The 1977 Foreign Corrupt Practices Act (FCPA) bans any company, domestic or foreign, that does business in the U.S. from bribing government officials anywhere in the world.
A number of U.S. and E.U. companies are getting in trouble for bribing officials of other governments or potential customers. The recent disclosure of BAE Systems overcharging for Tornado aircraft and diverting the surplus to other accounts has brought this to the forefront. It seems that, at the request of the Saudi government and with the approval of the British government, these payments were structured so that funds could leave Saudi Arabia and be used as part of their funding of activities around the world, such as arms for Contras or defending Afghanistan from the Russians. However, it does not matter if BAE Systems had government approval or not. The U.S. Justice Department has been probing a number of European companies such as BAE Systems, Siemens, and Total, as well as others who may have bribed officials to get contracts. While they may not be fined as the oil services companies Vetco Gray and Baker Hughes have been, they do have American Depositor Receipts trading on U.S. exchanges, and they could be de-listed and banned from U.S. capital markets.
Similar problems have been coming to light for those U.S. companies that have been on an acquisition binge overseas in countries like China and Indonesia where “incentives” are the norm. Industries most likely to be in trouble are those that require government licenses or approvals. Natural resources, telecommunications, pharmaceuticals, and resorts spring to mind. Acquisitions have been made by successful companies and/or well positioned companies that have achieved success in part as a result of their willingness to take care of those who take care of them.
In acquisition one not only needs to take stock of the success and the advantageous positioning of a company but also the provenance of that success. It’s a damnable position to be in, either as an acquiring entity or as one who already owns an entity, to discover how the success and position was achieved. If those who “incentivized” others don’t disclose these matters voluntarily, and if you choose not to demand and look for appropriate behavior, you can expect that people will yield to temptation under the pressure to perform.
How can you tell if illegal activities are going on? By looking! Indicators can be subtle, but look for poorly documented (or undocumented) expenses and similar types of transactions with unknown companies where there is no likely economic reality. “Consultant” fees need to actually show work for those fees, and finder fees need to be traced very closely.