The document discusses the Foreign Corrupt Practices Act (FCPA) and its implications on corporate bribery, providing insights into the economics of bribery and its impact on corporate performance. It highlights notable corporate fines, the prevalence of bribery globally, and offers recommendations for protecting businesses from such practices. The document emphasizes the legal framework surrounding bribery and the importance of compliance to avoid severe penalties.

1. US Foreign Corrupt Practices Act
and the Economics of Bribery
Eric R. Pesik
Adjunct Assistant Professor, School of Management
University at Buffalo, The State University of New York
Image: Money in hand - Stock Image from iStockPhoto
http://www.istockphoto.com/photo/money-in-hand-2484226

2. This lecture was originally presented by
Eric Pesik, Adjunct Assistant Professor
University at Buffalo, State University of New York
School of Management
October 25, 2014
International Executive MBA Program
International Business Law, Politics, & Ethics
Module 13, MGT 612, Intake 18
SIM Management House
Singapore Institute of Management
41 Namly Avenue, Singapore 267616

3. FCPA
and others
Economics
of Bribery
Protect
Yourself
Impact on
Corporate
Performance
The
Solution
to Bribery

4. NBC News by Anthony Quintano by OFFICIAL LeWEB PHOTOS
http://www.flickr.com/photos/quintanomedia/4878251402/
Current Events

5. Glaxo Smith Kline Building at Brentford by Maxwell Hamilton
https://www.flickr.com/photos/mualphachi/4938443323

6. http://office.microsoft.com/en-us/images/results.aspx?qu=medical&ex=1#ai:MP900390537|mt:2|

7. China RMB by Eric Pesik
https://www.flickr.com/photos/pesik/15418462009/

8. Walmart by Mike Mozart
https://www.flickr.com/photos/jeepersmedia/13753807413/

9. Teotihuacan - Pyramid of the Moon by Artotem
https://www.flickr.com/photos/artotemsco/11177757606/

10. Siemens Schweiz by Surber
https://www.flickr.com/photos/44431572@N00/4042504420

11. Euros by Images of Money
http://www.flickr.com/photos/59937401@N07/5930032284/

12. Top 10 FCPA Fines of All Time
Siemens (Germany)
KBR/Halliburton (USA)
BAE (UK)
Total S.A. (France)
Alcoa (USA)
Snamprogetti/ENI (Holland/Italy)
Technip S.A. (France)
JGC Corporation (Japan)
Daimler AG (Germany)
Image: Arms Folder by D Planet: http://www.flickr.com/photos/dplanet/94441584/
Data: http://www.fcpablog.com/blog/2014/1/10/alcoa-lands-5th-on-our-top-ten-list.html
$579 Million
$400 Million
$384 Million
$365 Million
$338 Million
$219 Million
$185 Million
$153 Million
$395 Million
$800 Million
Weatherford Intl (Swiss)

13. Top Corporate Fines
$8.9 Billion
$7.0 Billion
$4.0 Billion
$3.0 Billion
$2.4 Billion
$2.3 Billion
$2.2 Billion
$1.6 Billion
$1.6 Billion
Mortgage-Backed Securities Fraud (BofA)
Mortgage-Backed Securities Fraud (JP Morgan)
Violating US Economic Sanctions (BNP Paribas)
Mortgage-Backed Securities Fraud (Citigroup)
Deepwater Horizon Oil Spill (BP)
Drug Marketing Fraud (GlaxoSmithKline)
Securities Fraud (Time Warner)
Drug Marketing Fraud (Pfizer)
Drug Marketing Fraud (Johnson & Johnson)
Money Laundering (HBSC)
Securities Fraud (AIG)
Data: http://www.therichest.com/rich-list/the-biggest/busted-10-biggest-corporate-fines-ever/
Data: http://blogs.wsj.com/moneybeat/2013/10/19/where-j-p-morgans-settlement-sits-in-history-of-corporate-fines/
Image: $20 Down the Drain by Images Money: https://www.flickr.com/photos/59937401@N07/5857412037/
$1.9 Billion
$16.7 Billion
$13.0 Billion
Bribery (Siemens)

14. Cigarette by SuperFantastic
https://www.flickr.com/photos/superfantastic/166215927
$246 Billion Settlement

15. Where did it all begin?

16. Corporate logos are property of their respective companies, used here under the
doctrine of fair use for purposes of identification, education, and critical commentary.

