Volume 36, Issue 4, April 2001

GoingGlobal

Seller Beware

Steering Clear of International Bribery

by Rene Bergero

Have you heard of the FCPA? This acronym stands for Foreign Corrupt Practices Act which consists of laws making it a crime for any U.S.-based company (or American citizen) to pay bribes or proffer special favors to foreign government officials to win business. Many international sales executives would agree that paying bribes is still part-and-parcel to doing business in certain areas of the world—a practice which goes back hundreds of years. Surprisingly, it can even become institutionalized. Until recently, countries like Sweden and Australia allowed companies that paid bribes to declare them as routine business expenses on their tax returns.

We can all paint a mental picture of how a corrupt foreign official might say “show me the money,” but it is seldom, if ever, a brazen demand for payment. The stakes are high for them as well, so a certain degree of subtlety is involved. Keep in mind that foreign officials could face incarceration, or in extreme (but not rare) cases, summary execution if they are either caught or have not “properly” distributed the spoils.

Warning Signs to Look For
Following are some signs that will warn you that a customer or prospect may have nefarious motives ultimately involving a bribe or payoff:
• A customer insists your company use a specific sales representative;
• A request that a commission payment be made to a third party, in another currency, or to an account that is not in the name of the sales agent;
• Insistence that commercial invoices be sent to a party other than the buyer;
• A demand to split a commission payment into small amounts;
• A request to create or sign false documents, such as undervalued commercial invoices.

False Documents
This last example is by far the most frequent request we receive from customers and prospects. There is a simple reason why this is so. Many countries have onerous duties and taxes that the importer must pay for their merchandise. Some even tax the shipping and handling fees. Consequently, there is a significant financial incentive for the importer to clear his merchandise with an undervalued invoice. They will usually offer to pay the seller the full amount prior to shipment as an enticement to comply with this request.

In a sense, this is probably more of a tax evasion issue than a bribery issue, but since I’m not a lawyer, I always approach these situations from a worst-case scenario point of view. Suppose we send a shipment with an undervalued invoice to a Guatemalan customer and the shipment is confiscated by customs. Too bad for the customer, you say. After all, he paid for the order up-front, and therefore you have lost nothing. You put this behind you and then a year or so goes by. You just happen to be traveling to Guatemala, on a vacation perhaps. What if Guatemalan Customs made a record of whose bogus invoice was involved, and your name is flagged? They run your name through the computer at immigration. Wham! The next thing you know the Guatemalans are charging you with tax evasion and you’re hauled off to jail. No color TV or modern conveniences in Guatemala’s jails, I assure you.

Could this really happen? Maybe, maybe not. Do you really want to find out the hard way? I don’t, so we always flatly refuse to comply with this kind of request, regardless of the circumstances. If we lose the sale, so be it. An honest buck beats stir every time.

USG