International Business Ethics

MGMT20134 Business Ethics and Sustainability

Topic 4 International Business Ethics

Table of Contents Introduction 2 Learning objectives 2 Overview 3 Transatonals MNCs 3 Ethical Issues in the International context 4 Bribery and corruption 5 Who is bribing and who is taking bribes 7 The cost of corruption 9 Corruption, culture, custom, bribery and relativism 10 Organisational approaches to global challenges 11 Major global initiatives: legislation 12 Guided Readings 16 Journal Readings 16

Introduction

The MBA is amongst the most recognised of all university qualifications. Many refer to it as a type of managerial global passport because its value, as a management qualification, is recognised and understood by organisations all over the world.

We also need to recognise that business is not necessarily practiced in the same way in different countries but is to a large extent culture specific.

In Topic 3 we discussed the importance of managers having a global mindset- a need to understand differences in cultures and how that translates business to practice. We also distinguished between business ethics and business etiquette and that the two are not always the same. Donaldson and Dunfee (1999 p. 47) identify that ‘the importance of cultural differences to business are highlighted by Kluckhorn, Hofstede, Hamden-Turner and Trompenaars, yet the ethical implications remain largely unexplored”. Sanyal and Guvenli (2009) acknowledge that national cultures may influence behaviour within organisations which In turn influences the ethics of business executives within that culture.

The purpose of this unit is explore the challenges of working in a global context and to identify those ethical issues that confront managers and employees when undertaking business dealings in cultures whose practices may not align with their own. Perhaps the one of the greatest challenges faced by managers and leaders in an international context is the use of bribery and corrupt practices which might facilitate business dealings, but also has the potential to destroy company reputations and individual careers.

Learning objectives

This topic has the following learning objectives:

· To recognise the challenges of the international context and the ethical issues that emerge

· To recognise the challenges of relativism when operating in an international context

· To define and understand the concepts of bribery and corruption

· To recognise the impacts of bribery and corruption on economies and society.

· To consider organisational strategies that assist in the minimisation of corrupt practices.

· To consider key international legislation that impacts on managers and leaders.

Overview

7

As we highlighted in Topic 3 the concepts of relativism and absolutism create challenges and problems in determining what is the right thing to do in a particular context or time or culture. Nowhere are these concepts more relevant and critical than in the international business arena. The ethical challenges that managers and leaders face when working in different cultures, with different laws and standards are significant potentially generating opportunities for both growth and risk.

What is striking is that many managers and leaders simply do not understand these challenges and are unaware of some of the legal frameworks that cover international business. They make the mistake of either assuming that business is handled in the same way as in their own country, or that the practices and business cultures of other countries need to be followed- even if it contradicts organisational policy or home country laws.

Transnationals and Country Options

Organisations operating in foreign countries are often presented with the challenges of managing processes that are not transparent and characterised by the use of facilitation payments. Carroll and Buchholz (2015) suggest that a multinational corporation (MNC) or multinational enterprise (MNE) seeking to establish itself in a new country faces two major challenges:

1. Achieving corporate legitimacy in an unfamiliar society.

2. Differing philosophies between MNCs and host countries

Home Country Stakeholder Pressures

Host Country Stakeholder Pressures

Standards

Practices

Ethics

Laws

Culture

Customs

System of Government

Socioeconomic System

Standards

Practices

Ethics

Laws

Culture

Customs

System of Government

Socioeconomic System

MNC

Ferrell, Fraedrich and Ferrell (2015) describe multi-nationals or transnationals as public companies that operate on a global scale, without significant ties to any one nation or region. They are characterized by a global strategy of focusing on opportunities throughout the world and are subject of much ethical debate due to their size and financial power

Sanyal and Guvenli (2009) note that when organisations establish a business presence in foreign countries, they may adopt an ethnocentric approach whereby they utilise their existing organisational values and practices based on their home country’s practices or a polycentric approach which seeks to adapt company approaches to the local practices of host countries. Perlmutter (1969) originally identified three international orientations that can be used to categorise an organisation’s approach to their international operations- or key international appointments, and in the later 1970s added a fourth:

1. Ethnocentric: Few foreign subsidiaries have any autonomy; strategic decisions are made at headquarters. Key positions at the domestic and foreign operations are held by headquarters’ management personnel. In other words, subsidiaries are managed by expatriates from the home or parent country (PCNs).

2. Polycentric: The MNE treats each subsidiary as a distinct national entity with some decision-making autonomy. Subsidiaries are usually managed by local or host country nationals (HCNs) who are seldom promoted to positions at headquarters. Likewise, PCNs are rarely transferred to foreign subsidiary operations.

3. Geocentric: The MNE takes a worldwide approach to its operations, recognizing that each part makes a unique contribution with its unique competence. It is accompanied by a worldwide integrated business, and nationality is ignored in favour of ability. PCNs, HCNs and TCNs can be found in key positions anywhere, including those at the senior management level at headquarters and on the board of directors.

4. Regiocentric: This reflects the geographic strategy and structure of the multinational. Personnel may move outside their countries but only within a particular geographic region. Regional managers may not be promoted to headquarter positions but enjoy a degree of regional autonomy in decision-making.

Ethical issues in the international context.

According to McDonald (2015) there are numerous ethical issues and or principles that need to be considered in an international context

· Rights  human rights and associated labour standards.

· Duty of care – associated with the protection of labour standards.

· Respect – for culture and associated traditions, intellectual property, as well as respect for the environment and the impact that a company’s operations might have on ecological, social and financial infrastructures in the countries within which they operate.

· Transparency – openness in transactions and the avoidance of bribery.

· Equity – address power inequities in international trade and open access to markets on a more just and fair basis.

· Honesty – honesty is important for the building of trust when dealing across cultures.

· Objectivity – not being swayed by factors that could create, or be viewed as, conflicts of interest.

Carroll and Buchholz (2015) highlight several areas in the international arena that raise ethical challenges including Questionable Marketing and Plant Safety Practices. In many countries, particularly developing nations, regulation on advertising will allow many practices that would be unacceptable in countries such as Australia, This includes gender and stereotyping and targeting specific groups. Health and safety laws also differ often with disastrous consequences with companies meeting a host country standard that is well below home country requirements. They cite the example of Union Carbide plant safety practices in Bhopal India led to the “worst industrial accident in history,” killing more than 8,000 people, and injuring 200,000 others. They also highlight Sweatshops, Human Rights, Labour Abuses and Corruption, Bribery, and Questionable Payments as significant ethical challenges. McDonald (2015) asserts that corruption and bribery is the greatest impediment to conducting business in developing countries.

