The Export World’s Rules on Ethical Conduct
To build a truly great, global business, business leaders need to adopt a global standard of ethical practices.
—Bill George, author, Harvard Business School professor, and former CEO of Medtronic1
People with high levels of personal mastery . . . cannot afford to choose between reason and intuition, or head and heart, any more than they would choose to walk on one leg or see with one eye.
—Peter M. Senge, American scientist, author, founding chairperson of the Society for Organizational Learning, and senior lecturer at the Massachusetts Institute of Technology2
While conducting business across borders, companies need to be mindful of ethics and laws, especially as they relate to exporting. You will have to contend with different cultures, different rules and regulations of each country you plan to do business with, different perspectives, and different end goals. There are so-called right and wrong behaviors, and there are also gray behaviors, that can make things complex. In this chapter, I’ll talk about the impact of unethical behavior such as bribes, unveil how sound ethics are our best competitive advantage in the digital global economy, and discuss why each of us must have a moral compass.
Unethical behavior can damage a business or take it down. Just look at Enron, WorldCom, and Arthur Andersen. US firms are restricted from bribery, yet bribery abroad is rampant and is a serious issue facing all exporters.
What is a bribe? A bribe is anything of significant value—including money—given to someone who influences the individual to do something she wouldn’t ordinarily do had she not received the special treatment for her own benefit. What constitutes bribery can vary from country to country, depending on local customs, values, and practices. But let me be perfectly clear about one point: If a US company offers a bribe, not only is it breaking the law; it is sending a signal that it can’t compete legally without illegal help. And that behavior typically starts with a cavalier attitude about the law.
In the case of an export business, bribes are sometimes made to foreign officials, foreign political parties, or candidates for foreign political office for the purpose of obtaining or retaining business. This is illegal and the penalties can be fierce. According to the Foreign Corrupt Practices Act (FCPA), which affects every US company that does business outside the country, you can face large fines, prosecution, jail, and be barred from receiving US government contracts for engaging in bribery.3
Whether you are a broker, sales agent, supplier, or exporter, the temptation to accept or give bribes (to move goods through ports faster, to get unions to unload ships, or to have customs officials turn a blind eye to sketchy documentation, for example) or act unethically exists in the pursuit of business. When any of these things is done with the understanding that payoffs could come later, that’s a bribe. In other words, when another party persuades you with the logic “Do it now and good things will follow—and probably under the table,” they’re tempting you with bribery.
In 1977, Congress enacted the US Foreign Corrupt Practices Act (FCPA, or “the act”) in “response to revelations of widespread bribery of foreign officials by U.S. companies. The Act was intended to halt those corrupt practices, create a level playing field for honest businesses, and restore public confidence in the integrity of the marketplace.”4
Congress said this when drafting the FCPA: “The payment of bribes to influence the acts or decisions of foreign officials, foreign political parties or candidates for foreign political office is unethical. It is counter to the moral expectations and values of the American public. But not only is it unethical, it is bad business as well. It erodes public confidence in the integrity of the free market system. It short-circuits the marketplace by directing business to those companies too inefficient to compete in terms of price, quality or service, or too lazy to engage in honest salesmanship, or too intent upon unloading marginal products. In short, it rewards corruption instead of efficiency and puts pressure on ethical enterprises to lower their standards or risk losing business.”5
The bottom line: FCPA rules apply to all companies, irrespective of size, and its terms are not negotiable. As a small business exporter, even though you may lack the time, human resource capabilities, legal expertise, or financial resources to meet overseas regulatory requirements, you must still have an effective compliance program and measure in place. What’s worse is that criminal penalties may impact a small business exporter at a far greater magnitude than they do a large business, because the fines imposed will make up a larger proportion of the small business exporter’s earnings.
How Poor Ethics Plays Out
Here’s how poor ethics can play out, and don’t think for a second these scenarios do not apply to you as a small business exporter! In any company, you or one of your people could be tempted do one of these things to increase or expedite business:
- Make a call to get an export delivery sped up and if it is done, in return you could offer a prestigious club membership to the organization controlling the port, trucking lines, or what have you
- Make improper payments through your intermediaries (wholesalers or sales agents, for example) to foreign government officials to win business in India, China, and Russia
- Fail to prevent a sales agent or importing wholesaler from taking the performance-based bonuses you gave them as gifts and secretly using them to make unauthorized payments to governmental officials in Korea
- Pay routine bribes, referred to as “flowers,” to Argentinian officials in order to obtain lucrative sales contracts with government hospitals
- Make illicit payments to a US government veterinarian responsible for certifying your American company’s beef products for export sales
- Accept improper payments made by employees at your UK subsidiary to food industry officials in the United Kingdom
Ethical Ground Rules
So how do you avoid or handle bribery temptations and disputes in the first place? It gets back to your company culture, vision, and shared values. Ask yourself this: What’s your gold standard for the way people should behave in pursuit of export business?
Not only should you define this standard; you should develop guidelines and procedures around it, implement a training program for all levels of worldwide business to quickly address red-flag temptations, get involved, and have a process in place to investigate and address any reports of misconduct. This is done to stay within the law.
Tip Explore the International Business Ethics Institute (http://business-ethics.org/) to help you develop a global business ethics and integrity program and try World Citizens Guide (http://www.worldcitizensguide.org/) to brush up on becoming a better global citizen.
Beyond developing your standard, offer an open two-way dialogue with your employees about your ethical policy, enforce it rigorously with practical conversations having to do with real-world situations, and seek feedback. As Angus Loten of Inc.com says, “Making employees feel secure enough to raise concerns is a key factor in creating an ethical workplace.”6 Drive the message home until it sticks. Make sure everyone involved in the company, regardless of where they are located, applies the culture of integrity (trust, credibility, etc.) in discussing both their private and public lives so there are no murky areas. And there should be no exceptions to the policy—not even for star performers!
Who Should Be in Charge of a Gold Standard Code of Ethics?
In “How to Avoid Bribes in International Business,” published by About.com, I write:
Designate someone at the top . . . to be responsible for FCPA compliance and be accountable for the FCPA program. This should be an individual who stays at the pulse of all international activities and is not necessarily top legal counsel (small firms typically don’t have their own in-house legal representation so it shouldn’t be an issue) or the president. The designated person can work in tandem with the top legal inside or outside counsel and president, but he/she should also have the ability to act on his/her own, be capable of making sound moral judgments and demonstrate prudent ethical decisiveness.7
The bottom line: Engage someone—maybe it’s you—to take charge of writing guidelines and upholding strict ethical standards throughout the entire organization. You want to investigate any red flags and remediate where necessary. “Applying ‘situation ethics’ in developing countries is the fastest way to destroy a global organization. To sustain their success, companies must follow the same standards of business conduct in Shanghai, Mumbai, Kiev, and Riyadh as in Chicago,” says author, Harvard Business School professor, and former CEO of Medtronic Bill George.8
My suggestion is to use US federal law, including the FCPA, as a baseline for determining appropriate behavior and as a model for your own country’s value structure, and apply those things to your dealings with all countries. And always, always, explicitly state your ethical guidelines so people know what to expect. Then be consistent with your actions.
Tip Including FCPA terms in every single one of your contracts allows you to steer clear of bribery trouble and to exemplify that you intend to do clean, transparent international business. This can be as simple as stating: “Export Company ABC will not tolerate corruption with either our foreign partners or our own sales staff.” Also incorporate a statement in the agreement you have with agents or distributors that acknowledges that both parties (seller and buyer) recognize the existence of the FCPA and will honor its rules and regulations by not making any improper payments or performing other such conduct. Incorporate the ability to terminate the agreement should your partner ever be in violation of the FCPA. Consult with your attorney to ensure you’ve done everything right.
There are other ways in the export field to easily, and unintentionally, break the law.
Note When someone has broken the law, even if unknowingly, it can still be a matter of legal dispute whether that person knew or was aware of the matter.
Here are a few areas to be aware of when it comes to getting into ethical trouble and that it is important for the person in charge of your ethics program to write into your guidelines.
Travel Act
The Travel Act involves traveling around or using the mail system to violate a law. TA “prohibits traveling between states or countries or using an interstate facility in aid of any crime, and carries a 5-year jail sentence for most offenses.”9 To avoid violating the Travel Act, don’t pay bribes to officers or employees of companies you are conducting business with in other countries to obtain or retain business.
Money Laundering
Trade-based money laundering consists of concealing and disguising proceeds, usually via wire fraud, false or double-invoicing, or over- or underinvoicing goods that are exported regularly around the world. A good portion of money that has been laundered is moved out of the country through undervalued exports (to move money out) or overvalued exports (to move money in). Buyers and sellers agree on a price and so as long as the price is not unrealistic, the chances that customs officials will detect suspicious activity by bankers, brokers, or law enforcement officials are slim. Hence, the opportunity to earn, move, and store proceeds disguised as legitimate trade becomes a small business exporter’s new alternative remittance system. To avoid money laundering, don’t let financial complacency creep into your financial methods: follow the money trail from beginning to end, match up your exports to imports, and obey the law.
