How To Pay A Bribe: Solutions that Explode
Over the past few weeks I have had a chance to read How To Pay A Bribe, Thinking Like a Criminal to Thwart Bribery Schemes (2014, edited by Alexandra Wrage, Seven Wirz), and while I have enjoyed a number of the chapters, including those by Andrew Feintsein and Matteson Ellis (which is the subject for this post), I did find the book’s title to be somewhat confusing. I think there is a difference between serious academic and practical treatment of bribery issues, which this book clearly represents, versus a subtitle of “thinking like a criminal” to thwart future schemes. In any case, I have a great deal of respect for Ms. Wrage’s organization, as having had the recent pleasure of being a co-panelist with Eileen Radford (Director, Advisory Services, Trace International) at the C5 Anti-Corruption Forum in London; thus, I draw this distinction not in a negative context but just to call attention to my own observations.
As Mr. Severin Wirz states in the preface, “given that so few foreign bribery cases actually make it to trial, where the facts might come to light, how are we to lay bare the ways in which corruption actually functions in the real world?” While Mr. Wirz speaks of bringing in the voices of “authors, researchers and investigative journalists,” as well as “practicing lawyers and former prosecutors” here is my own attempt to “breathe life into the corruption literature,” by commenting on Mr. Ellis’ chapter “Regional Flavor: Crosscutting Corruption Issues In Latin America.”
Mr. Ellis isolates five variables as pertaining to bribery and corruption in Latin America, but as he states in his first sentence “bribery in Latin America looks like bribery anywhere else.” Thus, in total agreement, I will expand upon one of the five components that resonated most with my own experience, and which continues to confront personnel on the front lines of international business. Accordingly, while I am focusing on one of the five challenges, that does not in anyway dilute the impact or presence of the other four. The five elements that Mr. Ellis describes as having an impact on bribery in Latin America are:
Boom and bust economic cycles
The prevalence of state-owned companies
Weak government institutions
Concentrations of wealth and power in a small elite
Family ownership of companies
As Mr. Ellis states “whether you are in the concrete jungles of Mexico City or the Amazonian jungles of northwestern Brazil, these characteristics, and the types of corrupt behavior they encourage, seem to exist.” Furthermore, as Mr. Ellis adds, and to my complete agreement, “understanding them is key to identifying and avoiding corruption risks in the region.” Accordingly, my primary concern pertains to these five matters as being so prevalent in other regions, from Asia to the Middle East, that the question of how to avoid them where they exist is extremely problematic given their proliferation.
The one issue which I will focus upon is “weak government institutions,” as that dynamic not only lends itself to indigenous corruption, including “small bribes” as discussed in a prior post here, but also creates significant opportunities for corrupt third parties. Where government structures are frail, the existence of “fixers” and “intermediaries” who then intertwine legitimate and corrupt services as to “help” a company sort out the confusion and uncertainty created by that frailty, creates a multitude of poor options for front line business personnel and compliance officials. As Mr. Ellis confirms “complex regulatory regimes also mean that companies must often rely on despachantes (middlemen), gestores (facilitators), or other third party agents to get things done.”
At the front line of business, this is a very dangerous situation, and I would add that it creates opportunities for corruption before, during and after a business or sales cycle. How? By giving intermediaries an amplified opening to leverage uncertainty due to weak public institutions and to use that dynamic to their own advantage throughout the entire “lifespan” of a project. As Mr. Ellis states “complex regulations demand capable institutions. In their absence, opportunities grow for public officials to demand bribes,” and as he adds “ambiguity creates opportunities to manipulate rules for corrupt purposes.” In my experience, this is a significant problem with a real-world peril for those in the field and I will attempt to chronologically describe that experience.
Before: Engaging a Third Party
In areas where institutions are weak, I have seen how third parties explain the procurement process to front line business personnel in ways which are deliberately murky, complicated and confusing, with the goal of showing that the only way to possibly engage in that country is with a third party, who can “smooth out,” or “pay tolls” in order to maximize the chances for success. For someone in the field, the choice is now zero-sum, as they scratch their heads about “how to play,” and the thinking becomes “either I withdraw from this market altogether, as it is way too clouded to go it alone,” or “engage with this fixer who will do what he does best and at least allow us to compete here.”
The problem is that in such cases the third party mixes lawful with corrupt activities in a way that promotes a rationalization process whereby the front line manager may think, “well, he is also legitimately helping us, so why not engage with him?” It is an all too common recipe for corruption, and instead of the business manager controlling the process, the third party, through exploiting the weak public institutions and confusing local regulations, now controls both the information and the course of action.