Bribery and corruption

Bribery and Corruption are terms that are often used interchangeably or typically are mentioned in the same context. However, corruption is a general term that describes unethical or immoral practices were as bribery is a specific form of corruption. Ferrell Fraedrich and Ferrell (2015) identify that bribery’s acceptance varies by country. They highlight that it can be a challenge to determine what a bribe actually is or when something is not a bribe. However, they also note that is and that most developed countries recognize bribery is not conducive to business.

Corruption comes in many forms:

· Bribes: payments to public officials to persuade them to do something (quicker, smoother or more favourably).

· Collusion: secret agreement between contractors to increase profit margin

· Fraud: falsification of records, invoices etc.

· Extortion: use of coercion or threats. E.g. a payment to secure / protect ongoing service – (cf. collusive corruption where both sides benefit)

· Favouritism/Nepotism in allocation of public office

· ‘Grand ‘corruption: high level, political corruption typically involving individuals in high public office including politicians, police, judges etc., and;

· ‘Petty’ corruption: corruption in public administration and/or during implementation or continuing operation and maintenance

\\MELSTAFF\segonm$\Profile\NEW BUS ETHICS COURSE\CSR LAw\Courseware\1 Bus Ethics\Icons\Icons - additional\Video.pngIs Corruption really that serious?

This short British news report from 2013 summarises some of the key findings of Transparency International’s Global Corruption report.

It is hard to dismiss the seriousness of the findings and the impact on many developing economies.

Dion (2010) notes that the process of corruption has not been precisely described suggesting that most commentators focus on an operational definition of corruption. He maintains that actual forms of corruption are grounded in prior phenomena of corruption, whether it is the corruption of principles, the corruption of moral behaviour, the corruption of people, the corruption of organizations, or the corruption of states.

Corruption as part of Culture?

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If we hold the view that bribery and corruption are part of culture, then we are saying that these are ethical norms. Norms are informed by values or virtues.

If this is true then we are saying that at the core of these cultures (and clearly not our own culture) are vices such as lying, cheating, dishonesty etc.?

Can this really be true?

The moral dimension of corruption can also be explored from a variety of ethical perspectives. As we identified in our first unit, Ethics is concerned with the actions and practices that are directed towards improving the welfare of people and the quest for a good life and a concern for creating the conditions under which a good life can be attained. Buchholz (1989) suggests that a moral act is one that is judged as having intent and consciousness, in other words moral praise or blame that can be afforded to an individual for a decision or the consequences of an act will be in part determined by the level of consciousness of the act its consequences and the intent of the individual.

Apke (2001) defines bribery as gaining improper advantage for business activities such as successful tenders, applications for permits, customs permissions, taxation concessions and judicial and legislative rulings. Ampratwum (2008, p.76) states that corruption is ‘usually defined as the transgression of formal rules governing the allocation of public resources by officials in response to offers of financial gain or political support’.

McDonald (2015) describes bribery as a practice involving payment or remuneration to a representative of a company with the specific intent to influence them into doing things that extend beyond the scope of their position or office (Adams & Maine 1998). The UK’s Bribery act defines the action as giving or receiving a financial or other advantage in connection with the “improper performance” of a position of trust, or a function that is expected to be performed impartially or in good faith.

Bribery does not have to involve cash or an actual payment exchanging hands and can take many forms such as an inappropriate or extremely valuable gift, lavish treatment during a business trip or tickets to a major event.

Ferrell Fraedrich and Ferrell (2015) identify that many ethical issues face managers every day, which includes marketing and advertising issues, product liability and safety, privacy of employee records, employee discipline and relations with competitors, and intelligence gathering. They have classified the ethical issues relevant to most organisations into four key areas of conflicts of interest; honesty and fairness, communications and relationships within the organization. Ferrell Fraedrich and Ferrell (2015) suggest that a conflict of interest exists when an individual chooses whether to advance their own personal interest, those of the organization or some other group. This is consistent with the definitions of bribery and corruption offered earlier. Similarly, honesty and fairness are described as the expectations that business people, at a minimum, follow all applicable laws and regulations. In addition, they should not knowingly harm customers, employee, clients or competitors thought deception, misrepresentation or coercion. The later points clearly are consistent with examples of bribery and corruption. Whilst organizational relationships considers areas such as confidential relations, meeting obligations and responsibilities and not placing pressure of others that may encourage them to take unethical actions. Bribery and corruption clearly is based on taking advantage of relationships.

Who is bribing and who is taking the bribes?

Perhaps the best authority on bribery and corruption is the non-government agency Transparency International or TI as they are commonly known.

TI’s strategy is to tackle corruption in both the political and business arenas providing important information for identifying and measuring corruption and the development of education and strategies for combating it. They have over 100 chapters worldwide which take action in support of their mission “to stop corruption and promote transparency, accountability and integrity at all levels and across all sectors of society”.

Whilst they publish many detailed reports and make a range of resources available, two of their most important documents are the Bribe Perception and Bribe Payers and Index which highlight those countries where bribery is a problem and those countries who contribute to the problem by offering bribes.

The 2014 Corruption Perception Index examined 127 countries and surveyed managers about which countries has major and least problems with bribery and corruption, and the 2011 bribe payer’s index examined which countries bribe the most and least.

Countries that Bribe Least

Netherlands

Switzerland

Belgium

Japan

Australia

Canada

Singapore

United Kingdom

United States

France

Countries that Bribe Most

Russia

China

Mexico

Indonesia

U Arab Emirates

Argentina

Saudi Arabia

Turkey

India

Taiwan

Least Corrupt or Non Accepting

Denmark

New Zealand

Finland

Sweden

Norway

Switzerland

Singapore

Netherlands

Luxembourg

Canada

Most Corrupt- Accepting Bribes

Somalia

Korea (North)

Afghanistan

Sudan

South Sudan

Iraq

Turkmenistan

Uzbekistan

Libya

Eritrea

\\MELSTAFF\segonm$\Profile\NEW BUS ETHICS COURSE\CSR LAw\Courseware\1 Bus Ethics\Icons\Icons - core\Activity.pngActivity: Where is My Country?

Visit TI’s website and find your own country in terms of corruption perception index and bribe payer’s index.

http://www.transparency.org/research

Examine the past 3 years for each and determine whether your country has improved or worsened in term soft s level of corrupt- both in terms of offering and accepting bribery

The cost of corruption

According to Transparency International’s 2008 Bribe Payers Survey, one-quarter of the more than 2,700 business executives surveyed blamed private sector corruption for impeding the operations and growth of their businesses. Such findings discredit the notion that corrupt acts give businesses a competitive advantage and benefit the bottom-line.

In the most recent 2011 Bribe Payers Survey the likelihood of firms in 19 specific sectors to engage in bribery and exert undue influence on governments was identified:

· Public works and construction companies scored lowest in the survey. This is a sector where bypassed regulations and poor delivery can have disastrous effects on public safety.

· Oil and gas is also a sector seen as especially prone to bribery. The extractives industry has long been prone to corruption risk (www.transparency.org/bpi2011/press).

