“Corruption … is good … and the FCPA … is good … for contract attorneys” – Gordon Gekko

Ok, maybe Gordon Gekko did not say that but he could have.  Anyway, we used it because the Wall Street sequel hits the streets soon (click here) and several Posse List members working on an entertainment project in LA got a special invite and saw some clips/rushes and loved it. 

As we have reported, FCPA cases continue to tick upward (click here) this year and are expected to jump in 2010 according to today’s edition of Corporate Counsel (which was posted in Gabe’s Guide early today so we’ll link to him here)

We’re a bit blasé about greed and corruption because (let’s face it) they are in the DNA of capitalism.   And for American business this is all just part and parcel of our culture of corruption, and an extension of our “casino culture” (click here).   Greed and corruption: they are always going to be there. 

And it is not just academic for us.  We had the “good fortune” of seeing it all up close, not just clicking on a screen at a doc review.  Last summer we were part of a team send to West Africa on behalf of an oil company to do some “on the ground” research as part of an international investigation which is part of a looooooooooooooooooong series of FCPA oil services cases that many of you have been on as doc reviewers.   We had to to “facilitate” the cab drivers to get to/from the airport, and “facilitate” others to make sure we kept our place in the interview chain, etc.

We also recently attended a forum in London on the FCPA and the effect of the flow of data that often spans the globe, raising issues of information privacy and cross-border discovery issues.  In fact, many of these issues are discussed in the Corporate Counsel article we linked above.  It’s a big issue because we have so many cross-border corruption investigations such as the U.S. investigation of the oil services industry, the UK investigation of BAE and the EU investigation of the medical device industry across Europe and Africa.

Note:  Americans’ have (let’s be a honest) pretty much a total lack of information privacy.  This stands in stark contract to the European perception that data privacy is a “fundamental human right”.  Much of this originates with their experiences under the oppression of Nazi Germany and the Soviet Union – periods which demonstrated a total lack of respect for the individual, and much, much worse.  It’s a topic too big for this brief post but it plays a big part.

What struck us at the London conference was an almost identical mantra about corruption from many corporate participants: “It is a very, very bad thing to do.  Very, very naughty.”  Really?  Huh.   So many of you continue to do it.   But one participant (who was a “consultant” on FCPA to corporations) chatted with us (“no names, please”) and he said “here’s the story:

1.  “Everyone is doing it” and we must engage in such behavior to remain competitive. Sometimes the commercial pressures outweigh the risk of getting caught.

2.  In many countries there is a tradition of “significant” entertaining and gift giving (two major “oh, boy” events under the FCPA).

3.   There are certain markets we need to be in (Eastern Europe, Asia, Africa) and the nature of business relations will often lead us to engage agents to penetrate markets – which they do any way they can.

4.  So we often turn a blind eye and allow (improper) payments through third-party parties under the (misguided)assumption that such payments will not violate U.S. law.

And American business is lucky because transgressions of laws and regulations are measured and evaluated by the letter of the law, not the spirit, so there is more of an attempt by business to negotiate that slippery slope of proper/improper business practices.  So we are sure they game the system.  To us gaming the system might be: 

Regulator:     You cannot give the Minister a Mercedes Benz.  You violated the FCPA.

Company:      No, the rule says you cannot give the Minister a Mercedes Benz valued over $xxxxx, if that gift is given on the 4^th Friday after Ramadan ends, and if it falls after a monsoon as registered in the Old Farmer’s Almanac, and if it’s purpose is to facilitate or expedite or secure the performance of a routine/non-routine/sub-routine/dancing-with-stars routine governmental action.  We did not violate that rule.  Besides, we gave it to his 2 month old son.

Regulator:  (thinking)  Hmmmm .. you’re right.  Get out here you knucklehead!

For the regulators, they had their own mantra.  They have scores of cases and usually pick the high-profile ones to prosecute and/or the easy ones.   Many, many cases are compelling for prosecution but with short staffs and budgets you need to pick.  And they “live, breath and die” by disgruntled employees, unhappy agents and distributors, and competitors.  As one regulator told us “we still get stacks of documents and flash drives in the mail with no return address, and often times emails from untraceable sources.”  But as one DOJ participant said “this is changing a bit as companies see what’s happening, become more proactive and wish to avoid the Wrath of God and so come clean with us”.

So we found the latest global corruption report of Transparency International (click here) rather “illuminating” (with kudos to our friends at the Financial Times for forwarding it).

Among the more salient points:

– A global poll of business executives found two in five have been asked to pay a bribe when dealing with business institutions

–  Half of these estimated that corruption raised project costs by at least 10 per cent

–  One in five of the executives claimed to have lost business because of bribes by a competitor

– More than a third felt that corruption was getting worse

– Politicians and officials in emerging economies are estimated to receive bribes of between $20bn and $40bn annually – equivalent to some 20-40 per cent of official aid

Ah, capitalism.  Makes you want to rush out and see Michael Moore’s new movie.

But although you can always argue about the methodology, these estimates are unlikely to be an overstatement and verifiable (why, for gosh sake’s one of the report’s sponsors is Ernst & Young, a paragon of … uh … accounting knowledge).

And how did countries perform in the corruption (ok, anti-corruption) sweepstakes?

There is a corruption (sorry, anti-corruption) perceptions index (PI) in which 180 countries are ranked “in terms of the degree to which business people and country analysts perceive corruption to exist among public officials and politicians”.   The highest-scoring countries are those believed to be least corrupt. Not surprisingly, Denmark, New Zealand and Sweden tie for first place, scoring 9.3, closely followed by the authoritarian Singapore. Further down the list Austria, scoring 8.1, is slightly ahead of Germany on 7.9. The UK and Ireland tie for 16th place, both scoring 7.7.

The US is 18th with 7.3 and France, in 23rd place, ties with Chile and Uruguay. Who knew.

Few will be surprised to find Somalia, Burma, Iraq, Afghanistan and Congo among the bottom 10.  There is a rough correlation between low income and corruption, but with notable exceptions. Bhutan, Botswana and Jordan are low-income countries perceived to be relatively uncorrupt.

Some might find more interesting the “Bribe Payers Index”, which ranks 22 of the “most economically influential countries” according to the perceived likelihood of their companies to bribe abroad. The index is (predictably?) headed by Russia, with China, Mexico and India following a little way behind. The main 11 industrial countries selected by TI nearly tie with each other at the bottom, with Belgium – believe it or not – perceived as slightly less likely than the others to bribe abroad (the head of the Posse List has dutifully packed his bags and left).

One puzzle is why the U.S. does not receive a higher rating.  I mean, hello, we have the FCPA – the “gold standard” in anti-corruption legislation.  As the TI analysis says:  “The 1977 Foreign Corrupt Practices Act was the first comprehensive prohibition by any country against bribing foreign governments for business purposes”.

Well, as the Financial Times recently opined, in as large and complex an economy as the US, some bribes escape even the tightest of legal nets. It also takes time for the most recent increase in stringency to be reflected in international perceptions. Moreover, corruption indices have inevitably to be based on public perceptions; and a view of U.S. business as “rough and tough” and even a dislike of the recent Bush administration may affect the rankings.

But, hey: so long as it means more work for contract attorneys, let the corruption roll.  Yes, yes, we know.  Obama’s promise for change is sending “ripple effects across large sectors of the economy, including corporate legal departments. Stricter enforcement of regulations, which was lax under recent administrations, already requires greater attention to global litigation practices –and we are only months into the new administration”.

Next up for Obama:  universal health care in the U.S. with a public option.