FCPAméricas Blog

FCPA Actions that Hit Home

Author: Matteson Ellis

As a legal matter, the FCPA addresses only the supply side of bribery. This means that the effects of corruption are irrelevant to whether or not a violation has occurred. But considering effects is still important. If nothing else, it calls to mind why such a law exists in the first place.

More often than not, FCPA enforcement actions involve acts of corruption whose effects can seem distant. An oil services company that pays customs officials through third parties to expedite the entry of its goods (see Noble Corporation). A technology unit of a multinational corporation that pays millions to win a billion dollar contract to supply a country’s citizens with identification cards (see Siemens Argentina). A spirits company that pays to have its products prominently displayed at state-owned liquor stores (see Diageo). It might not be readily apparent how these acts really affect the everyday lives of Nigerians, Argentines, or Indians.

But some FCPA actions hit home.

Consider Tyson Foods Inc., the world’s largest meat protein company and the second-largest food production company in the Fortune 500. The company settled with the DOJ and SEC for $5.2 million after making over $100,000 in improper payments over three years to two government health inspectors to approve its chicken plants in Mexico. There is a reason that Mexico’s Department of Agriculture administers health and safety laws. Consumers want to be sure that the foods they purchase have been produced under healthy conditions. Inspectors are necessary to enforce these standards. When health standards are not enforced, the public bears the risk of getting sick.

Consider Wal-Mart. The company is reportedly under investigation for, among other things, paying bribes in Mexico to reduce environmental impact fees and obtain the allegiance of neighborhood leaders in connection with its efforts to build new stores at a rapid pace. Governments put environmental impact requirements in place to protect communities from things like pollution, flooding, insect infestation, disposal of waste, and traffic congestion. One ethics expert explains: “When regulations like these are not properly enforced, individuals pay for corporate misconduct through reduced quality of life, increased medical expenses, and the cleanup of environmental wrongdoing, which is often funded with tax dollars.” A former Mexican Ambassador also reports how, against significant public opposition, Wal-Mart was able to open a 72,000 square foot store within the boundaries of the 2,000 year old city of Teotihuacán. Did Wal-Mart achieve this by quieting the opposition with payments to neighborhood leaders?

There are other actions, like Smith & Nephew and Biomet, that involve bribery to make sales of orthopedic implants like hip replacements. These are devices that doctors put into people’s bodies. A patient should feel confident that his or her doctor is choosing a certain brand, not because the manufacturer is giving a kickback, but because that brand is the best for the patient. Doctors should choose the brand that will minimize risk of future problems.

How about companies that maintain airplanes? In the BizJet enforcement action, an aircraft maintenance, repair, and overhaul company reached an $11.8 million settlement with the DOJ for payments made to Mexican and Panamanian authorities to win contracts. Passengers feel secure when they know that airplane repair services are procured based on quality and not bribes.

Some might argue that even if well-established companies are paying bribes to win contracts, this does not necessarily mean that they are cutting corners on quality. They can self-regulate. After all, they must protect their reputation. If airplanes crash or consumers get sick, the company’s name is on the line. Isn’t this enough to keep them providing top quality?

This view has a few problems. First off, it is not always easy to establish a link. If Tyson Foods has already received inspector approvals for its plant operations, it might be difficult to trace health and safety issues back to its plant. Second, if a company is willing to engage in systemic bribery, who is to say that it would not be willing to cut corners on things like health and safety?

Finally, the economic realities of bribery are oftentimes unavoidable. If a company pays 15% of the value of a contract in bribes, it must come up with these funds somewhere else. They could be taken out of profits, but this would reduce the company’s value. Profit-cutting is an unlikely source because the company has chosen to pay bribes in the first place to stay competitive and improve the bottom line. That leaves raising prices or cutting quality to cover the costs. The former implies wasted public resources. The latter could imply higher risks to things like health, safety, the environment, and the community.

The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com.

The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.

© 2012 Matteson Ellis Law, PLLC

Matteson Ellis

Post authored by Matteson Ellis, FCPAméricas Founder & Editor

Categories: Enforcement, FCPA, Mexico, Procurement, Wal-Mart

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One Response to “FCPA Actions that Hit Home”

  1. Coffee Talk Shop… » High Tide: From John Edwards’s Jury Deliberations To Calls For Transparency In … Says:

    […] The FCPAblog checks in on WalMart and the Carson case. The FCPA Professor has his Friday news roundup. Tom Fox says there is another way to look at fairness in the compliance context. The FCPAmericas blog says that some FCPA actions hit home. […]

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