The World Bank Institute’s Global Governance Director Daniel Kaufmann estimates that annual worldwide bribery to be about US $1 trillion ( does not include the extent of embezzlement of public funds (from central and local budgets), or from theft (or misuse) of public assets) and does not account for the significant losses in investment, private sector development, and economic growth to a country, or to the increases in infant mortality, poverty and inequality – all resulting from corruption and misgovernance. Such findings discredit the notion that corrupt acts give businesses a competitive advantage and benefit the bottom- line.

The World Bank Institute of Global Governance highlights that business growth is up to 3% higher in the absence of corruption, national income figures tend to be higher by 2-3% and that corrupt payments and bribes would equate to a 20% tax on businesses.

In 2011, Dow Jones conducted a State of Anti-Corruption Survey of 300 companies globally. It discovered major losses of business as a result of corruption specifically when dealing in international markets.

· The number of cases where companies faced losses due to unethical or corrupt practices quadrupled, from 10 percent in 2009 to 40 percent in 2010.

· More than 40 percent, or over 120 companies, lost business to their competitors due to corrupt practices.

· In 2011, corruption in Egypt caused losses worth US$6 billion. The Middle East and North Africa (MENA) region (including Egypt) reported the highest rate of illicit financial outflows (IFFs) money illegally earned, transferred or utilized.

· In 2010, a telecom corruption scam in India involving the government came as a shocking revelation, as it involved over 500 million mobile phone users. The corruption resulted in losses of over US$40 billion for the India government.

Donaldson and Dunfee (1999) propose a model of “norms” that help navigate the challenges of global business dealings.

· Hyper-norms- fundamental human rights or basic prescriptions common to most religions- values acceptable to all cultures

· Consistent Norms- culturally specific values but consistent with hyper-norms and other legitimate norms- i.e. codes of ethics

· Moral Free space- norms that are inconsistent with hyper-norms and other legitimate norms yet are firmly held by specific cultures

· Illegitimate norms- norms that are not only incompatible but transgress permissible limits-

Donaldson and Dunfee (1999) also put forward several arguments supporting the unethical nature of bribery

1. From the standpoint of the bribe recipient, the acceptance usually violates a micro-social contract specifying the duties of the agent. In our third Unit we discussed the nature of agency and the moral duty of agents. Accepting bribes for a function that you are expected and already paid to do, is a violation of the duty as an agent of an organisation.

2. Bribery is typically not an authentic norm.

“Corruption is condemned and proscribed, by each of the major religious and moral schools of thought. Buddhism, Christianity, Confucianism, Hinduism, Islam, Judaism, Sikhism, and Taoism each proscribe corruption. Adam Smith and David Ricardo condemned corruption, as did Karl Marx and Mao Tse Tung.”

3. Bribery may violate the hypernorm supporting political participation as well as the efficiency hypernorm.

The political decision making process is undermined by bribery with the risk that politicians, officials etc., make decisions on the basis of self rather than public interest. Corrupt agents exact money from firms. Corruption affects the number of firms in free-entry equilibrium, and in turn increases costs relative to profits. In contrast, “the degree of deep competition in the economy increases with lower overhead costs relative to profits; and with a tendency towards similar cost structures.”

Corruption, culture, custom, bribery and relativism

If corruption and bribery are in fact damaging businesses and society, why do many managers and organisations continue to engage in the practice? Donaldson and Dunfee suggest that some companies, whilst recognizing that cultural differences exist, simply accept these as the way business is conducted in a host country, thus engage in corrupt practices. They argue that this strategy is a “mistake because it exposes the company (and its brand names) to corruption and public affairs disasters, and because it misses the opportunity to find the glue that cements morale and cooperative strategy”(1999 p. 46).

In Unit 4 we examined the concept of relativism and absolutism. The relevance of the relativist debate to bribery and corruption should be evident. It is clear that practices that are termed bribery and corruption and seen as unethical in one country can be seen as consistent with the norms of another and thus ethical. Anecdotally managers often justify the paying of bribes and facilitation payments claiming that the practice and expectation is part of the values set or national culture. In fact for many years some OECD countries like the UK and Germany allowed bribes to be claimed as a tax deduction on the basis that it was a necessary practice in some countries.

The relativist or “when in Rome” approach to business argues that such practices are part of business etiquette- it’s a part of custom or culture. Etiquette can be defined as convention or rules that govern behaviour. However just because something is accepted etiquette does not mean that it is necessarily ethical. Grace and Cohen (2005) note that ethics is more than just rules and custom as such etiquette exists in many forms, yet ethical challenges persist.

In Unit 4 we also noted the importance of values and how these are established through core beliefs about what is right and wrong. We noted the importance of religion and belief systems as major foundations for our understanding of morality.

Organisational approaches to global challenges.

The most common approach used by organisations to deal with differing cultures and ethics, is to establish a consistent framework within the organisation that it applied wherever their organisation operates.

Global Codes of Conduct or Ethics is the extension of ethics framework we identified in Unit 9, with clear policies related to acceptable behaviours and non-acceptable behaviours. The issue is the extent to which such frameworks are compliance or aspirational in nature. Many MNEs has developed codes of conduct which they require all international subsidiaries to follow, Exxon, KPMG, BHPBilliton are a few examples.

D’Souza (2003 p. 27) notes that a problem with this approach is that codes of conduct are specific behavioural rules that allow little of any interpretation. For example many of these international codes often bad gift giving or exchange of favours as a form of bribery and corruption. However, the exchange of gifts and favours can also be seen as an act of reciprocity to establish trust and build relationships. Guanxi or gift giving appears to be an important constituent of Asian cultures and can be seen as a form of relationship investment that if cultivated well can uplift interactions between businesses.

Georges Enderle has identified four types of approach, each of which is analogous to a posture taken historically by nation-states:

· Foreign Country Type : organisation conforms to local customs, assuming that what prevails as morality in the host climate is an adequate guide

· Empire Type: this organisation applies domestic concepts and theories without making any serious modifications. Empire-type companies export their values in a wholesale fashion—and often do so regardless of the consequences

· Interconnection Type: this type of organisations regard the international sphere as differing significantly from the domestic sphere, and one in which the interconnectedness of companies transcends national identities. In this model, the entire notion of national interest is blurred

· Global Type: this type of organisations views the domestic sphere as irrelevant. From this vantage point the citizens of all nations, whether they are corporate or individual citizens, must become more cosmopolitan. The nation-state is vanishing, and in turn, only global citizenry makes sense.

Major global initiatives: Legislation

The most influential initiative that addresses global business activities is the OECD convention on combating bribery of foreign public officials in international transactions that went into effect in 1997. Members of the OECD were “required” to ratify the convention through their own parliaments and in effect criminalise the payment of bribes by organisations operating in foreign countries.

