Reneging on Dirty Deals Reply

We hear anecdotes about employees involved in bribery schemes who also embezzle from their companies. Once they have figured out how to work the books to generate cash for bribes, keeping some of it themselves is simple enough. Or we hear stories of sales agents who work out arrangements whereby the employee championing the agent proposes a higher commission in return for a kick-back. That scheme is almost impossible to uncover, especially when the employee is posted far from headquarters in the country in which the agent is operating. While neither of these schemes implicates the FCPA, they both illustrate the slippery slope into criminality that keeps many of us up at night.

An article in the New York Times today describes the arrest of Richard Lopez Razo, of the US Department of State. Prior to joining the State Department, while employed by Innovative Technical Solutions, Inc., Razo is alleged to have accepted bribes paid to get an Iraqi – Hayder Al Batat – hired as a subcontractor. After joining the State Department, Razo is alleged to have hit up Al Batat’s brother for additional payments in exchange for business in Iraq.

Setting aside the abuse of office by this US government official in an environment as sensitive as Iraq and setting aside the discomfort that Innovative Technical Solutions Inc. must be experiencing right now, one other point leaps off the page: Razo couldn’t get Al Batat to pay up. It is not clear how much Razo ever collected from the alleged bribery scheme. The article refers to “dozens” of emails demanding payment. I’d like to see those emails. Sadly, it’s just not that difficult for most of us to imagine a bribe-demanding government official, stiffed for the bribes he was promised, puffed-up with indignation and livid about the injustice of it all.

Tone at the Top in Africa Reply

Yesterday, the Mo Ibrahim Foundation announced that it would not award this year’s Ibrahim Prize for Achievement in African Leadership.  The $5 million prize is given to a former head of state in Africa who has left office in the past three years.  “The Foundation was established to stimulate debate around, and improve the quality of, African governance.”  There are 53 African continental and island states.  The selection committee, chaired by Kofi Annan, was unable to identify a suitable candidate amongst the former leaders of these states.

Compliance Surprises in Cuba's Closed Economy Reply

All things come to an end, eventually, even John F. Kennedy’s ban on U.S. trade with Cuba. Sensing impending change, we headed to Havana in March to see how bribery works there, as compared to in Russia or India or Mexico. We were startled at how little evidence of commercial bribery we found.

Billboards everywhere exhorted citizens to “defend the revolution”: Patria o Muerte! Fatherland or Death! The government seemed to count on slogans more than salaries to motivate the workers. Everyone works for the State and the salaries the state pays range from US$16 to US$20 per month, whether you earn it by pumping gas or by transplanting hearts. The government ensures that salaries are equal, even if they are not adequate. No one can live on such wages, and no one, not even the government, pretends that they can. Even with free health care and education and subsidized rations of rice, beans, eggs and cooking oil, no one makes ends meet on US$20 per month (One heart surgeon decorates cakes on the weekends).

The government knows that its citizens supplement the income it provides and for the most part looks the other way while they do. Pilferage (though not bribe-seeking) seemed practically universal. Those whose jobs give them access to a car siphon gas to sell on the side. Those whose jobs take them to an office take offi ce supplies to distribute. Bartenders save the good rum to trade and serve drinks that are thin and watery. Waiters grab food to barter and blatantly pad the checks they present to foreigners.

What does this mean for employers? Well, in Cuba, the state is the employer, so constant low-grade pilferage of goods to sell on the Black Market is just another way to redistribute the wealth. Cubans we spoke to didn’t seem to consider this stealing exactly, because, well, everything belongs to everyone, right? People in Cuba shrug a lot and turn up their hands.

Foreign businesses have another way to reward their employees. These companies have to pay their employees’ US$20 per month wages directly to the state, but they are permitted to pay a “top up” directly to the employees. This is called a “gratifi cation.” This isn’t legal in Cuba; in fact it is a violation of the stated national value of egalitarianism. But the Cuban government looks the other way until tax time, then requires employees to declare their “gratifi cations” and be taxed, so the state benefi ts in hard currency. One company pays the offi cial rate of US$20/month and an unofficial “top up” of US$2000/month.

