The CFO Dilemma: Should You Bribe to Survive?

by Cesar Bacani, 13 June 2012

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topics:
Risk Management

tags:
China Criminal Law UK Bribery Act US Foreign Corrupt Practices Act

Handing out mooncakes during Chinese New Year to celebrate the festive season is such a common business practice that no one really thinks about it. So last year, a Hong Kong electronics company whose parent is a major US conglomerate presented customs officials in China with the goodies as a matter of course.

But much to the regional finance director’s surprise, internal auditors from headquarters questioned the gesture. “They said it could be considered a violation of the US Foreign Corrupt Practices Act (FCPA) and the Bribery Act in the UK,” she recalls. This year, the company was careful not to give anything to Chinese government officials at all.

Companies in Asia are getting grief from their Western parents these days as the US and UK crack down on seemingly innocuous gift-giving. China is also moving on the issue – it amended its Criminal Law in May last year to prohibit giving “property to any foreign public official or official of an international public organization” in order to gain “illegitimate commercial benefit.”

CFOs in a Bind

So does all this mean that bribery and corruption are on the decline? Sadly, a new study by Ernst & Young (Growing Beyond: A Place for Integrity) suggests otherwise. Asked whether bribery and corruption are widespread in their country, 39% of the 1,758 CFOs and other senior executives polled worldwide said yes.

More worrying in Asia, 33% of the 150 respondents from China, Hong Kong, Indonesia, Malaysia, Singapore and Vietnam said making cash payments to win or retain business is justified to help a business survive an economic downturn, more than double the global average.

Another 17% indicated that misstating the company’s financial performance is justified towards the same end, versus just 4% globally.

It seems that, even as companies are coming under pressure from regulators and their global parents to make sure they comply with the FCPA and other anti-bribery laws, they are also tempted to skirt the rules to survive economic troubles.

These opposing forces may be putting some CFOs in Asia in a bind. If their company follows the rules, it may lose business to less scrupulous competitors in countries whose public sector is especially seen as prone to corruption.

This may not apply as much in Singapore and Hong Kong, which respondents to Transparency International’s Corruption Perceptions Index 2011 judge to be clean (Singapore – 9.2 points and Hong Kong 8.4 points on a ten-point scale with 10 as ‘very clean’).

But perceptions of corruption are still pervasive in the Philippines (2.6 points, closer to zero, which is ‘highly corrupt’), Vietnam (2.9), Indonesia (3.0), India (3.1), Thailand (3.4), and Malaysia (4.3). In these markets, the urge and the need may be stronger to make cash payments and gift-giving to facilitate business and win contracts.

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