Article 1 obligates each signatory nation to make it a criminal offense “for any person intentionally to offer, promise, or give any undue pecuniary or other advantage whether directly or through intermediaries, to a foreign public official‘’ to obtain or retain business or other improper advantage‘’ It is not, however, illegal under the OECD bribery in international Convention to make small “facilitation’’ payments. Such payments are made to induce public officials to perform non-discretionary routine functions such as issuing licenses and permits (Pacini, Swingen & Rogers, 2002)

The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-Bribery Convention) aims to reduce corruption in developing countries by encouraging sanctions against bribery in international business transactions carried out by companies based in the convention member countries.

The US Foreign Corrupt practices Act

The Foreign Corrupt Practices Act was formed in 1977, and is a US federal law that is known primarily for two provisions

· one concerns the accounting transparency requirements under the Securities Exchange Act of 1934, and the other

· concerns bribery of foreign officials.

Its anti-bribery stipulations prohibit issuers, domestic concerns or any person from using interstate commerce in a corrupt manner, or from offering money or anything of value to a foreign official, foreign political party or candidate for political office, with the aim to influence the conduct of the foreign official in a way that it violates his/her duty, or to secure any unauthorized advantage in order to obtain or retain business.

The United States defines acting corruptly as “the offer, payment, promise, or gift, must be intended to induce the recipient to misuse his official position; for example, wrongfully to direct business to the payer or his client, to obtain preferential legislation or regulations, or to induce a foreign official to fail to perform an official function”. Where corrupt intent is present, the FCPA prohibits paying, offering, or promising to pay money or anything of value (or authorizing the payment or offer).

\\MELSTAFF\segonm$\Profile\NEW BUS ETHICS COURSE\CSR LAw\Courseware\1 Bus Ethics\Icons\Icons - additional\Video.pngThe US Foreign Corrupt Practices Act

An SAI Global GRC Expert Paul McNaulty, partner ant Baker & McKenzie and former US Deputy Attorney, provides a general overview of some of the features of the US Foreign Corrupt Practices Act and some of the implications of firms failing to meet their obligations including fines, imprisonment and loss of government business

A violation of the FCPA consists of five “elements.” That is, a person or organization is guilty of violating the law if the government can prove the existence of:

1. a payment, offer, authorization, or promise to pay money or anything of value

2. to a foreign government official (including a party official or manager of a state-owned concern), or to any other person, knowing that the payment or promise will be passed on to a foreign official with a corrupt motive for the purpose of:

3. influencing any act or decision of that person,

4. inducing such person to do or omit any action in violation of his lawful duty, securing an improper advantage, or

5. inducing such person to use his influence to affect an official act or decision in order to assist in obtaining or retaining business for or with, or directing any business to, any person

Individuals: up to five years’ imprisonment for each violation, or up to 20 years for certain wilful violations. Corporations and other business entities: up to $US 2 million for each violation, individuals as much as $US 100,000. The maximum fine may be increased to $US 25 million for corporations and $US 5 million for individuals in the case of certain wilful violations. Under the alternative Fines act, all criminal fines, including those imposed under the FCPA, may be increased to twice the gain obtained by reason of the offense or twice the loss to any other person.

The UK bribery Act

The UK Bribery Act received assent on 8 April 2010 and goes well beyond simply criminalising conduct covered under the OECD Convention. It is now among the strictest legislation internationally on bribery. Notably, it introduces a new strict liability offence for companies and partnerships of failing to prevent bribery. The introduction of this new corporate criminal offence places a burden of proof on companies to show they have adequate procedures in place to prevent bribery.

The Bribery Act also provides for strict penalties for active and passive bribery by individuals as well as companies.

It targets general and commercial bribery offences by creating the following four criminal offences:

1. Offering, promising or giving a bribe (active bribery)

2. Requesting, agreeing to receive or accepting a bribe (passive bribery)

3. Bribing a foreign public official in order to obtain or retain business or an advantage in the conduct of business

4. Failing to prevent bribery engaged in on behalf of a commercial organisation.

The penalties for individuals under the Act include imprisonment for up to 10 years or a fine up to the statutory maximum. A corporation found guilty of not preventing bribery is subject to unlimited fines.

Companies registered in the UK can commit an offence under section 7 of failure to prevent bribery if an employee, subsidiary, agent or service provider (‘associated persons’) bribes another person anywhere in the world to obtain or retain business or a business advantage.

A foreign subsidiary of a UK company can cause the parent company to become liable under section 7 when the subsidiary commits an act of bribery in the context of performing services for the UK parent unless it was acting entirely on its own as it would not then be performing services for the UK parent.

\\MELSTAFF\segonm$\Profile\NEW BUS ETHICS COURSE\CSR LAw\Courseware\1 Bus Ethics\Icons\Icons - additional\Video.pngThe UK Bribery Act

In this video partner at global law firm Linklaters Satindar Dogra is interviewed by journalist and TV presenter Asha Tanna. Not only does he discuss the wide ranging impact of the UK act on British firms but also some initiatives in Europe and the importance of the OECD and US influences in combating global corruption

Australian legislation

Australia’s “Foreign Corruption Provisions: Section 11.5(1) and 70.2(1) of the Criminal Code Act 1995, applies to Australian citizens, residents and companies who bribe or attempt to bribe a Foreign Public Official. They can be prosecuted under Australian law even though the actions happen outside Australia.

Under Section 70 of the Criminal Code 1995 Amendment (Bribery of Foreign Public Officials) Act 1999, Bribery involves providing, offering or arranging a benefit were the benefit is not legitimately due with an intention to influence a Foreign Public Official (FPO) in their official duties and with the motive to gain or retain business or a business advantage.

It is also an offence to:

· Attempt to offer a bribe

· Help any person to offer a bribe

· Get another person to offer a bribe

· Encourage/urge another person to offer a bribe

· Conspire/secretly plan with another person to offer a bribe

Possible Penalties under this legislation includes:

· Individuals: a maximum 10 years imprisonment and/or maximum $1.1 million in fines

· Companies: Fines the greater of $A11 million or 3 times the value of the benefit or 10% of annual turnover if a value cannot be determined.

Major Global Initiatives:

United Nations Convention against Corruption (UNCAC)

On October 31, 2003, the United Nations General Assembly adopted the UNCAC by resolution 58/4. The convention came into force in December 2005 and its objectives were as follows:

· To promote and strengthen measures to prevent and combat corruption more efficiently and effectively

· To promote, facilitate and support international cooperation and provide technical assistance in the prevention of and fight against corruption, including asset recovery

· To promote integrity, accountability and proper management of public affairs and public property

International Anti- Bribery and Fair Competition Act – Americas

Incorporated in 1998, this act was formed to amend the Securities Exchange Act of 1934 and the Foreign Corrupt Practices Act of 1977, and thereby improve the competitiveness of American business and promote foreign commerce. Under the act, it is illegal for a US citizen or corporation to influence, bribe or seek advantages from a public official of another country.

