“Countering Small Bribes.” A Personal Perspective on the Guidance by Transparency International

more+
less-

First, whenever I read a paper, book or guidance about “how to pay a bribe,” or  “how to avoid a bribe,” etc., it is always with some degree of skepticism. I often wonder how an organization or person can have a perspective on how bribery works in the field without actually interviewing or “walking the walk” with those on the front line who are facing risk and corruption. Thus, I ask, does “Countering Small Bribes” by Transparency International (TI, Lead Author, Peter Wilkinson), accurately reflect the “real world” dynamics around small bribes as they impact organizations and individuals? 
In a word: “Yes.”  In two words “Incredibly accurate.”
As the paper states in the introduction, “paying small bribes feeds a climate of corruption, which creates an unstable operating environment for companies.” On an organizational level, that is entirely accurate, and as I share my views, I will attempt to supplement the TI work with how small bribes impact the thinking of those in the field. Accordingly, I hope to use this post as an attempt to carry the TI guidance to a more personal level, and I will utilize the TI paper as a functional and illustrative guide to my own experience and perspective. I hope that by bringing a personal view to the guidance,  I can somehow (humbly) enhance its value to other organizations, teams, and individuals who encounter this unfortunate dynamic in their own work on the front lines of international business.
Why even bother to pay a small bribe? It’s all about the “pinch-points.”
From the field perspective, there is a distorted view of small bribes relative to risk and reward. Why? Because as the TI paper well states, small bribes are often paid at “times of operational vulnerability” to eliminate potential “pinch-points” in a transaction.   Thus, when a front line business person considers the risk of getting caught in small bribe activity, relative to the reward of eliminating potential “pinch points” to completing a transaction, the thinking may not be as complicated as one might project.
If the compliance community has a hard time contemplating why a front line businessperson would take such a large risk (civil, criminal, reputational) for a small bribe, lets first go to the TI definition of why a small bribe would even be paid all:
  • “To obtain performance or to speed up a function to which the payer has legal entitlement.”
  • "To induce an official or employee to perform a function improperly such as a falsification of records.”
  • "To give improper preferential treatment.”
All of the above usually fall under the latter part of a transactional cycle. In other words, these are all events which are needed to complete a transaction as opposed to securing one. As the TI paper describes quite well “a bribe demander will use explicit or implied threats of delay, inconvenience, business cost or some other undesirable outcome.”   These are all articulated “pinch points” which occur downstream in the chronology of a transaction. So, how is it that a sole foreign official can wield such leverage and potential damage?
Procurement structures which foster bribery
In my experience, the only way a bribe demander can leverage operational vulnerability to secure a small bribe is if the local procurement structures and protocols allow for such discretionary authority. In some countries, those procedures are actually inherent in the procurement process, and make for an atmosphere of endemic corruption risk.
As an example, there was one country where once the ordered product was released for shipment, the supplier would receive 95% payment on an irrevocable letter of credit, paid into the suppliers bank, upon presentation of shipping documents at the point of origin (asleep yet?).  In the world of international commerce, this is as financially secure as it gets. But wait, the other 5% would be paid upon inspection at the end-user (destination) warehouse. Here are additional elements:
  • If the product does not pass inspection, the vendor may be banned for a period of five years.
  • If the product does not pass inspection, the supplier is responsible for having the entire shipment re-boarded and returned to the point of origin. That is the logistical and financial responsibility of the supplier.
  • If the product does not pass inspection and the order needs to be remanufactured, there is a delay clause of 1.5% per month penalty until the goods are returned, remanufactured, reshipped, an inspected again.
  • If the inspection takes too long to complete, (there are no timelines in the procurement regulations, it is totally at the discretion of the end user) the letter of credit may expire, and the goods are now financially unsecured.
But most significantly, the vendor is neither present nor informed in advance, as to when the goods are to be inspected, so there is no guarantee whatsoever that the inspection will be in line with accepted industry norms, e.g. ISO standards,  or with qualified and experienced personnel.
The risks here multiply like a chain reaction. What do you think goes through the mind of someone at the front line in this territory when a small bribe is demanded to “remove the pinch-point” by getting the goods inspected expeditiously and the payment released? Also, lets add that whatever incentive compensation the employee has based on this transaction is certain to be withheld until final payment has been secured. While TI has sound policy and governance recommendations as to how industry can counter these dynamics, my purpose here is to elevate how real they are at the field level.
In this type of environment, as TI states “small bribes are often systemic…” and “demands are made at times of vulnerability” as the government “functions have engrained cultures of demanding small bribes for routine actions.”  In my experience, it is corruption leverage at its worst. Also, as TI adds, and with incredible accuracy, in such environments “bribe demanders can create or heighten vulnerability by inventing bureaucracy.” Indeed, it can get to the point where in the field you start to think “I don’t know what is official and what is not,” so, the solution of “what does it take to make all this go away” starts to win out over more compliant and social thinking.
What is the psychological impact of small bribes to those on the front line of business?
“You get used to it.”
As a compliance professional recently shared with me when talking about the impact of small bribes, “when people get used to day-in, day-out events as minor, in terms of corruption, and that thinking becomes commonplace, especially in regions where local laws are not enforced, and local culture does not find it objectionable, that is now a very large problem.” And that is my personal narrative to the TI paper. While impact of small bribes is substantial to an organization, to those on the front lines, it is a dangerous and perilous gateway to tolerating greater corruption.
Thus, I agree with TI, that eliminating the tolerance for small bribes, for international personnel, is going to go a long way to close the gate to risk on a larger basis, as it eliminates a potential source of confusion as to “what does management really want?” As the TI guidance asks, “do the small bribes link to or pave the way for other corruption or risk?” Inasmuch it fosters a thinking of “this is the way it is done,” it is indeed a dangerous path to greater risk and a no-tolerance policy is going to help to mitigate that thinking.
But what are the solutions? Are there any which are realistic at the field level?
Yes, and the most important solution is the one where TI guides organizations “not penalize employees who refuse to pay bribes” and that organizations should be  “prepared to accept any resultant costs or delays.” In some cases, that might mean withdrawing from the business opportunity and officially registering concern with the supervisory authorities.
I would also add to the TI section on “communication and training” that a regional dynamic needs to be incorporated into any training program, tailored to the territory where the individual or group is working. Especially in the case of small bribes, the local culture will often have an impact on not only how the bribe is demanded, but on the disguised language that might be used to deliver the request, and finally, even to the person who might be demanding the bribe on the behalf of someone else.
While too complicated for a larger treatment in this essay, I would simply emphasize that training should not be a one size fits all model. It is critical that training be programmed to the peculiarities of each region. Also, as TI recommends, talk to people at the field level and find out more about what risk issues they are confronting in their work. Your own employees are your best source of information when it comes to encountering risk. As the TI paper asks in its Principle 4, Checklist “are local teams used to contribute to design the programs to counter small bribes?” Indeed, bringing a front line team into the design process, breeds “buy in” and “ownership” from those who are ultimately responsible for policy execution.
As I have previously shared, corporations may have to be willing to take a step backwards in business forecasts and sales growth plans, including withdrawing from some market sectors, to take a step forward in eliminating small bribery risk. Indeed, in some situations it might be the only responsible and possible solution. As the TI paper states “a radical solution may be to withdraw operations from an area, market or country.”

In perhaps my only disagreement with the TI paper, my view is that it might not be so radical.

 

Topics:  Bribery, Compliance, Corruption

Published In: General Business Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Richard Bistrong FCPA Real-World Blogger and Speaker | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »