Bribery’s Broken Windows

Bribery’s Broken Windows

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January 30, 2009

Imagine the following scenario: A Greek diplomat arrives in Washington and finds that his furniture and household items have been held up in customs at the Port of Baltimore. The Greek official dispatches his driver with $300 and tells him to spread the money among low-level port officials to secure the release of his family’s belongings.

Or, suppose a Saudi businessman in New York begins to worry that his family is at greater risk than his neighbors because of perceived anti-Arab sentiment. He starts making hundred dollar gifts to the police officers he sees on his street, encouraging them to pass by his house more often.

Is your first response anger that these foreigners would presume to bribe American government officials? Or is it a knowing smile and sage comments about the need for facilitation payments of this kind?

When the same situation happens outside the United States, widely respected compliance officers say just that. When it comes to the actions of their own companies, many argue against abolishing facilitating payments, and they don’t seem to realize how offensive and how contradictory their stance can be. They don’t see the high cost of these small bribes.

Facilitating payments are payments made to foreign government officials to facilitate or expedite tasks that they are legally obliged to perform, such as pro­cessing governmental permits or papers, delivering mail, scheduling inspections and, yes, providing police protection and unloading cargo. These are legal bribes, permitted under U.S. law and the laws of a handful of other countries.

Companies continue to step up their commitment to anti-bribery compliance, but many seem to be tabling the issue of facilitating payments for another time; they’ll address these small bribes once they have comprehensive due diligence programs, state-of-the-art online training and robust internal controls. It’s prudent prioritization, they argue, in light of limited resources and the need to support their business teams in difficult markets overseas. Even non-profits and business associations have declared in model codes and guidance documents that corruption on a grand scale should be tackled first.

But what if we have this the wrong way around? Can companies credibly explain to their employees that they can’t do business in some countries without making payments to the large number of low-level officials with their hands out, but that the company remains confident it won’t have to pay off senior officials to win business? A company can’t say “no” to a junior customs official, but plan to say “no” to a minister of defense or the senior-ranking official responsible for petroleum contracts. It’s hypocritical for these companies to tell their employees that the company can do business in a clean and transparent manner at the highest level, but then not follow through with demands of low-level bureaucrats. Isn’t it simpler to rebuff the demands of low-level officials than those of senior officials?

True, there are more demands at the lowest levels of government, reflecting the greater number of junior employees. So companies might argue that they are overwhelmed by the sheer number of demands. They don’t have the resources to fight every fight, so they choose to put their resources into the biggest battles.

On the other hand, most people working to reduce inappropriate payments of all kinds agree that a strong and consistent message from a company is an important first step. A company that clearly and publicly declines to pay bribes will find, in time, that bribes are no longer demanded. It is embarrassing to ask for a bribe and be turned away empty-handed. Therefore the large number of small demands provides an opportunity to send that message over and over again. Word will spread more quickly if every petty bribe demand is refused. A simple, blanket refusal to grease palms gives the company a far greater opportunity to send a mes­sage of good governance to a broader audience, each member of which has only a few dollars at stake.

The risk mitigation may be more important at this low level, too. While facilitating payments are permitted under U.S. law, there are still two areas of risk that shouldn’t be overlooked. The first is that U.S. law nevertheless requires com­panies to account for these payments accurately. The second is that these payments may violate the laws of the country in which they’re made. For example, U.S. law may permit a payment to a Chinese customs official, but Chinese law most decidedly does not. With this in mind, these payments carry a greater risk of detection because of the sheer volume. Some employees—perhaps most—will grow queasy at the thought of document­ing a bribe to a local official and will resort to more creative and less accurate descriptions. Other employees will account for the payments accurately and, when they do, they will be documenting a violation of local law.

Putting an end to these interminable petty demands is a bit like getting rid of the graffiti in the New York subway. The story is well-known now. The City of New York made petty crime a priority and adopted a “zero tolerance” position on graffiti in their “Clean Car Program” of 1984. The subway cars were cycled off their routes during the night and repainted. A startling thing happened: violent crime decreased. No one can be sure how direct the link between the two phenomena was, but the results were breathtaking. The most prevalent theory for the link is that people will settle into habits of criminality when they’re surrounded by its evidence. If you’re on a subway that has been freshly painted the night before, you’re less likely to deface it than you would be if you were adding your questionable art to a scene in progress.

The Clean Car Program was based on the “broken windows” theory of James Wilson and George Kelling written up in the Atlantic Monthly in March, 1982. Once one window in a building is broken, the rest will be broken soon after. The broken window, left unrepaired, is a sign to the world that no one cares. If no one cares, there is no risk in breaking the rest of the windows. People are better behaved and less prone to escalating criminal activity when they see that their petty acts are addressed promptly and decisively.

Doesn’t it seem likely that this would hold true of petty bribery, too? If officials face “zero tolerance” for the smallest inappropriate demands, if both companies and enforcement agencies declare even the five and ten dollar demands an intol­erable abuse of official power, won’t it be more difficult for a culture of corruption to flourish? Otherwise, low-level government officials will look at the broken windows and assume that no one cares.

This article was first published by Alexandra Wrage in Ethisphere Magazine in March 2008

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Bribery’s Broken Windows

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