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CASE 2-5 Coping with Corruption in Trading with Vietnam Corruption is a fact of lifie in China. In fact Transparency Interna-fo travel to cash or gifts. (This was especially true when few tional, a German organization that applies its Corruption PerceptionPRC officials had been abroad.) As a result, traders report that Index (CP) globally. rates China with a CPl of 3.6 and is number dangling foreign trips in fromt of their PRC clients has become 75 of the 183 countries rated. New Zcaland is rated the least c a regular part of negotiating large trade deals that involve prod- rupt at number l with a CPI of 95, the United States at 1924 with ucts with a technological componen·"Foreign travel is always a CPI of 751, and North Korea and Somalia the most conrupt at the first inducement we offer," said an executive involved in namber 182 with a CPl of 1.0. The country's press frequenitly has machinery trade. In most cases, traders build these costs into the detailed cases of coenaption and of campaigns to crack down on prodact's sale price. Some trips are "reasonable and bona fide bribery and other forms of cornaption. The articles primanily have expenditures directly related to the promotion, demonstration, focused on domestic economic crimes among Chinese citizens and or explanation of products and services, or the execution of on local officials who have been fired, sent to prison, or assessed a contract with a foreign government agency." but it may be other penalties another matter when officials on foreign junkets are offered There is strong evidence that the Chinese government is taking arge per diems and aren't invited specifically to gain technical notice and issuing regulations to fight coeruption. Newly issued knowledge. Communist Party of China (CPC) regulations on internal super vision and disciplinary penalties have raised hopes that the newextorted. In one case, a PRC bank branch refused to issue a letter regulations will enhance efforts against corruption. The regula of credit for a machinery import deal. The Chinese customer sug- tions established "10 Taboos" for acts of party members that gested that the foreign trader invite the bank official on an overseas violate political, personnel, and financial regulations and who inspection tour. Once the invitation was extended, the bank issued are involved in bribery, malfeasance, and infringement of oth the leter of credit ers' rights. The taboos included lobbying officials of higher rank handing out pamphlets or souvenirs without authorization, holding social activities to form cliqaes, and on the list were making phone calls, giving gifts, holding banquets or conducting visits to win support, covering up illicit activities spreading hearsay against others, using intimidation or deception and arranging jobs for others. Some believe that the execution of three bankers, for "a run-of-the-mill fraud. just before the Communist Party's annual meeting, was an indication of how serious the government was about cracking down on corruption. Foreign travel isn't always an inducement-it also can be hNG FOR CASH bribes. Also Soeme MNCs are asked to sponsor overseas education for the chil dren of trading officials. One person told a Chinese source that an MNC paid for that individual's U.S. 51,300-a-moeth apartment as well as a car, university education, and expenses. illicit activities Firms find direct requests for cash payments undeniably illegal-the most difficult. One well-placed source said that a major trader, eager for buyers in the face of an international Mach of China's early efforts to stem corruption were focused on activities among domestic Chinese companies and not on China's foreign business community. Traders, trade consultants and analysts have said that foreign firms are vulnerable to a vari- ety of corrupt practices. Although some of these firms said they had no experience with corruption in China, the majority said they increasingly were asked to make payments to improve business, engage in black-market trade of import and export licenses, and bribe officials to push goods through customs or the Commodity Inspection Bureau, or engage in collusion to beat the syslem. The Hong Kong Independent Commission Against Corruption reports market glut, had fallen into regularly paying large kickbacks into the Honduran, US and Swiss accounts of officials at a PRC foreign trade corporation. Refusing to make payments may not only hurt sales, it can also be terrifying. A U.S. firm was one of several bidders for a large sale; a Chinese official demanded the pany representative refused, the official threatened:"You had better not say anything about this. You still have to do business in China, and stay in hotels here. Not surprisingly, the U.S company lost the deal. MNC pay a 3 percent kickback. When the com that outright bribes, as well as gifts or pryment to establish guanxi, or "connections," average 3 to 5 percent of operating costs in the PRC. or $3 billion to $5 billion of the $100 billion of foreign invest ments that have been made there. The most common corrupt prac tices confronting foreign companies aina are examined here. Traders of certain commodities may be tempted to resort to the black market for import and export licenses that are difficult to obtain legally. A fairly disorganized underground market, for instance, exists for licenses to export China-made garments to the United Stales Some branches of the Commodity Inspection Bureau (CIB also have posed problems for traders. Abuses have emerged in the CIB since it started inspecting imports in 1987. A Japanese company. for instance, informed CIB officials of its intention Foreign traders make several types of payments to facilitate sales to bring heavy industrial items into China items that had met in China. The most common method is a trip abroad. Chinese Japanese and U.S. standards. The officials responded that they planned to dismantle the products on arrival for inspection pur- poses. The problem was resolved only after the firm invited the PAYING TO IMPROVE BUSINESS officials, who rarely have a chance to visit overseas, often prefer officials to visit Japarn

