About this time last year, the levels of corruption in Mexico were revealed to the universe by the Mexican Employers Association. Mexican companies, it was pointed out, spend more than 10 percent of their revenue on corrupt acts. More than 44 percent of Mexican companies make secret payments to public servants on both national and local levels. Mexico ranked 98 out of 178 companies on Transparency International’s Corruption Index (right down there with Egypt and Burkina Faso). The cost of Mexico’s corruption is around 9 percent of its gross domestic product.
Appalled? Disgusted? Wal-Mart says it is, even though some seven years ago, the company itself dispatched investigators to Mexico City, where more than $24 million in suspect Wal-Mart payments was uncovered. The New York Times published an investigation on this subject just days ago. “If these allegations are true, it is not a reflection of who we are or what we stand for,” a company spokesman told the newspaper.
But if these allegations are true, they are precisely a reflection of how Wal-Mart—or indeed any company from virtually any nation—is expected to do business in certain parts of the world. Deprive them of that means of seduction—the kiss of cash, to be blunt—and you basically deprive them of any future in a place like Mexico. And yet, that is what the Foreign Corrupt Practices Act was established to do when it was passed in 1977: force American firms to behave better than their counterparts elsewhere.
Which, if followed to the letter of the act, will force American firms right out of business in the corrupt nations where they hope to compete.
The Mexican corporate strategy, said one former Wal-Mart executive, was pretty simple: build hundreds of stores really fast—so many stores erected so quickly that Wal-Mart rivals would be left breathless and way behind. “What we were buying was time,” former Wal-Mart executive Sergio Cicero Zapata said in the New York Times article. He should know. He was one of those buyers.
Right now, too, a grand jury is investigating Avon, the cosmetics company, on charges of organizing similar payoffs in China. Last year alone, Avon spent more than $93 million investigating its own malfeasance abroad. And personally, as an Avon stockholder (I figure that, even in bad times, ladies will always splurge on lipstick—the smart woman’s Prozac), I consider expensive self-criticism a massive waste of my money.
Also there’s this: how else are you supposed to conduct business in China, home of powerful Politburo member Bo Xilai and Mrs. Bo-rgia? What do you assume the late British businessman Neil Heywood was doing in China with the Bo couple, before his untimely death, if not slapping currency on their itchy palms? Here’s the Globe and Mail exhibiting gentle restraint on the subject:
Mr. Bo and his family did enjoy an ostentatious lifestyle that well exceeded the $26,000 he earned as a senior civil servant, but then one is hard-pressed to find any Chinese Communist official whose lifestyle is consistent with his nominal salary. Exactly where their extra money comes from is not clear, but people in China prefer to deal in cash.
I know, I know. The Foreign Corrupt Practices Act was passed after the Watergate scandal in order to better US mores, improve US psyches, elevate US ethics—and also to prevent the bribery of foreign officials (except, I guess, by the CIA). And if you are a corporation and you’re caught shelling out cash to helpful officials abroad, you can be fined $500,000.
Imagine what a disincentive a $500,000 fine is to an American company trying out-bribe its cash-flush rivals … Imagine how impressed other nations are with America’s nominal forbearance, its exacting regulations …
Meanwhile, in Brazil, the tax laws don’t expressly deny the tax deductibility of bribes to foreign officials. The same goes for Bulgaria. And Israel. And Turkey. Meaning, these are countries that actually promote bribery; actually give their entrepreneurs a tax deduction for bribing elsewhere.
Sometimes—quite often, in fact—the US aspires to a very costly kind of morality: unwinnable wars, unenforceable laws—and counterproductive regulations that are practically begging to be violated.