17. Corporate logos are property of their respective companies, used here under the
doctrine of fair use for purposes of identification, education, and critical commentary.

18. Pedestrians on First Avenue 1972 by Seattle Municipal Archives
https://www.flickr.com/photos/seattlemunicipalarchives/4948398055/
Flashback 1970s

19. Image: http://en.wikipedia.org/wiki/File:Leonid_Brezhnev_and_Richard_Nixon_talks_in_1973.png
As a work of the U.S. federal government, the image is in the public domain
Cold War Politics

20. Image: B-52 Stratofortress with bombs
http://en.wikipedia.org/wiki/File:B-52G_with_bombs.jpg
As a work of the U.S. federal government, the image is in the public domain.

21. Image: Same Year Different Weather, Author Unknown, Year Unknown
Image: http://www.designer-daily.com/10-amazing-cold-war-propaganda-posters-2901

22. Image: http://en.wikipedia.org/wiki/File:Nixon_Mao_1972-02-29.png
As a work of the U.S. federal government, the image is in the public domain

23. Viktor Koretsky, A Solid Peace for the World!, 1965, Poster on paper. Ne boltai! Collection.
http://blog.expositionchicago.com/art-seen-chicago/smart-museum-of-art-%E2%80%93-vision-and-communism/

24. Songs of the Italian Communists., revolutionary songs released on 7″ singles by the Italian label ‘i dischi del sole’
Image: http://waxidermy.com/canti-comunisti-italiani/

25. Corporate logos are property of their respective companies, used here under the
doctrine of fair use for purposes of identification, education, and critical commentary.

26. Lockheed is not . . . just another
American company. It is the largest
U.S. defense contractor, and it
owes its existence to federally
guaranteed loans. It is seen
abroad as almost an arm of
the U.S. government.
Washington Post, August 21, 1976

27. http://office.microsoft.com/en-us/images/results.aspx?qu=MP900400667&ex=2#ai:MP900400667|

28. A 1960 comic book cover presenting communism as the iceberg that could sink America.
Image: http://www.designer-daily.com/examples-of-american-cold-war-propaganda-2918

29. Image: Secrets and corruption by Adán Sánchez de Pedro
http://www.flickr.com/photos/aesedepece/8176804808/

30. President Jimmy Carter signing the Foreign Corrupt Practices Act into law in December 1977 (photo courtesy of Carter archives)
See http://www.presidency.ucsb.edu/ws/?pid=7036
December 1977

31. FCPA
and others
Economics
of Bribery
Protect
Yourself
Impact on
Corporate
Performance
The
Solution
to Bribery

32. US FCPA
http://office.microsoft.com/en-us/images/results.aspx?qu=flag&ex=1#mt:2|

33. What is the law?

34. What is Bribery?
Giving or offering to give ...
Wedding gift by julian wylegly
https://www.flickr.com/photos/quattro_ftw/3424691075/
... anything of value ...
... to obtain or retain an
improper business
advantage

35. Government Officials
Image: Secrets and corruption by Adán Sánchez de Pedro
http://www.flickr.com/photos/aesedepece/8176804808/

36. Top 10 FCPA Fines of All Time
Siemens (Germany)
KBR/Halliburton (USA)
BAE (UK)
Total S.A. (France)
Alcoa (USA)
Snamprogetti/ENI (Holland/Italy)
Technip S.A. (France)
JGC Corporation (Japan)
Daimler AG (Germany)
Image: Arms Folder by D Planet: http://www.flickr.com/photos/dplanet/94441584/
Data: http://www.fcpablog.com/blog/2014/1/10/alcoa-lands-5th-on-our-top-ten-list.html
$579 Million
$400 Million
$384 Million
$365 Million
$338 Million
$219 Million
$185 Million
$153 Million
$395 Million
$800 Million
Weatherford Intl (Swiss)