Global Organization against Corruption (GOPAC)

GOPAC is an international network of parliamentarians who are dedicated to promoting good governance and combating corruption. The body was formed in 2002 at a conference hosted by the Canadian House of Commons and Senate, and currently has over 400 members around the world, organized into regional and national chapters. 48

EU Anti-Corruption Policy

This policy reviews the EU’s progress in tackling corruption and suggests improvements to drive the efforts. The focus is to reduce all forms of corruption, at every level, in all EU countries and institutions and even outside the EU. The policy also aims to identify possible areas where the EU can take future initiatives in the fight against corruption.

Required Reading

Reading 1

Ferrell, O.C., Fraedrich, J., & Ferrell, L. (2015). Business Ethics Ethical Decision making and Cases, Cengage Learning, Stamford. Ch 10

Parts of this chapter have already been referred to in the discussion of Values so in part it will be revision. Similar to McDonald (2015) Ferrell Fraedrich and Ferrell (2015) identify a range of ethics risks in the global environment. They also highlight the role of international bodies such as the IMF, the UN’s Global Compact and WTO and their roles in promoting fair practice.

Additional Reading

McDonald, G. (2015) Business ethics: A contemporary approach, Cambridge, Port Melbourne. Ch 9

McDonald (2015) commences her chapter with a discussion concerning globalisation and MNCs before identifying a range of ethical principles that of importance in international business. We revisit the concepts of relativism and absolutism before she expands on Donaldson and Dunfee’s concepts of hypernorms. She then considers a range of ethical challenges ranging from international governance to financial to supply chain to corporate promotion.

Journal Readings

Journal 1

Segon, M., Booth, T & O’Shannassy, T. (2012) Bribery and corruption: A comparative study between Australian and Malaysian managers, Singapore Management Review, 34(2) pp70-82

This paper examines the process by which bribery and corruption can become normalised in a society. It reviews the literature pertaining to the normalisation of corrupt behaviour and the extent to which managers are aware of and take action to report such practices. It presents the findings of a survey of over 100 practicing managers from Australia and Malaysia that identifies their awareness of unethical practices and what they would do if they were to offer or receive an offer to engage in such practices. A discussion and conclusions will then be drawn regarding the extent of normalisation of corruption in Australian and Malaysian business organisation.

Journal 2

Quah, J.S.T. (2014) Curbing police corruption in Singapore: lessons for other Asian countriesAsian Education and Development Studies, 3(3) pp.186 -222

One of the greatest obstacles to combating corruption is the defeatist attitude of policy makers and the general public that bribery and corruption has become so entrenched that t is futile to try to combat it. The Asian countries/regions of Singapore and Hong Kong have has significant success over the past 20-30 years in addressing these challenges. In this paper Quah summarises the six key strategies or lessons that can be learned from Singapore and their approaches to tackling police corruption. Perhaps amongst the entire key societal infrastructure law enforcement and the judiciary are amongst the most important to insure transparency and fairness.

Journal 3

Dion, M. (2013),”Uncertainties and presumptions about corruption”, Social Responsibility Journal, 9 (3) pp. 412 – 426

Permanent link to this document via CQU Emerald Database: http://dx.doi.org/10.1108/SRJ-04-2012-0045

Quah, J.S.T. (2014) Curbing police corruption in Singapore: lessons for other Asian countriesAsian Education and Development Studies, 3(3) pp.186 -222

In this paper Michel Dion examines the assumption we make about corruption and the impacts this has on how we go about combatting it. He defines corruption as a social phenomenon presenting two basic components of that phenomenon: unreasonable preferential treatment and abuse of power. He then addresses the moral issue that is implied in any phenomenon of corruption.

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MGMT20134 | Topic 4 | Page 3

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Topic 4 20134.ppt

MGMT20134
Business Ethics and Sustainability

International Business: Ethical Perspectives

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International Perspectives

  • The MBA is amongst the most recognised of all university qualifications. Many refer to it as a type of managerial global passport because its value, as a management qualification, is recognised and understood by organisations all over the world.
  • We also need to recognise that business is not necessarily practiced in the same way in different countries but is to a large extent culture specific.

RMIT University©*

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International Ethical Perspectives

  • Donaldson and Dunfee (1999 p. 47) identify that ‘the importance of cultural differences to business are highlighted by Kluckhorn, Hofstede, Hamden-Turner and Trompenaars, yet the ethical implications remain largely unexplored”.
  • Sanyal and Guvenli (2009) acknowledge that national cultures may influence behaviour within organisations which In turn influences the ethics of business executives within that culture.

RMIT University©*

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Challenges of International Context

  • The ethical challenges that managers and leaders face when working in different cultures, with different laws and standards are significant.
  • What is more striking is that many managers and leaders simply do not understand these challenges and are unaware of some of the legal frameworks that cover international business.
  • Managers make the mistake of either assuming that business is handled in the same way as in their own country or that the practices and business cultures of other countries need to be followed- even if t contradicts organisational policy or home country laws.

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Challenges of International Context

  • KPMG’s 2011 Global Anti-Bribery and Corruption survey of 214 executives in the US and the UK showed that more than 70 % of the respondents (73% in UK and 70% in the US) agree that there are certain regions/countries in the world where business cannot be done without indulging in bribery and corruption.

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Challenges of International Context

McDonald (2015) highlights a number of ethical issues as a result of working in an international context

  • Rights – human rights and associated labour standards.
  • Duty of care – associated with the protection of labour standards.
  • Respect – for culture and associated traditions, intellectual property, as well as respect for the environment and the impact that a company’s operations might have on ecological, social and financial infrastructures in the countries within which they operate.
  • Transparency – openness in transactions and the avoidance of bribery.
  • Equity – address power inequities in international trade and open access to markets on a more just and fair basis.
  • Honesty – honesty is important for the building of trust when dealing across cultures.
  • Objectivity – not being swayed by factors that could create, or be viewed as, conflicts of interest.

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Transnationals and Country Options

Carroll and Buchholz (2015) suggest that a multinational corporation (MNC) or multinational enterprise (MNE) seeking to establish itself in a new country faces two major challenges:

  • Achieving corporate legitimacy in an unfamiliar society.
  • Differing philosophies between MNCs and host countries

MNCs, Home and Host Countries

  • Sanyal and Guvenli (2009) note that when organisations establish a business presence in foreign countries, they may adopt an ethnocentric approach whereby they utilise their existing organisational values and practices based on their home country’s practices or a polycentric approach which seeks to adapt company approaches to the local practices of host countries.
  • Perlmutter (1969) originally identified three international orientations that can be used to categorise an organisation’s approach to their international operations- or key international appointments, and in the later 1970s added a fourth:

Ethnocentric: international operation managed by expats

Polycentric: international operation managed by locals but they stay in country

Geocentric: international operation managed by best person- irrespective of background

Regiocentric: international operation managed by someone from the region- assumed like culture

Approaches to Global Ethics

The most common approach used by organisations to deal with differing cultures and ethics, is to establish a consistent framework within the organisation that it applied wherever their organisation operates.