Answer 1

1. Under the Foreign Corrupt Practices Act there is a distinction between bribery and extortion depending on the activity resulted from voluntary or demanded payment. A common type of payment under FCPA to facilitate sales is a trip abroad . Many Chinese officials have not been able to travel, so they prefer to travel foreign instead of being handed cash or given gifts . And it would be easy to add the cost of the trip into the final sales price of their product . They have also been asked to pay for education instead of being given cash which is obviously illegal . For the Criminal Law of PRC, state officials are often bribed with state-owned enterprises . Most of China’s large companies either demands or accepts these bribes . Under the law Against Unfair Competition of the PRC refers to commercial bribery . It forbids businesses from giving out property and money to customers when they purchase products or even when they are trying to sell to them . The law says nothing about gifts under $600 which can be confusing since this can still count as accepting bribes . Since these are confusing the trouble is, they vary by what a gift can mean and there are a lot of loop holes in the law which unfortunately doesn’t make it a violation if convicted. A lot of times these demands are overlooked because the payment can be justified by saying the payment was needed in order to keep the contract , get work started , or even to keep a project on track.

2. Subordination – which involves illegally enticing officials with large sums of money to influence them to act on behalf of whoever is providing the bribe.

Lubrication – involves offering officials with cash payments, services or gifts in especially countries with no legislation against it.

Extortion – such as the foreign trip that led to an official withholding the credit letter, black markets and the illegal procurement of documents, gifts, and cash payments.

Extortion involves situations that officials extract any of the various forms of payments under duress from those that seek what they are lawfully entitled to.

3. a. Vacations to luxury destinations across the world to officials and their families.

b. Kickbacks.

c. Acquiring documents illegally through the black market.

d. Gifts such as memberships to golf and tennis clubs meant to influence the official’s decisions .

4. I think the common sense response to anyone in power and control of a country would be what is the right and wrong decision to make. By that I mean, the government or person in power must make a choice of knowing what the common good is for the people of that country as well as the benefits that go along with it. Are the decisions being made respect the rights of the people within that particular country? I believe that most people who the difference between right and wrong, unfortunately they are just not followed a lot of times. Sometimes people in power will do acts that are considered wrong and unjust in order to benefit themselves. If not for some of these laws on corruption, the world might be a totally different place when it comes to work ethics. Investing outside of your country might be a lot harder then what it is now if some of these acts were not followed.

In some countries where corruption runs a country like Haiti, Nigeria, China, or Jamaica it is extremely hard for the society in that country to help make that country change because they are so use to the work ethics that are implemented already. It is up to the people in power and the society together to want to make a change so everyone and every business can have a fair share of the market. The reality is that does not happen often for some of these under developed nations. The U.S has led the way in International Bribery and Corruption, and other countries should follow the United States examples of our framework to make ethical business decisions principals a way of society. Without a foundation of basic principals it will be very hard for a country that is corrupt to ever get out of their unethical ways.

5. Expenses that could be in violation:

• Giving expensive gifts
• Paying for hotels
• Entertainment costs
• Sony Camera
• Luxury outfits
• Vacations unrelated to busines
• Funding of daughter’s European trip or son’s tennis & golf membership

The Expenses listed above are unjustifiable and unrelated to any business activities.

• Legitimate business expenses:-------
• Giving fees to Chinese consultant
• Corporate jet (for business trips)
• Apartment in Shanghai for business purposes (perhaps company member need to stay in the city or can be used as a place to entertain foreign officials)

6. A US Foreign Service agent raised question about how strictly US Foreign Corrupt Practice Act is imposed. He raised a legal issue that, all American firms doing business in china will lose its business if they follow US FCPA act. So, he indirectly says that to do business in corrupt practicing economies a firm has to focus on acting ethically rather than acting legally. From his perspective, I can understand that he is trying to help U.S. Company’s compete in a foreign market that is corrupt, but on the other hand he is just as bad as the people of that country that are corrupt. He is corrupt himself and not standing behind the law for which he works for and stands for.

Ethical practices are those which do not harm common goods. If someone is acknowledged to be a Foreign Service Agent and is supposed to enforce and abide by the laws of which he enforces, then why is this officer in this position if he or she cannot do the job? In all fairness, the law shouldn’t even exist if those that are supposed to enforce it do not abide by it.

7. Alternative 1 : Stay out of the deals where corrupt practices are in act

Pluses

a. Protecting Company’s reputation.

b. Remaining clear to regulatory authority

c. Escape from future difficulties

Minuses

a. Losing business deals.

b. Losing competition.

c. Bypassing opportunities.

Alternative 2 : Proposing counter offer and paying by legal means

Pluses

a. Improving brand value

b. Escaping corruption

c. Building customer loyalty.

Minuses

a. Increasing costs

b. Potential disagreements etc.