37. Image: Greed by Liz West
http://www.flickr.com/photos/53133240@N00/2207307656/

38. Image: Cut your Bills by Images of Money
http://www.flickr.com/photos/59937401@N07/5857660216/

39. UK Bribery Act
UK Flag
http://office.microsoft.com/en-us/images/results.aspx?qu=uk+flag&ex=1#ai:MP900422830|

40. Facilitation Payments
Cash By JMR Photography
http://www.flickr.com/photos/jmrosenfeld/2903513401/

41. Commercial Bribery
Meeting Nieuwe Leden by Voka Kamer van Koophandel Limburg
http://www.flickr.com/photos/vokakvklim/4522913512/

42. The value of a dollar by rahims
http://www.flickr.com/photos/rahims/2110236034/

43. China Bribery Amendments
National flag of the Peoples Republic of China
http://office.microsoft.com/en-us/images/results.aspx?qu=china+flag&ex=1#ai:MP900400801|

44. http://commons.wikimedia.org/wiki/File:Xi_Jinping,_Sept_19,_2012.jpg

45. http://en.wikipedia.org/wiki/File:Modi_at_the_69th_UN_general_assembly.jpg

46. http://en.wikipedia.org/wiki/File:JokowiPresidentialOath.jpg

47. Every Country
Prohibits
Bribery
Signpost by Andrea_44
http://www.flickr.com/photos/8431398@N04/2680944871/

48. Protect your company

49. Protect yourself

50. UK Border Agency raid by UK Home Office
http://www.flickr.com/photos/49956354@N04/5114138896/
Individual Liability

51. 51
THE COURT: ...you seem like such an unlikely person to be here.
THE DEFENDANT: I agree with that assumption.
THE COURT: Was it just everybody was doing this?
THE DEFENDANT: I think that's a fair comment.
THE COURT: Where is your family, sir?
THE DEFENDANT: My family is -- my wife and one daughter live in
London, England. And my other daughter lives in Israel.
. . .
THE COURT: Is there anything more you would like to say or anything
more you would like to ask us...
THE DEFENDANT: Not at this time, Your Honor....
. . .
THE COURT: You wish to plead guilty?
THE DEFENDANT: I do, yes, Your Honor.

52. The odds of getting caught?
http://office.microsoft.com/en-us/images/results.aspx?qu=crime&ex=1#ai:MP900440905|mt:2|

53. Mandatory Hotlines
Hotline by Alex
https://www.flickr.com/photos/eflon/3261104775

54. It is now possible to make a lot of
money by being a whistleblower...
employees who know about compliance
problems are very, very likely to file a
whistleblower report...
Richard L. Cassin
“What are the odds of getting caught?”
January 23, 2014

55. Social Media
Image: Texting waiting texting waiting by Eric Flexyourhead
https://www.flickr.com/photos/ericflexyourhead/12896514575/

56. The odds of getting caught used to be
10%. Now I think the odds of getting
caught are probably close to 90%.
Richard L. Cassin
“What are the odds of getting caught?”
January 23, 2014

57. UK Border Agency raid by UK Home Office
https://www.flickr.com/photos/49956354@N04/5114138894/

58. Press conference by Eneas De Troya
https://www.flickr.com/photos/eneas/3488154090

59. UK Border Agency raid by UK Home Office
http://www.flickr.com/photos/49956354@N04/5114138896/

60. Image: Dark Room by Carlos Luz
http://www.flickr.com/photos/carlosluzz/3934285538/

61. He was starved, pummelled and
interrogated for days on end in an ice-cold
room where sleeping, sitting or
even leaning against a wall were
forbidden.
As China wages war on corruption, targets suffer abuses, Today Online,
October 21, 2014
http://www.todayonline.com/chinaindia/china/china-wages-war-corruption-targets-suffer-abuses?
singlepage=true
Image: Dark Room by Carlos Luz
http://www.flickr.com/photos/carlosluzz/3934285538/

62. Image: Peter Humphrey televised confession on China's central broadcaster CNTV

63. FCPA
and others
Economics
of Bribery
Protect
Yourself
Impact on
Corporate
Performance
The
Solution
to Bribery

64. Talk to the hand by John Lambert Pearson
http://www.flickr.com/photos/orphanjones/2123340817/
Never Pay a Bribe to Anyone

65. Know your Customers
No Pictures by Dplanet
http://www.flickr.com/photos/dplanet/94442623/

66. Parlament by Convergència Democràtica de Catalunya
http://www.flickr.com/photos/convergenciademocratica/6197445493/
Who is a Government Official?