Global Codes of Conduct or Ethics is the extension of ethics framework with clear policies related to acceptable behaviours and non-acceptable behaviours examined in Unit 8

The issue is the extent to which such frameworks are compliance or aspirational in nature and whether they are imposed across all locations with no variation or with adaption to reflect local issues.

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Global Ethical Frameworks-

Georges Enderle has identified four types of approach, each of which is analogous to a posture taken historically by nation-states

Foreign Country Type : organisation conforms to local customs, assuming that what prevails as morality in the host climate is an adequate guide

Empire Type: this organisation applies domestic concepts and theories without making any serious modifications. Empire-type companies export their values in a wholesale fashion—and often do so regardless of the consequences

Interconnection Type: this type of organisations regard the international sphere as differing significantly from the domestic sphere, and one in which the interconnectedness of companies transcends national identities. In this model, the entire notion of national interest is blurred

Global Type: this type of organisations views the domestic sphere as irrelevant. From this vantage point the citizens of all nations, whether they are corporate or individual citizens, must become more cosmopolitan. The nation-state is vanishing, and in turn, only global citizenry makes sense.

Advantages & Disadvantages

Sanyal and Guvenli (2009) identify a polycentric approach as the creation of new values and practices adapting to local practices of the host country .

  • It has the clear advantage of allowing employees to engage in business activity with confidence that they are consistent with accepted practice.
  • The disadvantage is that these practices may be inconsistent with the organisation’s values and policies in other countries.
  • It may also be a high risk strategy when such practices are deemed illegal in the home country. i.e. foreign corrupt practices legislation
  • This is an example of ethical relativism and may create difficulties for organisations when they are ask to justify their actions

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Ethnocentric approach Absolutism

Sanyal and Guvenli (2009) identify an ethnocentric approach as companies using their existing organisational values and practices, primarily based on their home country’s practices.

  • It has the clear advantage of not increasing costs through the creation of new policies and procedures.
  • Existing employees already be inculcated and able to apply the ethics framework in the new location.

 

  • The disadvantage is that the existing ethics framework, designed on home country’s values may not translate effectively to the host country causing cultural conflicts.
  • This strategy would be an example of ethical absolutism.

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Culture, Custom, Ethics & Etiquette

  • The relevance of the relativist debate to bribery and corruption should be evident.
  • It is clear that practices that are termed bribery and corruption and seen as unethical in one country can be seen as consistent with the norms of another and thus ethical.
  • Anecdotally managers often justify the paying of bribes and facilitation payments claiming that the practice and expectation is part of the values set or national culture.

Corruption

Multiple definitions/perceptions of meanings of corruption:

  • “Political corruption” is “an act by a public official (or with the acquiescence of a public official) that violates legal or social norms for private or particularistic gain” (Gerring & Thacker, 2005).
  • Corruption used in economic literature is individual behavior by public officials in which they unlawfully enrich themselves by the misuse of the power entrusted to them” (Welsch, 2004).
  • Transparency International’s (2000,p 1) definition fits both the public and private context: “the misuse of public power for private benefit.”
  • Ashford and Anand (2003, p. 2) define it as “the misuse of authority for personal, subunit, and/or organizational gain”.
  • The use of public office for private gain’ (World Bank)

Types of Corruption

Bribes: payments to public officials to persuade them
to do something (quicker, smoother or more favorably).

Collusion: secret agreement between contractors to increase profit margin

Fraud: falsification of records, invoices etc.

Extortion: use of coercion or threats. E.g. a payment to secure / protect ongoing service – (cf. collusive corruption where both sides benefit)

Favoritism/Nepotism in allocation of public office

‘Grand’corruption: high level, political corruption

‘Petty’ corruption: corruption in public administration and/or during implementation or continuing operation and maintenance

Causes of Corruption

Harberger, (1988) and Charap and Harm (1999) suggest that corruption is a form of distorted social behaviour.

They propose that it is caused by peoples inability to cope with rapid change-

The rigid structures of organisation and society- i.e. legal systems, social norms, etc., are out of sync with the changing social and economic modernization.

Corruption emerges in response to these rigid structures

The ethical-moralist perspective is that corruption is a political and policy choice.

Corruption exists wherever there are corrupt officials and policy makers

It is the intersect of the moral values and socio-economic behaviour of the relevant context – i.e. northern and southern Italy

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What is Bribery?

  • The UK’s Bribery act defines the action as giving or receiving a financial or other advantage in connection with the “improper performance” of a position of trust, or a function that is expected to be performed impartially or in good faith.
  • Bribery does not have to involve cash or an actual payment exchanging hands and can take many forms such as a gifts, lavish treatment during a business trip o.r tickets to an event

Types of Bribery

Source: McDonald (2015)

Illegal gratuity Giving or receiving something of value after a transaction is completed, in acknowledgement of some influence over the transaction
Extortion Demanding a sum of money (or goods) with a threat of harm (physical or business) if demands are not met
Kickback A portion of the value of the contract demanded as a bribe by an official for securing the contract
Commission/fee Used by a company or individual to obtain the services of an agent/agency for assistance in securing a commercial contract

Cost of Corruption

According to TI’s 2008 Bribe Payers Survey, one-quarter of the more than 2,700 business executives surveyed blamed private sector corruption for impeding the operations and growth of their businesses.

Such findings discredit the notion that corrupt acts give businesses a competitive advantage and benefit the bottom-line.

World Bank Institute Global Governance Director Daniel Kaufmann estimates that annual worldwide bribery to be about US $1 trillion ( does not include the extent of embezzlement of public funds (from central and local budgets), or from theft (or misuse) of public assets) and does not account for the significant losses in investment, private sector development, and economic growth to a country, or to the increases in infant mortality, poverty and inequality – all resulting from corruption and misgovernance.