Mail and Wire Fraud
Mail and wire fraud consists of someone who knowingly executes or attempts to execute a scheme via mail or wire communication to defraud another for the purpose of obtaining money or property. To illustrate how this works, let’s say, for example, you export products to an importing wholesaler in Vietnam. Per the instructions of the wholesaler, you send money by wire to an off-the-books bank account in the market that the company controls. Out of that account, illegal commissions and kickbacks are paid to local or contiguous country officials but disguised as trade allowances, distribution costs, trade show expenses, refunds, or other seemingly legitimate expenses.
Tax Violations
Tax violations can be anything from taking illegal tax deductions for bribes to declaring false sales commissions. When exporting, failing to pay income taxes on the amounts you owe, especially as they pertain to foreign-earned income, can result in severe penalties (costly fines and imprisonment, for example) and other major sacrifices down the road, including reputational consequences. Many governments, that of the United States for one, are increasing taxes and stepping up tax enforcement for exports. The solution: Get the help you need from an international tax accountant, have open and frank conversations about all your money-making export activities with him, and honestly and willingly report and pay what you owe in taxes. This allows you to manage and anticipate potential tax risks on export activities.
Certification and Reporting Violations
Producing a false certification—whether it be an export license, a health certificate, a claim made to the Export-Import Bank for a direct loan or loan guarantee—may give rise to criminal liability for manufacturing a false statement. Don’t do it. You should enforce a zero tolerance policy on any deviation from total truth, transparency, and accuracy. A case in point: In 2007, the Disciplinary Committee of the Royal College of Veterinary Surgeons (RCVS) concluded that an Oxfordshire-based veterinary surgeon should be removed from the RCVS Register on the basis of disgraceful professional conduct. According to the RCVS, “John Williams of the Avonvale Veterinary Practice in Ratley, near Banbury, admitted signing export health certificates for three horses in October 2006 to state that they had received negative test results for the contagious equine metritis organism, before these results were actually available. At the time, Mr Williams was working in his capacity as an Official Veterinarian (OV) for DEFRA.”10 In a nutshell, never ever provide a false certification (forged documentation, for example), and never bribe people to provide one either.
Tip For more information on the Foreign Corrupt Practices Act, download the free 130-page guide A Resource Guide to the U.S. Foreign Corrupt Practices Act from http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf. For more information on the actual act, download the ten-page report Foreign Corrupt Practices and Domestic and Foreign Investment Improved Disclosure Acts of 1977 from http://www.justice.gov/criminal/fraud/fcpa/history/1977/senaterpt-95-114.pdf.
The Honest Export Business
So, what is an honest export business? It’s one that uses its moral compass as a guide to be as truthful, accurate, and transparent as possible in its dealings and one that maintains a high level of standards in everything it does.
Tip To brush up on procedures concerning enforcement actions and learn how to fully comply, see the Security and Exchange Commission’s Enforcement Manual at http://www.sec.gov/divisions/enforce/enforcementmanual.pdf. To learn the basics on what small legal departments need to be aware of to stay FCPA compliant, see the “Top Ten Basics of Foreign Corrupt Practices Act Compliance for the Small Legal Department” at http://www.acc.com/legalresources/publications/topten/SLD-FCPA-Compliance.cfm.
Rules and Regulations of Each Country
A subdivision of the US Department of Commerce’s International Trade Administration, the Trade Compliance Center, in its issuance of policies on bribery (http://tcc.export.gov/Bribery/index.asp), is the US Government’s key source of monitoring foreign compliance with trade agreements to see that US firms and workers get the maximum benefits from these agreements. The center also provides access to information to help US exporters understand and evaluate opportunities created by trade agreements that the United States has negotiated. Additionally, the WTO offers the Trade Policy Reviews (TPR; http://www.wto.org/english/tratop_e/tpr_e/tp_rep_e.htm), which are fully searchable market-access reports with information on foreign trade policies and regulations. To ensure you are current, spend some time reviewing these.
Tip Don’t let your employees get conflicted between their values as individuals and the compromises they think they must make for your organization. Spell out what you expect and hold steady to it. Incorporate your ethical policy into your overall business strategy.