67. Be Careful of Intermediaries
Businessman by Kripptic
http://www.flickr.com/photos/kripptic/1954828422/

68. Midvale Company employee by Kheel Center Cornell University
http://www.flickr.com/photos/kheelcenter/5279251361/
Keep Accurate Records

69. The Problem of Fake Receipts
Chinese Receipt by Phoebe Baker
http://www.flickr.com/photos/phoebe_photo/5541278078/

70. Don’t get Trapped
Businessman Behind Web by Internets Dairy
http://www.flickr.com/photos/16339684@N00/2784622731/ 7
0

71. 11%
11% of
companies
admit “firms
like theirs” bribe
Image: Don by D Planet : http://www.flickr.com/photos/dplanet/94442620/
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

72. 20%
Corruption
costs the
equivalent of a
20% tax
Image: We Want You by D Planet: http://www.flickr.com/photos/dplanet/94442625/
Data: Six Questions on the Cost of Corruption With World Bank Institute Global Governance Director Daniel Kaufmann: http://go.worldbank.org/KQH743GKF1

73. 40%
40% of
companies
claim to have
lost business to
competitors
who won
contracts
unethically
Image: Adjust Tie by Dplanet: http://www.flickr.com/photos/dplanet/94441582/
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

74. 64%
64% see bribery
and corruption
as having a
negative
impact on
business
Image: Don by D Planet : http://www.flickr.com/photos/dplanet/94442620/
Data: Association of Chartered Certified Accountants (ACCA) Combating bribery in the SME sector: http://www.accaglobal.com/en/research-insights/small-business-resource/combating-bribery.html

75. Bribery short-circuits the
marketplace. Where bribes are paid,
business is directed not to the most
efficient producer, but to the
most corrupt.
Robert Dorsey
Chairman Board of Directors
Gulf Corporation
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2185406

76. Who is making money?

77. The World Bank estimates that the
equivalent of $1 trillion is offered
in bribes every year.
Carmen Nobel
The Real Cost of Bribery
Harvard Business School, Working Knowledge
http://hbswk.hbs.edu/item/7325.html

78. Why do we bribe?

79. FCPA
and others
Economics
of Bribery
Protect
Yourself
Impact on
Corporate
Performance
The
Solution
to Bribery

80. Economics of Bribery
Who bribes?
How much do they pay?
What value do they get?

81. Theatrical poster for Fight Club, copyright © 1999 by 20th Century Fox.
The copyright is owned by either the publisher or the creator of the work depicted.
http://en.wikipedia.org/wiki/File:Fight_Club_poster.jpg

82. Image: St Munchins Contract Signing 60 by St Munchin's College
http://www.flickr.com/photos/stmunchins/6864640994/

83. Image: Money and Magnifying Glass by Images of Money
http://www.flickr.com/photos/59937401@N07/5858011914/

84. Economics of Bribery
Who bribes?
How much do they pay?
What value do they get?

85. Who bribes?

86. 1,388 fraud cases
100 countries
6 continents
2 year period
ACFE Report to the Nations on Occupational Fraud and Abuse (2012)

87. Companies
don’t pay
bribes.
People pay
bribes
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=serious#ai:MP900448686|

88. Fraud Triangle
Pressure

89. 8.4%
8.1%
6.5%
6.5%
5.3%
4.8%
4.7%
4.1%
7.9%
19.2%
14.8%
14.8%
12.6%
18.2%
35.6%
31.5%
Living Beyond Means
Financial Difficulties
Unusually Close with Vendor or Customer
Control Issues, Unwilling to Share Duties
Wheeler-Dealer Attitude
Divorce or Family Problems
Irritable, Suspicious, Defensive Attitude
Addiction Problems
Past Employment Related Problems
Complained About Inadequate Pay
Excessive Pressure from Organization
Refusal to Take Vacations
Past Legal Problems
Complained About Lack of Authority
Excessive Pressure from Family or Peers
Instability in Life Circumstances
Image: http://office.microsoft.com/en-us/images/reults.aspx?qu=MP900431223
Data: ACFE Report to the Nations on Occupational Fraud and Abuse (2012)

