Since the Wal-Mart bribery story broke, several commentators have argued that companies like Wal-Mart, if they want to stay competitive in countries like Mexico, have no choice but to bribe. To them, the FCPA’s purpose is “strictly moral.” These arguments rest on notions of cultural relativism and the fact that the law disadvantages U.S. companies: “For the U.S. government to attempt to apply America’s definition of what constitutes acceptable business behavior – in America – in a one-size-fits-all approach to doing business abroad makes little sense in a world where no single standard effectively applies — to anything, and it runs counter to the government’s stated objective of making American business more globally competitive.”
It is certainly true that meeting the compliance standards expected by U.S. enforcement is not easy. It requires sustained effort, attention, and resources. But what I have seen from years of investigating corruption abroad and advising on compliance tends to run counter to these arguments.
As a preliminary matter, people from developing countries are often offended when others assume that they are satisfied with corruption as a normal part of their cultures. Toleration when one might not have choice should not be mistaken for acceptance. Indeed, there is a reason why non-U.S. countries make bribery illegal under their local laws. There is reason why the vast majority of countries in the world are signatories to the United Nations Convention against Corruption.
Moreover, it is wrong to assume that Wal-Mart had no choice if it wanted to do business successfully in Mexico. Responsible companies operate, and thrive, in Mexico and elsewhere all of the time, even in the face of corruption risk. They do so with serious compliance programs in place.
Wal-Mart should have, in its normal course of business, vetted the law firms and gestores it used to interact with local government officials. It should have educated them on its anti-corruption rules, had them commit to following these rules, and followed up to make sure their work was being conducted above board. It should have kept detailed records of the transactions that the third parties undertook on its behalf. These transactions should have been subject to strict controls, including appropriate reviews and authorizations. Sales staff should have been trained on FCPA compliance so that it knew the reasons why controls existed. Management in Mexico should have sent consistent messages to personnel that compliance was essential to successful business. It should have set up hotlines so that employees could report problems if they occurred. If a significant problem did come to light, and if internal audit confirmed the credibility of the initial allegations, senior management should have immediately acted by engaging independent experts to obtain the facts and recommend remedial measures. On an ongoing basis, the company should have regularly assessed its risks, audited its compliance efforts, and updated policies and controls accordingly.
Had Wal-Mart done this, could it still have competed effectively in Mexico? Compliance counsel see companies do so all of the time. FCPAméricas has previously written about success stories in Mexico.
Certainly, the company would not have received its permits at the record pace it did. Foreign bureaucracies are slow, especially in Latin America. But if Wal-Mart, a company with major sway, sent a consistent message to local officials that it was not willing to pay bribes, officials would probably have made fewer requests. When asked for a bribe, company personnel could have offered a very clear response: “We are sorry. Under US foreign bribery laws, we simply cannot pay bribes. If we do, we might go to jail. In addition, our company has strict internal rules. If we violate them, we will be fired.”
One consultant from Mexico correctly explains this dynamic: “[I]t is precisely because of this reputation [for being held to higher ethical standards] that multinationals abroad are subjected to less pressure for ‘expediting’ fees for government permits. Government bureaucrats know that these companies just do not pay for such blatantly illicit expenditures. As a consequence, multinationals can be victims of a tardy approval process, but in most cases, because they can represent important investments into the local economy, the delays are minor and not out of the ordinary.”
Wal-Mart would have won its share of the market a bit slower. It might not have become the overwhelmingly dominant player in Mexico it is today. But it would have grown its business based on the quality of its services and its prices, not on the amount or frequency of its bribes. This is how healthy companies grow in environments like Mexico.
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