This article addresses the reality that there are usually no witnesses to overseas discussions involving an actual or potentially corrupt transaction.
As tweeted by Ben DiPietro, Wall Street Journal Reporter, @BenDiPietro1 during my interview with Wall Street Journal Reporter Chris Matthews at the April 23, 2014 Dow Jones Global Compliance Symposium (DJGCS):
“bistrong: usually no witnesses when sales person deals with third party vendors and talk turns to bribes.”
For the most part, front-line sales, marketing and business development personnel travel alone to their overseas territories. Agent meetings (maybe including a public official) also usually occur without anyone else present.
You Get Close, You Get Comfortable
Adding to the “lack of witnesses” dynamic is the relationship which develops between an overseas employee and in-country intermediaries.
The tradition and cultures of many countries leads to a great deal of social interaction outside of work hours. My own relationships with agents developed and grew over the course of 10 years. We had obligatory evening meals, often in the home of an agent. Over time, I even took vacations with agents and their families. Some agents insisted I not stay in a hotel, but as a guest in their home. We became friends and, as these relationships grew, so did the level of comfort in the conversations.
During the course of my sales travels, casual discussions led (on a number of occasions) to the agents explaining to me, in barely masked language, that they were paying bribes to win contracts. One of the first times this happened to me, I was on vacation with an agent I had known for years. I had no reason to suspect he was corrupt, but on this vacation, he explained to me how he was “paying tolls” to win contracts.
As I shared at the Dow Jones Symposium, the agent had presented me with a dilemma. I have won contracts with this agent in the past. I am hoping to secure future contracts. And now he tells me about paying bribes (I didn’t need to clarification as to the “wink and a nod” language).
For compliance professionals, this is a simple “call home” moment. Withdraw from all transactions with this agent and inform legal and compliance. Simple, right? Not necessarily for sales or marketing employees, as the thought process can be far more complicated. This is where rationalization can take hold and dictate decision making.
For a sales, country manager or marketing person, it is more than just walking away from a transaction, it means walking away from the entire third-party relationship. For these employees, there are not just short-term financial consequences, but also the loss of all future deals, sometimes with regional implications.
As an example, see my post on Cisco and Russia, where once the Cisco employee allegedly heard talk among agents about paying bribes, he was reported to have walked out of the room, not to report the conversation or undo the deal, but just to maintain deniability.
Add in Procurement Instability and Financial Incentives to Create the Perfect Storm
As Ben DiPietro @BenDiPietro tweeted during the DJGCS:
“bistrong: to pay a bribe or sever a relationship is more complicated decision than compliance people think.”
In other words, when the employee hears talk of corruption, he or she might rationalize going forward due to vague language and lack of witnesses. Add in procurement instability and incentive compensation to create a perfect storm for a bad decision – “I am not going to see this tender come back for quite some time. If I lose it, a large part of my forecast and bonus projection will be gone, so why make trouble?”
As Maryam Hussain states in Corporate Fraud, The Human Factor, “it is often the case that a narrowly defined objective – an ever-growing sales target to achieve bonus, a consistent progression of earnings per share to maintain an upward-trending share price – takes precedence over everything else and can lead to employees stepping over the line to achieve the goals that have been set.” Furthermore, the impact of not having a witness to these events can have an tremendous impact on that “stepping over the line” moment.
As I have shared before, if the C-Suite preaches compliance but the sales incentive package awards “winning the sale” above all else, how will that employee determine whether management wants compliance or sales?
Private conversations between agents and corporate personnel are not the red flags that get picked up in an audit or routine review. These red flags are only seen and heard by the international sales, marketing and business development teams.
I invite comment to how training and compliance programs address such scenarios. Up Next: One more element to complete the “Perfect Storm of Rationalization.”
This article originally appeared on Richard Bistrong’s FCPA Blog and is republished here with permission.