90. Living
Beyond Means
Control Issues,
Unwillingness to
Share Duties
Financial
Difficulties
Unusually Close with
Vendor/Customer
Wheeler-Dealer
Attitude
Asset
Misappropriation
Corruption
Financial
Statement
Fraud
ACFE Report to the Nations on Occupational Fraud and Abuse (2012) Top 5 Behavioural Red-Flags

91. Never a 1:1 relationship

92. 2.0%
1.9%
1.4%
1.2%
1.1%
0.7%
0.6%
0.6%
6.9%
5.9%
4.2%
3.7%
5.7%
12.8%
11.9%
17.4%
22.0%
Accounting
Operations
Sales
Executive/Upper Management
Customer Service
Other
Purchasing
Warehousing/Inventory
Finance
Information Technology
Manufacturing and Production
Board of Directors
Human Resources
Marketing/Public Relations
Research and Development
Internal Audit
Legal
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=MP900422882
Data: ACFE Report to the Nations on Occupational Fraud and Abuse (2012)

93. Data: ACFE Report to the Nations on Occupational Fraud and Abuse (2012)
Male
65%
Female
35%
Gender of Perpetrators

94. ACFE Report to the Nations on Occupational Fraud and Abuse (2012)
16%
18%
25%
29%
45%
Female 52%
18%
55%
48%
Male 84%
82%
82%
75%
71%
Europe
Asia
Africa
Central & S.America
Oceanina
United States
Canada
Gender of Perpetrators

95. ACFE Report to the Nations on Occupational Fraud and Abuse (2012) - Scaled Risk Factor (Frequency * Amount)
1.0
7.4
10.0
9.4
More than 10 years
6 to 10 years
1 to 5 years
Less than 1 year
Risk Factor (1-10) by Tenure

96. ACFE Report to the Nations on Occupational Fraud and Abuse (2012) - Scaled Risk Factor (Frequency * Amount)
1.0
4.1
3.3
10.0
7.2
Postgrad Degree
College Degree
Some College
High School or Less
Other
Risk Factor (1-10) by Education

97. Who Pays Bribes?
Image:http://office.microsoft.com/en-us/images/results.aspx?qu=smile&ex=1#ai:MP900424431|

98. *Except in Canada
Image:http://office.microsoft.com/en-us/images/results.aspx?qu=businesswoman&ex=1#ai:MP900431737|

99. Reality Check

100. What is the percentage of men
prosecuted by US Dept of Justice
since January 2008?
96.7%

101. What is the average age of persons
currently in prison for FCPA
violations?
58

102. Look around your company

103. Economics of Bribery
Who bribes?
How much do they pay?
What value do they get?

104. How much do they pay?

105. 166 historical bribery incidents
107 publically listed firms
20 stock markets
52 countries
36 year time period
Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

106. Median Bribe
Amount
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=MP900442178
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

107. $1.06 M
$11.43 M
Low Rank Officials High Rank Officials
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=MP900422532
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

108. $16.77 M
$13.77 M
$7.63 M
$5.32 M
$5.00 M
$0.50 M
$0.19 M
Head of State
Member of Parliament
Government Minister
Military Officer
Judge
Head of Agency
Governor/Mayor
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=MP900448685
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

109. Image: http://www.flickr.com/photos/34728058@N08/4818131438/
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)
1.9%
Bribe as % of Project Awarded

110. 1.22% 4.42%
Bribe %
Low Rank
Official
Bribe %
High Rank
Official
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=MP900401019
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

111. Economics of Bribery
Who bribes?
How much do they pay?
What value do they get?

112. What value do they get?

113. Does crime pay?

114. What is the ROI of bribery?

115. Bribed and Got Caught
http://office.microsoft.com/en-us/images/results.aspx?qu=crime&ex=1#ai:MP900440905|mt:2|

116. Bribed and
got away
with it
http://office.microsoft.com/en-us/images/results.aspx?qu=MP900443285&ex=1

117. Theatrical poster for Fight Club, copyright © 1999 by 20th Century Fox.
The copyright is owned by either the publisher or the creator of the work depicted.
http://en.wikipedia.org/wiki/File:Fight_Club_poster.jpg

118. Image: http://www.fanpop.com/clubs/marlon-brando/images/9109847/title/godfather-fanart
Don’t write if you
can talk, don’t talk if
you can nod your
head, don’t nod your
head if you don’t
have to.
The Family Corleone
Prequel to Mrio Puzo's
The Godfather