During: Access to information
Once the third party is engaged, and the sales or project cycle launches, the third party controls much of the access to state personnel (public officials) and documentation. As is often the case with weak institutions, there are few independent protocols by which a company can authenticate information that is being fed via the third party. In addition, where institutions are weak, local data is often also corrupt; thus, even with the best-intentioned assessment or due diligence process, a monitoring effort might be doomed from the start.
I have also experienced third party explanations of how procurements are subject to sudden starts and stops, often due to personnel turnover at the various ministries and regime change (see my post on procurement instability). Here is where we might experience third party explanations of “don’t worry,” as long as you “stay with me,” everything will be ok. Again, having already made a commitment to the third party, having no independent means of verification, a businessperson remains at the total mercy of the intermediary for information. At this stage, the talk turns often to corruption as third parties explain the necessity of “paying tolls” to new government officials who are now in power, as to insure that the “inside” on the procurement or project is maintained.
The aftermath: A dangerous intersection with “small bribes”
As I have shared in my posts about “procurement instability,” some of the greatest examples I have seen relating to the impact of weak government institutions have occurred after a procurement or tender has been awarded. These are examples of weak institutions at their worst. In sum, here is where there are often endemic delays, postponements, and renegotiations of contracts already awarded. Also, in many cases front line international business personnel have already reported back to his or her manager that an award has been made, so that sale is now included in production, and sales forecasts. Some might consider a demand for bribes at this late stage as all “part of the process,” others might more crudely (and perhaps accurately) call it a “stick-up.”
Now come the never-ending questions to front line business personnel from management as to “what is the status of that sale?” As my supervisor once said to me “it is better for you when I don’t know about a sale, as once you tell me you won it, I am going to keep asking you about its status until we get the order and get paid.” Where that sale gets caught in that “quick sand” of corruption, so late in the process, it creates tremendous pressure on front-line personnel to get it “unstuck” by whatever means.
As stated, where weak government institutions exist, the post-procurement process is fraught with corruption peril, much of it pertaining to “small bribes” and the confrontation with corruption due to:
1. Getting what are often a multitude of signatures on an order in order to secure the “final” purchase order and how an agent needs to “take care” of people in order to get the order ultimately confirmed, including all associated paperwork, e.g. letters of credit, completed.
2. The common need for regulatory and import licenses, for example on Defense goods, and end user paperwork needs which might need to get signed. Again, more opportunities for third parties to leverage legitimate and corrupt services by the claim of “toll paying” to get the signatories “on-board” to perform what are normal governmental functions.
3. Inspections and/or acceptance protocols at the destination point which are needed to clear the goods for end user receipt or release of funds. As I once shared with a colleague, these are often procedures designed to benefit a multitude of parties all who can demand small bribes lest your product “rot in a warehouse.” I have seen these events degenerate into demands for bribes in the context of getting product cleared from customs, as well as bogus inspections designed to fail product in order to secure small bribes for “re-inspection.” This type of behavior is not possible where protocols and the institutions from which they are issued are strong and stable. 4. Paperwork that needs to be secured for final remittance. Here, front line personnel, who often have incentive compensation indexed to that final payment, now often encounter third party claims of how “tolls” must be paid in order to get the paperwork finalized so that everyone can get paid. Here is where I also have seen third parties renegotiating their own commissions, as they explain how they need to make more money for corrupt disbursements. To a front line businessperson, this is all mind numbing, as there is no independent information, the finance department is exerting pressure to get paid, and everyone starts looking at “you.” At such a point the thinking can evolve into“ what do I need to do get this all over with.”
In sum, I will return to Mr. Ellis for his summary of “corruption is a crime of opportunity. People pay bribes by exploiting weaknesses.” In my experience, it is the existence of weak government institutions that provide those greatest opportunities, and where a front line businessperson can easily become confused, and hence, leveraged, by corrupt third parties who show themselves as the only possible solution to separate the “forest from the trees.”
Solutions that explode
Maybe the solution lies in a scenario that I once experienced in the Middle East. The end user was lodging a complaint that grenades which were sold to the agency were not loud enough, and that he was going to fail the inspection report. Of course, with this complaint was the agent hinting to me that there was a “way out of the problem,” which of course he would facilitate. However, instead of surrendering to what I knew was a bogus complaint, at a meeting face to face with the customer, I stated that I was willing to sit in room with him, just the two of us, and to detonate a grenade. If it was not loud enough, I explained, I would take them all back. I think the wire transfer happened the same day. For those of you who don’t sell things that explode, maybe Mr. Ellis has some other suggestions and I invite his comment.