Cost of Corruption

  • In 2011, Dow Jones conducted a State of Anti-Corruption Surveyof 300 companies globally. It discovered major losses of business as a result of corruption specifically when dealing in international markets.
  • The number of cases where companies faced losses due to unethical or corrupt practices quadrupled, from 10 percent in 2009 to 40 percent in 2010.
  • More than 40 percent, or over 120 companies, lost business to their competitors due to corrupt practices.
  • In 2011, corruption in Egypt caused losses worth US$6 billion.
  • In 2010, a telecom corruption scam in India involving the government came as a shocking revelation, as it involved over 500 million mobile phone users. The corruption resulted in losses of over US$40 billion for the India government
  • (KPMG, 2011)

Corrupt Countries

Least Corrupt

Denmark 90 Finland 90

New Zealand 90 Sweden 88

Singapore 87 Switzerland 86 Australia 85 Norway 85 Canada 84 Netherlands 84

Most Corrupt

Haiti 19

Venezuela 19 Iraq 18 Turkmenistan 17 Uzbekistan 17 Myanmar 15 Sudan 13 Afghanistan 8 Korea (North) 8 Somalia 8

Transparency International 2012 survey identified the following:

Corrupt Countries

Least Corrupt

Denmark 92 New Zealand 91

Finland 89

Sweden 87

Norway 86

Switzerland 86 Singapore 84

Netherlands 83

Luxembourg 82 Canada 81

Most Corrupt

Somalia 8 Korea (North) 8

Sudan 11 Afghanistan 12

South Sudan 15

Iraq 16 Turkmenistan 17

Uzbekistan 17

Libya 18

Eritrea 18

Yemen 19

Transparency International 2014 survey identified the following:

Corrupt Countries

Bribe least

1 Netherlands

1Switzerland

3 Belgium

4 Germany

4 Japan

6 Australia

6 Canada

8 Singapore

8 UK

10 USA

Bribe most

28 Russia

27 China

26 Mexico

25 Indonesia

23 UAE

23 Argentina

22 Saudi Arabia

19Turkey

19 India

19 Taiwan

Transparency International 2011 Bribe payers survey identified the top 28 economies and found the following:

Accepted Practices?Custom, Ethics & Etiquette

  • If corruption and bribery are in fact damaging businesses and society, why do many managers and organisations continue to engage in the practice?
  • Donaldson and Dunfee suggest that some companies, whilst recognizing that cultural differences exist, simply accept these as the way business is conducted in a host country, thus engage in corrupt practices.
  • They argue that this strategy is a “mistake because it exposes the company (and its brand names) to corruption and public affairs disasters, and because it misses the opportunity to find the glue that cements morale and cooperative strategy”(1999 p. 46).

Categories of Authentic Global Norms

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Illegitimate Norms incompatible with Hypernorms

Illegitimate Norms incompatible with Hypernorms

Illegitimate Norms incompatible with Hypernorms

Illegitimate Norms incompatible with Hypernorms

Is Bribery Unethical?

Donaldson and Dunfee (1999) put forward several arguments supporting the unethical nature of bribery

1. From the standpoint of the bribe recipient, the acceptance usually violates a micro-social contract specifying the duties of the agent.

2. Bribery is typically not an authentic norm.

  • “Corruption is condemned and proscribed, by each of the major religious and moral schools of thought. Buddhism, Christianity, Confucianism, Hinduism, Islam, Judaism, Sikhism, and Taoism each proscribe corruption. Adam Smith and David Ricardo condemned corruption, as did Karl Marx and Mao Tse Tung.”

3. Bribery may violate the hypernorm supporting political participation as well as the efficiency hypernorm.

  • The political decision making process is undermined by bribery with the risk that politicians, officials etc., make decisions on the basis of self rather than public interest.
  • Corrupt agents exact money from firms. Corruption affects the number of firms in a free-entry equilibrium, and in turn increases costs relative to profits. In contrast, “the degree of deep competition in the economy increases with lower overhead costs relative to profits; and with a tendency towards similar cost structures.”

Corrupt Individuals?

An intriguing finding is that corrupt individuals tend not to view themselves as corrupt. For example, individuals convicted of white collar crimes tend to acknowledge their errant behavior but nonetheless deny criminal intent and the label of criminal (Benson, 1985; Cressey, 1953).

Furthermore most individuals engaged in corrupt acts tend not to abandon the values that society espouses; they continue to value fairness, honesty, integrity and so forth, even as they engage in corruption (Sykes & Matza, 1957)

So how do such individuals pull off this difficult act of willingly engaging in corruption while not perceiving themselves as corrupt and not jettisoning the values that may impede corruption?

Corrupt Individuals?

Geis and Meier (1979) contend that the answer is that the legal process is lenient on white collar crimes and that offenders hold other highly respectable roles – such as community leader and good provider – that bolster their self-concept.

Corrupt individuals deny the identity implications of their actions is through the use of rationalizing ideologies. These ideologies help distance individuals and groups from the aberrant moral stance implied by their actions and perhaps even forge “a moral inversion, in which the bad becomes good” (Adams & Balfour, 1998, p. 11).

T l- Building Organisational Integrity

Transparency International states that the concept of integrity in companies refers to a holistic approach of doing business that involves the management, employees and shareholders in adopting actions and standards that provide for an effective defence against corruption and abuses.

When a company has ‘high integrity’, conduct on the part of directors, management and employees is characterised by adherence to globally-recognised ethical standards, compliance with both the spirit and letter of the law and regulations, and promotion of responsible core values (e.g. honesty, fairness and trustworthiness).

T l- Building Organisational Integrity

Ethical leadership, anti-corruption compliance systems and regulatory oversight are the principal ingredients for corporate integrity that insures correct behaviours and processes are in place-

  • TI advances a framework around four interdependent elements:

Norms and cultures (e.g. codes of conduct, ethics and corporate citizenship);

Governance (e.g. compliance systems, corporate governance and whistleblowing);

Public rules and regulations (e.g. regulatory oversight and law enforcement); and

Broader checks and balances (e.g. rating agencies, investors, employees, media and civil society watchdogs).

International Legislation

The most influential initiative that addresses global business activities is the OECD convention on combating bribery of foreign public officials in international transactions that went into effect in 1997.

Article 1 obligates each signatory nation to make it a criminal offense “for any person intentionally to offer, promise, or give any undue pecuniary or other advantage whether directly or through intermediaries, to a foreign public official‘’ to obtain or retain business or “other improper advantage‘’

It is not, however, illegal under the OECD bribery in international Convention to make small “facilitation’’ payments. Such payments are made to induce public officials to perform non-discretionary routine functions such as issuing licenses and permits.

(Pacini, Swingen & Rogers, 2002)

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The US FCPA

The 1977Foreign Corrupt Practices Act is a US federal law that is known primarily for two provisions

1. the accounting transparency requirements under the Securities Exchange Act, and 2. bribery of foreign officials.

Its anti-bribery stipulations prohibit issuers, domestic concerns or any person from using interstate commerce in a corrupt manner, or from offering money or anything of value to a foreign official, foreign political party or candidate for political office, with the aim to influence the conduct of the foreign official in a way that it violates his/her duty, or to secure any unauthorized advantage in order to obtain or retain business.