119. Use the records
of firms that
got caught
Image: http://office.microsoft.com/en-sg/results.aspx?qu=MP900185047

120. I’m not interested in
what happened
after they got
caught
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=MP900414039

121. Look backwards in
time... to when the
contract was
awarded
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=MP900442939

122. Look at the time
when they were
bribing and getting
away with it
Image: http://office.microsoft.com/en-sg/results.aspx?qu=MP900430507

123. Example:
In 1992, Elf Aquitaine paid $46M to bribe government
officials to allow them to acquire German oil refinery
assets
At the time the deal was originally announced, Elf earned
$327M cumulative abnormal returns or a 7x return
(The bribe was later discovered later and numerous
executives received jail terms in 2002-2003)
Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

124. Abnormal returns

125. Shareholder value

126. 166 actual bribery incidents
107 publically listed firms
20 stock markets
52 countries
36 year time period
Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

127. For the 166 bribes studied,
the average return was 10.5 x
Image: US Dollar Bill Notes: http://upload.wikimedia.org/wikipedia/commons/6/64/USDnotes.png
Image: US Quarter http://en.wikipedia.org/wiki/File:2006_Quarter_Proof.png
Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

128. 10.5 X
5.5 X
All Bribes
High-Rank Politicians
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

129. The more you pay,
the less value you get

130. But that’s not
the end of the story

131. Do firms that
bribe perform
better?
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=MP900443251&ex=1

132. FCPA
and others
Economics
of Bribery
Protect
Yourself
Impact on
Corporate
Performance
The
Solution
to Bribery

133. Bribery impact on
corporate performance

134. Research
3 years before
and 3 years
after
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=reports&ex=1#ai:MP900422411|mt:2|

135. Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3
2.70%
5.10%
3.20%
0.90%
2.30%
1.40%
Sales Growth
Companies that bribe have greater sales growth
compared to control firms
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

136. Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3
-1.20%
-1.50%
-0.90%
-0.70% -0.70%
-0.60%
-0.30%
ROA
Companies that bribe have poorer return on
assets (ROA = EBIT divided by total assets)
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

137. Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3
-12.10% -11.80%
-9.70%
-14.20%
-10.60%
-6.60%
-2.40%
Asset Turnover
Companies that bribe have poorer asset
turnover (sales revenue divided by total assets)
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

138. Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3
-0.90% -0.90%
-0.50%
-0.40%
-0.80%
0.00%
-0.30%
Operating Profit Margin
Companies that bribe have poorer operating profit
margin compared to control firms (operating profit
divided by sales revenue).
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

139. Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3
0.00%
-0.50%
-0.10%
-0.20%
-0.40%
-1.20%
-0.60%
Net Profit Margin
Companies that bribe have poorer net profit margin
(net income divided by sales revenue)
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

140. Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3
-2.90%
0.50%
1.50% 1.60%
0.30%
-4.60%
-6.80%
Cumulative Abnormal Returns
Companies that bribe have poorer cumulative abnormal
returns (difference between the sum of the monthly
returns for bribing firms versus control firms)
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

141. Crime does not pay
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=handcuffs#ai:MP900402864|

142. Bribe-paying firms
underperform the market

143. Why?

144. Effect of Corruption
Culture of Corruption
Noncompliance Spill-over
Compromised Internal Controls
Short Term Planning
Agency Problem
Prisoner’s Dilemma
Image: Reduce designed by Qing Li from the Noun Project
http://thenounproject.com/term/reduce/20396/

145. Lab meeting going on by Jun Seita
http://www.flickr.com/photos/jseita/5407005494/
Culture of Corruption

146. Noncompliance Spill-over
Bank of England by Duncan Harris
https://www.flickr.com/photos/duncanh1/5647094748

147. Hacking by Johan Viirok
https://www.flickr.com/photos/viirok/2498157861
Compromised Internal Controls

148. Check Writing by David Goehring
http://www.flickr.com/photos/carbonnyc/2204277278
Short Term Planning

149. Thug by Paleontour
https://www.flickr.com/photos/paleontour/446315283
Agency Problem

150. Prisoner’s Dilemma
Placing the go stone by Luis de Bethencourt
http://www.flickr.com/photos/luisbg/2094497611/

151. Effect of Corruption
Culture of Corruption
Noncompliance Spill-over
Compromised Internal Controls
Short Term Planning
Agency Problem
Prisoner’s Dilemma
Image: Reduce designed by Qing Li from the Noun Project
http://thenounproject.com/term/reduce/20396/

