ETHICS & CORRUPTION IN THE

GLOBAL MARKETPLACE

Corruption and The Shell Group

The Shell Group operates in more than 140 countries. They frequently face demands for “facilitation payments” from junior officials, and for “bribes” from more senior people.

Shell has a clear anticorruption policy: it does not sanction giving or receiving any type of bribery or illegal payment; an employee who is found to have done so is instantly fired and prosecuted.

Corruption in International Business

Corruption is an exchange between two partners that has an influence on the allocation of resources and involved the use or abuse of public or collective responsibility for private ends.

The Origin of Corruption

Corruption is proposed to come from two key factors:

• Developing or transitional economies which have weak infrastructure, weak legal systems, and inadequate enforcement

• A high level of government involvement with industry and business and a very low pay for public official

The Origin of Corruption

Culture is also a predictor to corruption level. It correlates with receptivity toward questionable accounting practices, uncertainty avoidance, and masculinity

Drawbacks of Corruption

Corruption slows progressCorruption obstructs firm growthCorruption causes misallocation of capitalCorruption produced distorted informationCorruption undermines trade and foreign direct investmentCorruption undermines trade liberalization

Corruption Rankings

The CPI has these as the five highest and lowest corruption countries.Highest: Bangladesh, Nigeria, Paraguay, Madagascar, Angola. Lowest: Finland, Denmark, New Zealand, Iceland, Singapore. The United States rates 16th lowest, the United Kingdom 10th. Russia is 71st, and Mexico is 57th.

Regional corruption survey: Singapore least corrupt, Indonesia most corrupt, Korea in middle of the pack

(9:13am, Wed, Mar 10, 2010 )Corruption Index, Scale of 0 to 10

1. Singapore, 1.422. Australia, 2.283. Hong Kong, 2.674. United States, 3.425. Japan, 3.496. Macau, 4.967. South Korea, 5.988. Taiwan, 6.289. Malaysia, 6.4710. China, 6.5211. India, 7.1812. Thailand, 7.6013. Philippines, 8.0614. Vietnam, 8.0715. Cambodia, 9.1016. Indonesia, 9.27

Types of Corrupt Practices

SmugglingMoney Laundering Piracy and CounterfeitingBribe Paying

Types of Corrupt Practices

Smuggling – illegal trade and transportation of goods devised to circumvent custom duties, quotas and other constraints in the movement of goods

Types of Corrupt Practices

Money Laundering - typically involves transferring money through several countries in order to obscure its origins

Types of Corrupt Practices

Piracy and Counterfeiting Piracy – means using illegal and

unauthorized means to obtain goods, such as copying software

Counterfeiting – goes a step beyond attempting to pass the copied product as an original, such as producing and selling a fake Gucci bag or a Rolex watch

Examples of movie piracy

Types of Corrupt Practices

Bribe Paying – fees, commissions, gratuities and sweetness. It is a perennial form of corruption in international business

The Transparency International Bribe Prayers Index 2002

“Hands under the table ”in the former

Soviet republics

The Foreign Corrupt Practices Act (FCPA)

The U.S. Congress passed the Foreign Corrupt Practices Act ("FCPA") in 1977 in an attempt to ensure commercial fair dealing, government integrity and accountability.  The FCPA established criminal and civil penalties for payments made by U.S. companies or U.S. nationals to foreign officials that could be considered bribes.

There are two main areas of FCPA focus:

  Anti-Bribery Provisions prohibit the promise, payment, or giving of money or anything of value to any foreign official for the promise of obtaining or retaining business. Accounting Requirements apply to companies required to file periodic reports with the U.S. Securities and Exchange Commission ("SEC").  These companies must maintain a system of internal accounting controls that provide reasonable assurances that honest and accurate records are being kept; and they must keep books, records and accounts which reflect the transactions and dispositions of the issuer.

The Globalization of the Fight Against Corruption

Organization for Economic Cooperation and Development – is an organization that acts as a meeting ground for 30 countries which believe strongly in the free market system,

Corruption threatens good governance, sustainable development, democratic process, and fair business practices. The OECD as a global leader in the fight against corruption, takes a multidisciplinary approach to combat corruption in business via the OECD Anti-Bribery Convention, taxation, development aid, and governance in its member countries and beyond. Regional programmes help the OECD reach out globally to curb corruption. 

Global firm Siemens pay $800 million to settle violations on the Foreign Corrupt Practices Act with a series of bribes and kickbacks to officials around the world.

The German company and its subsidiaries, which produce light bulbs, wind turbines. trains and more, made more than 4,000 payments, totaling $1.4 billion, to government officials around the globe just to win contracts.

Corruption Charges: Siemens to Pay U.S. $800M

July 2010, (GE) was fined $23.5 million by the Securities and Exchange Commission (SEC) for illegal dealings with Iraq during the Oil for Food Program. Last year GE had to pay an additional $50 million for fraudulent activities in Iraq from 2002-2003.