A Version of "Pay to Play" for Businesses ... Commercial Bribery

A Version of "Pay to Play" for Businesses ... Commercial Bribery

by William T. Wilson

Purely commercial bribery can be as troublesome to a company as its more famous relative involving government officials -- prohibited by the Foreign Corrupt Practices Act. There is a new focus on transnational and national solutions against corruption, recognizing that the private sector has a stake in controlling or eliminating such conduct, especially in developing nations or where previously public functions into private transactions.

Excerpt:

As recent events in China and the UK have shown, purely commercial bribery -- involving only employees or agents of private parties -- often can be as troublesome to a company as its more famous relative involving government officials and prohibited by the Foreign Corrupt Practices Act ("FCPA"). Since the late 1970's, when the FCPA explicitly criminalized the payment or offering of money or other benefits to government officials in order to retain or obtain business, corporations have insisted that executives and managers learn about what they can and cannot do to get business overseas, and have made education and prevention against violations of the FCPA a robust part of their compliance program. Prosecutions under this statute, and the adverse publicity that results, certainly warrant this focused compliance attention.

As a tough economy has narrowed business prospects in many industries, and globalization of business increased the number of competitors or shrank the customer base, pressure to obtain or retain business, or even avoid steep price discounting or other costly concessions may never be greater, and often such pressures can be an invitation to "influence" the process in your favor. In addition, there is also a new focus on transnational and national solutions against corruption, recognizing that the private sector has a stake in controlling or eliminating such conduct, especially in developing nations or where privatization has transformed previously public functions into private transactions. Public tolerance for these types of crimes also seems to be in decline, resulting in greater prosecutorial emphasis and attendant publicity.

But have companies responded to the new emphasis against such conduct in the private sector? Many, especially smaller companies, still have not, and this article will provide some suggestions that should help that process.

A brief history

Many of the specific state laws dealing with commercial bribery were adopted after 1970, and coincided with a growing enforcement emphasis on "white collar" crime. Before these laws came into force, there were relatively few prosecutions, often under more general statutes, most of which remain viable as prosecutorial alternatives. The Model Penal Code ("MPC"), first adopted by the American Law Institute in 1962, contained section 224.8 specifically targeting commercial bribery, which forms the basis of many state statutes today. Building on earlier laws which focused on the breach of a duty or special relationship, such as a fiduciary, the MPC provision includes appraisers, accountants, lawyers and physicians, but also includes mere agents or employees who owe a duty of fidelity to their principal or employer. Some states have added labor officials or officials of employee welfare funds. Interestingly, perhaps as a reflection of earlier attitudes, the MPC characterized commercial bribery as a misdemeanor.

One of the key aspects of the commercial bribery laws is their breadth: where the FCPA violations are limited to certain types of persons and entities and only to transactions with certain kinds of officials, these laws can apply to anyone engaging in a wide variety of transactions anywhere. In addition, while the FCPA carries significant penalties, so do these state commercial bribery laws. Of the 37 states with laws, eighteen states punish the offense with prison time in excess of one year, up to fifteen years, and for the others, even one year in a "white collar" context might be considered sufficient deterrent. An even greater concern: the penalties can be enhanced if the conduct is prosecuted under other Federal statutes, or by the use of the state or Federal Racketeer Influenced and Corrupt Organizations ("RICO") statutes, which carry penalties of up to ten or twenty years in prison. Aside from the punitive aspects, corporate criminal prosecutions for bribery often result in damage to reputation that can be difficult to repair, and involve other detriments such as loss of eligibility for public contracts. [footnotes omitted]

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William T. Wilson is a graduate of Villanova University (1974) and Villanova University School of Law (1977), and spent over twenty years in-house with corporations large and small.