152. FCPA
and others
Economics
of Bribery
Protect
Yourself
Impact on
Corporate
Performance
The
Solution
to Bribery

153. The solution to bribery

154. It’s only when the certainty
of getting caught and punished
exceeds the potential rewards
that corruption will be stamped out.
Peter Coleman
Partner, Forensic, Deloitte Indonesia

155. Risk Versus Reward
Image: Money Scales by Images Money
http://www.flickr.com/photos/59937401@N07/5857910508/

156. Even if you don’t get caught,
bribe-paying firms
underperform the market

157. Bribery is a lose-lose
proposition

158. Rational Utility-Maximizers
Abandoned Art School 24 by Tiffany Bailey
http://www.flickr.com/photos/xshamethestrongx/6342359807/

159. Image: Adam Smith’s Wealth of Nations
see http://en.wikipedia.org/wiki/Invisible_hand

160. Individuals maximizing their
own personal profit
can benefit society as a whole
without the need for government
intervention.
Adam Smith’s Wealth of Nations
see http://en.wikipedia.org/wiki/Invisible_hand

161. Bribery is a lose-lose
proposition

162. Talk to the Hand by NMR Photo
http://www.flickr.com/photos/jinx1380/4983207375/

163. http://office.microsoft.com/en-us/images/results.aspx?qu=MP900442989&ex=1
The Smartest Guy in the Room

164. Talk to the Hand by NMR Photo
http://www.flickr.com/photos/jinx1380/4983207375/

165. Image: Dark Room by Carlos Luz
http://www.flickr.com/photos/carlosluzz/3934285538/

166. Ethical virtue
is the only thing
that matters
Socrates
Image: http://www.britannica.com/EBchecked/topic/551948/Socrates

167. FCPA
and others
Economics
of Bribery
Protect
Yourself
Impact on
Corporate
Performance
The
Solution
to Bribery

168. Source Acknowledgements
Culture, Compliance, and the C-Suite - How Executives, Boards, and Policymakers Can Better Safeguard Against
Misconduct at the Top
Michael D. Greenberg, RAND Corporation (2013)
http://www.rand.org/pubs/conf_proceedings/CF316.html
How Much do Firms Pay as Bribes and What Benefits do They Get? - Evidence from Corruption Cases Worldwide
Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, (March 30, 2012).
http://ssrn.com/abstract=1772246
Bribes and Firm Value - Evidence from Anti-Bribery Regulation
Zeume, Stefan (August 18, 2013).
http://ssrn.com/abstract=2179437
Report to the Nations on Occupational Fraud and Abuse
Association of Certified Fraud Examiners (2012)
http://www.acfe.com/rttn.aspx
Image Acknowledgements
Flickr Creative Commons
Images from Flickr Creative Commons are used under Creative Commons license
http://www.flickr.com/creativecommons/
Microsoft Office Online
Images from microsoft.com are used with permission from Microsoft; no rights to further license or distribute
http://office.microsoft.com/en-us/images/
All images have been modified from their original version by cropping, resizing,
recoloring, or reformatting to match the slide layout and style.
All other sources and images are acknowledged where they appear

169. About the Author
Professor Pesik
Eric Pesik is an Adjunct Assistant Professor with the University at Buffalo, State
University of New York, in the School of Management. He is also the Associate
General Counsel and Compliance Officer for Seagate Singapore International
Headquarters Pte Ltd. This work represents the opinions of the author alone,
and not the opinion his employer or clients. Many of his presentations are
available online: http://www.slideshare.net/ericpesik/presentations/
Presentation Background
This lecture was originally presented on October 25, 2014 at the University at
Buffalo’s Executive MBA class “International Business Law, Politics, & Ethics,”
Module 13, MGT 612, Intake 18, at SIM Management House , Singapore Institute
of Management, 41 Namly Avenue, Singapore 267616
Creative Commons Attribution License
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