A foreign business ready to pay “gratifications” should have no trouble hiring, but the government makes the hiring process difficult. A company can find someone and then ask the government employment agency to vet and approve them, but they will wait a long time. Alternatively, they can ask the government employment agency to send over two or three people to choose from. Reject all three and they will wait a long time for another candidate. One employer that got itself crosswise with the government has waited several years to fill 35 open spots. A company that attempts to dismiss someone will wait, yes, a very long time for a replacement.

For Cuba’s highly educated population, there is little cost to losing a job; the government will assign another. Jobs in industries with scarce portable goods bring opportunities for “slippage” of inventory. Soap is rationed in Cuba and very scarce; working in a soap factory is a plum job. A chance of travel abroad is attractive, although such travel rarely materializes. The approval process is long by design. In a recent speech, Raul Castro announced that international travel for business would be cut dramatically.

Companies enjoying any success in Cuba have partnered with savvy locals who guide them through the dense, opaque bureaucracy. Such companies must convince the government that they are there for the long haul. They cultivate relationships and, invariably, they sponsor charity cigar auctions or kids’ “go-kart” rallies. But, by all reports from many sources, they don’t pay bribes.

This was surprising. Robert Klitgaard says that a centralized government with a great deal of discretion and a low level of accountability will be a playground for bribe seekers. We went to Cuba expecting rampant bribery, but we didn’t find it.

We did hear about widespread, low-level, non-threatening demands from policemen and officials, but they sounded more wistful than threatening: “I haven’t had a cup of coffee yet today…” one policeman said. Some people pay and others decline. Declining seems to bring no consequences. Middle level employees of state-owned joint ventures had reputations that were a little worse. As for bribery higher up the chain, we heard it was rare.

The party, it seems, really does pay homage to “revolutionary consciousness.” Schoolchildren sing “We will be like Ché,” and apparently one cannot “be like Ché” and demand bribes. Moreover, the party believes that corruption toppled the Soviet Union, so it is reported to move swiftly and severely against bribe takers. The Cuban Penal Code stiffens the penalties as one climbs the hierarchy of government officials, something we haven’t seen elsewhere.

We spoke to a European businessman with responsibility for Latin America and asked him how Cuba compares to other countries for transparency. He quickly placed it above Mexico, all the countries of Central America and Venezuela. Then he added Ecuador, then Brazil and Argentina, then Chile, South America’s transparent golden child. Slowly, and with apparent surprise, he declared it “among the best in the region.” But he added that he didn’t quite understand why.

Near the end of the trip, I asked a Cuban businessman what would happen if U.S. sanctions were lifted and U.S. companies started arriving with money to spread around. “Oh no, tell them not to do that. That won’t help at all. But they’ll need the money. Patience is the key, and patience can be very expensive.”

This article was originally published by Alexandra Wrage in Ethisphere magazine in Q1 2009.

Looking back Reply

At a conference in Paris in 2003, Peter Clark, then the Deputy Chief of the US Department of Justice’s Fraud Section, was challenged by a Nigerian gentleman.   The exchange was reported in the Financial Times.  The issue was the politicization of anti-bribery cases and the gentleman boomed, “if you think anyone in Africa believes the US government will ever go after Halliburton for bribery, you are sorely mistaken”.   Mr. Clark stood and boomed back:  “if you think for a moment that we would shy away from a case for political reasons, you are sorely mistaken.”

The US investigation that followed resulted in penalties of $579 million assessed against Halliburton and the TSKJ joint venture earlier this year.   When Mr. Clark was challenged in Paris, the audience seemed to respond with a collective “we’ll see”.   And now we have seen.  Since then, we’ve also seen the Al Yamamah file closed in the UK and we’ve heard rumors of other European governments killing investigations before they began.  In light of that, it’s worth recalling this exchange and the success that the US Department of Justice has had at pursuing companies, independent of any political pressures.