,500 gift issue.

Gifts should not result in, or even give the perception of, a conflict of interest. An example of this would be excessive gift giving from a vendor — would you direct more business to that vendor solely because of the gifts, thereby compromising your obligations? This is the conflict that results when more than nominal gifts are given

The action by the SEC against Lazard Capital Markets LLC is an example of excessive gift-giving. The charges lump together $600,000 in entertainment expenses. But that was over a 4 year period. $125,000 per year is still too much, but illustrates the cumulative effect.

You can read more about the Lazard case:

Right to Audit

From the KPMG 2008 Anti-Bribery and Anti-Corruption Survey:

While 63 percent of those respondents that require periodic compliance certifications said they incorporate a right-to-audit clause in their third-party contracts, a significant majority of these (68 percent) has never exercised the right (see Chart 4). A right-to-audit clause appears to be the kind of oversight expected by regulators and prosecutors, and has been included as an essential element of FCPA compliance in several recent deferred or nonprosecution agreements that companies have reached with the SEC and the DOJ. Recent agreements entered into in 2008 included, for example, stipulations that the parties agree to adopt new or to modify existing procedures to include “rights to conduct audits of the books and records of” agents or business partners “to ensure compliance” with anti-bribery laws and regulations.

KPMG 2008 Anti-Bribery and Anti-Corruption Survey

KPMG Forensic published its 2008 Anti-bribery and Anti-corruption Survey. KPMG surveyed 103 U.S. executives in the summer of 2008.

At a time when bribery and corruption prosecutions and enforcement actions are on the rise across the globe, the results of a new KPMG LLP survey suggest that multinational organizations based in the United States continue to be challenged by a number of key issues, which, if addressed, could lower the risk of violating the Foreign Corrupt Practices Act (FCPA) and other global anti-bribery and anti-corruption standards. The survey, conducted in summer 2008, found that although 85 percent of the respondents reported having an FCPA compliance program, many struggled with fundamental elements, including:

    • Performing effective due diligence on foreign agents/third parties (cited as challenging by 82 percent of respondents)
    • Auditing third parties for compliance (cited as challenging by 76 percent of respondents)
    • Performing due diligence during merger and acquisition (M&A) activities (cited as challenging by 73 percent of respondents).

Bribery’s Broken Windows

Alexandra Wrage of TRACE international wrote Bribery’s Broken Windows (.pdf) for the Q1 edition of Ethisphere. She tackles the credibility issue with allowing facilitating payments to low level officials, but saying “no” to senior ranking official. She advocates that the companies should prohibit payments at all levels.

She looks to the New York subway system’s Clean Car Program which is in turn based on the Broken Windows theory of James Wilson and George Kelling.

Once one window in a building is broken, the rest will be broken soon after. The broken  window, left unrepaired, is a sign to the world that no one cares. If no one cares, there is no risk in breaking the rest of the windows. People are better behaved and less prone to escalating criminal activity when they see that their petty acts are addressed promptly and decisively.

Doesn’t it seem likely that this would hold true of petty bribery, too? If officials face “zero tolerance” for the smallest inappropriate demands, if both companies and enforcement agencies declare even the five and ten dollar demands an intolerable abuse of official power, won’t it be more difficult for a culture of corruption to flourish? Otherwise, low-level govern-ment officials will look at the broken windows and assume that no one cares.

The Costs of Corruption

The damage and inefficiency caused by corruption, in either financial or social terms, should not be underestimated. The World Bank has estimated that more that US$ 1 Trillion is paid in bribes annually. See World Bank, “The Costs of Corruption” (8 April 2004). An Ernst & Young survey of executives indicated that almost half of those involved in the mining industry said that bribery was prevalent, with 30% saying that it was prevalent in the banking and energy industries, especially in countries outside Europe. [One in Four Asked to Pay Bribes]

In the Law Commissions 2007 work [Reforming Bribery (2007) Law Commission Consultation Paper No 185 (.pdf)], they referred to the World Bank’s discussion of the inefficiencies involved for management in having to negotiate and pay bribes, however small. On the broader social side, a culture of corruption may create an environment in which officials get in a system of being perpetual bribe takers according to Alexandra Wrage of Trace International, quoted in Ethical Corporation.

See:

Siemens Reserves $1.3 Billion to Settle Corruption Charges

The German conglomerate Siemens has set aside $1.3 billion to settle an ongoing corruption investigation according to CFO.com: Siemens Reserves $1.3 Billion for Probe.

Back in April, international law firm Debevoise & Plimpton LLP, hired by Siemens to investigate bribery and corruption charges dating back to the late 1990s, found evidence of violations of domestic and foreign compliance regulations. Its report said many of the violations were due both to corruption and violations of regulations that govern internal controls and the accuracy of documentation.That report, delivered to the German conglomerate’s compliance committee, covered business transactions between 1999 and 2006, and management conduct related to those practices

The Dangers of Bribery

The downfall of local politician can cast a shadow of filth across your company. Here in Boston, state Senator Diane Wilkerson was arrested for public corruption. In an editorial in the Boston Globe, the newspaper noted that Wilkerson’s arrest raised suspicions about real estate developments in her district that she aggressively supported: The Grimy Side of Politics.

According to Azid Mohammed, Wilkerson pressured local real estate developers: Developer Reportedly Worried Aboud Demands made By Senator. In Wilkerson arrest sting, an FBI agent was posing as a real estate developer offering bribes to Wilkerson if she would help the agent win ownership of state owned real estate.

The danger of bribery is not only that you get caught, but that the official gets caught or someone else in the chain gets caught and brings you down as part of a larger problem.

The Affidavit in support of the criminal complaint against Wilkerson.