Learn More About Bribes and Corruption
The following key resources will help get you up to speed on bribery and corruption issues and help you create an ethics policy for your company:
- Top Ten Basics of Foreign Corrupt Practices Act Compliance for the Small Legal Department: (http://www.acc.com/legalresources/publications/topten/SLD-FCPA-Compliance.cfm). This document provides ten points small legal departments need to be aware of to stay FCPA compliant.
- The United States Department of Justice’s information on the Foreign Corrupt Practices Act: (http://www.justice.gov/criminal/fraud/fcpa/). The Department of Justice offers several ways to contact the office to get information on the FCPA. The FCPA helps you to protect your business and reputation and to understand what the law and regulation requires of you. It can also help you identify the customers who are a higher risk.
- Trade Compliance Center: (http://tcc.export.gov/Bribery/index.asp). Run by the US Department of Commerce’s International Trade Administration, the Trade Compliance Center offers a “Bribery” page on its Web site covering trade agreements between the United States and other countries and international conventions devoted to combating bribery and corruption.
- Documents related to the OECD’s Bribery in International Business conference: (http://www.oecd.org/daf/anti-bribery/oecdantibriberyconvention.htm). Held by the Organization of Economic Cooperation and Development, this conference provides cutting-edge measures for governments and businesses to combat corruption. Many of the statements and information provided at the conference are available for download at the OECD’s Web site.
Caution If you run up against a problematic country with continual ethical dilemmas, pull out. Why jeopardize your company’s stellar reputation?
Summary
Payoffs, bribes, or gifts should never ever be a means to accomplishing your business goals. Reputations are the lifeblood of organizations. Ethical deficiencies can put the entire reputation of a company at risk. One mistake can ruin a company overnight. To overcome the potential for ethical misconduct, promote a two-way conversation with your employees on the importance of keeping ethics in check. Draw a line in all ethical areas that no one can overstep, clearly defining the violations in each matter. Set a zero tolerance policy for behavior deviations that are not in sync with the company’s culture. And keep your moral compass top of mind at all times to accommodate cultural differences that you may not understand. This will allow you to not sell yourself short—or out. Global business ethics are an ongoing effort that need to be instilled in people. We most certainly must work together to protect our companies, our employees, and our constituency base.
In the next chapter, I address international travel. Before you pack your bags, learn the dos and don’ts of traveling abroad.
1 Bill George, “Ethics Must Be Global, Not Local,” Bloomberg Businessweek, February 12, 2008, http://www.businessweek.com/stories/2008-02-12/ethics-must-be-global-not-localbusinessweek-business-news-stock-market-and-financial-advice.
2 Peter Senge, The Fifth Discipline (New York: Doubleday, 2006), 157.
3 “Foreign Corrupt Practices Act,” United States Department of Justice, accessed November 5, 2013, http://www.justice.gov/criminal/fraud/fcpa/.
4 The Criminal Division of the US Department of Justice and the Enforcement Division of the US Securities and Exchange Commission, FCPA: A Resource Guide to the Foreign Corrupt Practices Act, November 14, 2012, http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf.
5 Committee on Banking, Housing, and Urban Affairs, United States Senate, Foreign Corrupt Practices and Domestic and Foreign Investment Improved Disclosure Acts of 1977, May 2, 1977, http://www.justice.gov/criminal/fraud/fcpa/history/1977/senaterpt-95-114.pdf.
6 Angus Loten, “What Enron Didn’t Teach Us,” Inc.com, January 1, 2008, http://www.inc.com/articles/2008/01/ethics.html.
7 “How to Avoid Bribes in International Business: Brush Up on the Foreign Corrupt Practices Act,” Laurel Delaney, About.com: Import & Export, accessed November 5, 2013, http://importexport.about.com/od/RegulationsOfForeignTrade/a/How-To-Avoid-Bribes-In-International-Business.htm.
8 Bill George, “Ethics Must Be Global, Not Local,” Bloomberg Businessweek, February 12, 2008, http://www.businessweek.com/stories/2008-02-12/ethics-must-be-global-not-localbusinessweek-business-news-stock-market-and-financial-advice.
9 Travel Act Bribery Cases Made Simple, accessed November 5, 2013, http://www.fcpablog.com/blog/2011/12/19/travel-act-bribery-cases-made-simple.html.
10 “Oxon Vet Struck Off For False Export Certification,” RCVS, November 16, 2007, http://www.rcvs.org.uk/news-and-events/news/oxon-vet-struck-off-for-false-export-certification/.