(KPMG, 2011)

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The US FCPA

A violation of the FCPA consists of five “elements.” That is, a person or organization is guilty of violating the law if the government can prove the existence of:

  • a payment, offer, authorization, or promise to pay money or anything of value
  • to a foreign government official (including a party official or manager of a state-owned concern), or to any other person, knowing that the payment or promise will be passed on to a foreign official with a corrupt motive for the purpose of:
  • influencing any act or decision of that person,
  • inducing such person to do or omit any action in violation of his lawful duty, securing an improper advantage, or
  • inducing such person to use his influence to affect an official act or decision in order to assist in obtaining or retaining business for or with, or directing any business to, any person

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The US FCPA- Penalties

Individuals: up to five years’ imprisonment for each violation, or up to 20 years for certain willful violations.

Corporations and other business entities: up to $US 2 million for each violation, individuals as much as $US 100,000.

The maximum fine may be increased to $US 25 million for corporations and $US 5 million for individuals in the case of certain willful violations.

Under the alternative Fines act, all criminal fines, including those imposed under the FCPA, may be increased to twice the gain obtained by reason of the offense or twice the loss to any other person.

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The US FCPA- Penalties

Two recent examples of major companies and the cost of bribery:

Hewlett-Packard – The US Securities and Exchange Commission charged the Palo Alto, California based technology company with violating the FCPA when subsidiaries in three countries made improper payments to government officials to obtain or retain lucrative public contracts. H-P agreed to pay $108 million to settle the SEC charges and a parallel criminal case. (4/9/14)

 

Alcoa – SEC charged the global aluminum producer with violating the FCPA when its subsidiaries repeatedly paid bribes to government officials in Bahrain to maintain a key source of business. Alcoa agreed to pay $384 million to settle the SEC charges and a parallel criminal case. (1/9/14)

http://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml

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The UK Bribery Act

  • The UK Bribery Act received assent on 8 April 2010 and goes well beyond simply criminalising conduct covered under the OECD Convention.
  • It is now among the strictest legislation internationally on bribery.
  • Notably, it introduces a new strict liability offence for companies and partnerships of failing to prevent bribery.
  • The introduction of this new corporate criminal offence places a burden of proof on companies to show they have adequate procedures in place to prevent bribery.
  • The Bribery Act also provides for strict penalties for active and passive bribery by individuals as well as companies.
  • (http://www.transparency.org.uk/our-work/bribery-act)

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The UK Bribery Act

It targets general and commercial bribery offences by creating the following four criminal offences:

  • Offering, promising or giving a bribe (active bribery)
  • Requesting, agreeing to receive or accepting a bribe (passive bribery)
  • Bribing a foreign public official in order to obtain or retain business or an advantage in the conduct of business
  • Failing to prevent bribery engaged in on behalf of a commercial organisation.

The penalties for individuals under the Act include imprisonment for up to 10 years or a fine up to the statutory maximum.

A corporation found guilty of not preventing bribery is subject to unlimited fines.

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The UK Bribery Act

UK Bribery Act applies to companies doing business overseas.

  • Companies registered in the UK can commit an offence under section 7 of failure to prevent bribery if an employee, subsidiary, agent or service provider (‘associated persons’) bribes another person anywhere in the world to obtain or retain business or a business advantage.
  • A foreign subsidiary of a UK company can cause the parent company to become liable under section 7 when the subsidiary commits an act of bribery in the context of performing services for the UK parent unless it was acting entirely on its own as it would not then be performing services for the UK parent.

Foreign companies with operations in the UK are also subject to this legislation.

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Australian Legislation

Australia’s “Foreign Corruption Provisions: Section 11.5(1) and 70.2(1) of the Criminal Code Act 1995, applies to Australian citizens, residents and companies who bribe or attempt to bribe a Foreign Public Official.

They can be prosecuted under Australian law even though the actions happen outside Australia.

Under Section 70 of the Criminal Code 1995 Amendment (Bribery of Foreign Public Officials) Act 1999, Bribery involves:

  • Providing, offering or arranging a benefit
  • The benefit is not legitimately due
  • With an intention to influence a Foreign Public Official (FPO) in their official duties
  • With the motive to gain or retain business or a business advantage

Australian Legislation

It is also an offence to:

• Attempt to offer a bribe
• Help any person to offer a bribe
• Get another person to offer a bribe
• Encourage/urge another person to offer a bribe
• Conspire/secretly plan with another person to offer a bribe

Possible Penalties:

  • Individuals: a maximum 10 years imprisonment and/or maximum $1.1 million in fines
  • Companies: Fines the greater of $A11 million or 3 times the value of the benefit or 10% of annual turnover if a value cannot be determined.

The A&NZ Context

  • The 2010 KPMG survey found 50% of the respondents said they were aware of the relevant Australian and New Zealand anti-bribery legislation.
  • 20%of respondents who stated they were not aware of this legislation, operated in jurisdictions outside of Australia and New Zealand.
  • Most respondents (84 percent) stated that they had not taken advice to determine whether foreign anti-bribery and corruption legislation applied, even though 20 percent of these organisations operated outside of Australia and New Zealand.
  • 2% admitted making ‘facilitation payments’ to government officials overseas. The ‘facilitation payments’ in question may or may not be illegal under the relevant Australian or New Zealand laws, although a majority of the organisations concerned did not have policies or procedures for checking the legality of such payments.

Little in house training in anti-corruption legislation has been identified to prepare managers in international contexts

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Other Initiatives

  • United Nations Convention Against Corruption (UNCAC)
  • On October 31, 2003, the United Nations General Assembly adopted the UNCAC by resolution 58/4. The convention came into force in December 2005 and its objectives were as follows:

–  To promote and strengthen measures to prevent and combat corruption more efficiently and effectively

–  To promote, facilitate and support international cooperation and provide technical assistance in the prevention of and fight against corruption, including asset recovery

–  To promote integrity, accountability and proper management of public affairs and public property

  • International Anti- Bribery and Fair Competition Act – Americas
  • Incorporated in 1998, this act was formed to amend the Securities Exchange Act of 1934 and the Foreign Corrupt Practices Act of 1977, and thereby improve the competitiveness of American business and promote foreign commerce. Under the act, it is illegal for a US citizen or corporation to influence, bribe or seek advantages from a public official of another country.

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Other Initiatives

  • Global Organization Against Corruption (GOPAC)

GOPAC is an international network of parliamentarians who are dedicated to promoting good governance and combating corruption. The body was formed in 2002 at a conference hosted by the Canadian House of Commons and Senate, and currently has over 400 members around the world, organized into regional and national chapters.

  • EU Anti-Corruption Policy

This policy reviews the EU’s progress in tackling corruption and suggests improvements to drive the efforts. The focus is to reduce all forms of corruption, at every level, in all EU countries and institutions and even outside the EU. The policy also aims to identify possible areas where the EU can take future initiatives in the fight against corruption.

(KPMG, 2011)

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