October 6, 2016
The Price of Doing Business
By Alexandra Wrage
Former member of FIFA’s Independent Governance Committee and Founder of TRACE International.

The cost of corruption goes well beyond a few bucks changing hands. A bribe may land a contract but the practice makes the world less predictable, less safe and less fair. It introduces uncertainty into business transactions and compromises reputations. And it’s an issue that warrants serious discussion by both U.S presidential candidates.

The U.S. election is drawing near and pundits are turning their attention to the positions candidates might take on less-discussed topics. This includes international corruption and the candidates have, over time, championed very different positions.

In 2012, shortly after the Wal-Mart bribery scandal broke, Donald Trump said that the U.S. anti-bribery law is a “horrible law.”  It “puts [the U.S.] at a huge disadvantage” because “every other country is doing it and we’re not allowed to.”   This is not an original argument.

Then secretary of state, Hillary Clinton, also in 2012, said that corruption “eats away … at the potential for broad-based, sustainable, inclusive growth.”  She added that  corruption “stifles entrepreneurship.” Her position reflected President Obama’s, and each of his predecessors back to President Carter, in support of the United States’ anti-bribery law, the 1977 Foreign Corrupt Practices Act.

There is no question that a well-timed bribe can sometimes win a contract that might otherwise be lost.   As such, it’s easy to conclude that bribery, at its most basic, is good for business. The full picture, however, is a bit more subtle.

Trump’s argument misses the very real concern that bribery is expensive. It’s not just the cost of the bribe itself, it’s the expense introduced when a company makes it clear that it’s prepared to negotiate outside the terms of the contract.  Suddenly, everything is negotiable and the bribe taker wants to be paid for interim approvals, for follow-on work, for final approval and, ultimately, for releasing funds for payment. The written contract is quickly subordinated to the bribe-based relationship, which can introduce expense that renders the contract unprofitable.

Related to expense is the cost of delay. As each new milestone brings a new clandestine negotiation of corrupt terms, time is lost:  management time, employee time and very often the time of equipment that sits unused while negotiations drag on.  In a rush? Prepare to pay much more.

Trump’s argument does not account for reputational damage, which carries a real financial cost. The companies that pay bribes in foreign markets are very often known within the local community. These companies are seen to demand more and deliver less, all with the apparent approval of local government officials. It doesn’t take long to connect the dots and corrupt companies find it harder to recruit talent within these markets. Given a choice, the strongest candidates will gravitate to companies of which they can feel proud. Companies also risk the wrath of successor governments keen to be seen chucking out those who paid bribes to the previous administration.

These costs, like Clinton’s “stifled entrepreneurship,” are difficult to quantify. In a global market, there may be a simpler case to be made that bribery is bad for business. Imagine an executive traveling aboard with his sales team to expand his company’s footprint. Before he sits down at the table for the first time, he and his colleagues have run a bribery gauntlet.  Depending on the part of the world they’re in, they may have flown on planes that relied on air traffic control systems bought based on the highest bribes, not the highest standards. They’ve probably passed through airports where customs officials routinely accept bribes to avert their eyes while unsafe food products or tainted pharmaceutical products are introduced into the local market. They may have stayed in hotels for which the local inspectors have agreed to overlook health and safety violations in exchange for ridiculously small sums.  The police may demand a modest bribe to protect the corporate team if there is unrest in the streets.   Of course, having sold their professional integrity once, the team shouldn’t imagine the police won’t sell it a second time to a higher bidder.

Bribery makes the world less predictable, less safe, less lawful and less fair.  It introduces uncertainty into contracts and delay into execution. The greatest effect is felt overseas, but when the best product doesn’t sell at a fair price because bribery has distorted the market, the consequences follow companies home.

That just can’t be good for business, whatever your politics.

Alexandra WrageAlexandra Wrage is a former member of FIFA’s Independent Governance Committee and served on the 2015 B20 Taskforce on Anti-Corruption, which drafted recommendations to G20 leaders. Ms.Wrage is president and founder of TRACE, an international non-profit business association helping companies reduce their risk of bribery. A lawyer, she is the author of Bribery and Extortion: Undermining Business, Governments and Security, co-editor of How to Pay a Bribe: Thinking Like a Criminal to Thwart Bribery Schemes and the host of the training DVD Toxic Transactions: Bribery, Extortion and the High Price of Bad Business, produced by NBC.