International Business (Intl Biz) 101: The Political and Legal Environment Corruption FCPA UK Bribery Act OECD AntiBribery Convention Transparency International CPI

What This Is

Corruption is the abuse of power for personal gain, often through bribery, embezzlement, or other forms of exploitation. It matters for international business as it can undermine trust, damage reputation, and lead to financial losses. For instance, in 2015, Volkswagen faced a massive scandal when it was discovered that the company had installed software to cheat on emissions tests in the United States, resulting in a $25 billion settlement and a significant loss of brand value.

Key Theories & Frameworks

• Foreign Corrupt Practices Act (FCPA): A US law that prohibits bribery of foreign officials, with penalties for non-compliance. Practical implication: Companies must ensure compliance with FCPA regulations when operating in foreign markets.
• OECD Anti-Bribery Convention: An international agreement aimed at preventing bribery of foreign officials, with 44 signatory countries. Practical implication: Companies operating in OECD member countries must adhere to anti-bribery standards.
• UK Bribery Act: A UK law that criminalizes bribery, with a broader definition of bribery than the FCPA. Practical implication: Companies operating in the UK or with UK connections must comply with the UK Bribery Act.
• Transparency International Corruption Perceptions Index (CPI): A ranking of countries by perceived levels of corruption. Practical implication: Companies can use the CPI to assess corruption risk in different countries.
• Bribery Risk Assessment: A framework for evaluating corruption risk in specific countries or business environments. Practical implication: Companies can use a bribery risk assessment to inform their compliance strategies.
• Compliance Programs: A set of policies and procedures designed to prevent and detect corruption. Practical implication: Companies can establish compliance programs to ensure adherence to anti-bribery laws and regulations.
• Due Diligence: A process of verifying information about business partners, suppliers, or customers. Practical implication: Companies can use due diligence to identify potential corruption risks in their supply chains.
• Country Risk Analysis: A framework for evaluating the risks associated with operating in a specific country. Practical implication: Companies can use country risk analysis to assess corruption risk and inform their investment decisions.
• Global Governance: A set of principles and practices for managing global operations, including anti-bribery compliance. Practical implication: Companies can establish global governance structures to ensure compliance with anti-bribery laws and regulations.

Step-by-Step Application

1. Conduct a Bribery Risk Assessment: Evaluate corruption risk in specific countries or business environments using a bribery risk assessment framework.
2. Establish a Compliance Program: Develop policies and procedures to prevent and detect corruption, including training for employees and due diligence for business partners.
3. Verify Business Partners: Conduct due diligence on business partners, suppliers, or customers to identify potential corruption risks.
4. Monitor Country Risk: Regularly assess country risk using a country risk analysis framework to inform investment decisions.
5. Implement Global Governance: Establish global governance structures to ensure compliance with anti-bribery laws and regulations.

Common Mistakes

• Mistake: Assuming that corruption is only a problem in developing countries.
• Correction: Corruption can occur in any country, regardless of its level of development. Companies must assess corruption risk in all countries where they operate.
• Mistake: Believing that bribery is an acceptable business practice in certain cultures.
• Correction: Bribery is never an acceptable business practice, and companies must adhere to anti-bribery laws and regulations in all countries.
• Mistake: Failing to conduct due diligence on business partners.
• Correction: Companies must conduct due diligence on business partners to identify potential corruption risks and ensure compliance with anti-bribery laws and regulations.

Exam / Case Interview Tips

• Common question patterns: Be prepared to discuss bribery risk assessment, compliance programs, and due diligence in case interviews.
• Tricky distinctions: Understand the differences between the FCPA, UK Bribery Act, and OECD Anti-Bribery Convention.
• Key concepts: Be familiar with key concepts such as bribery risk assessment, compliance programs, and due diligence.

Quick Practice Scenario

A Brazilian firm wants to enter the German market. What entry mode is lowest risk?

Answer: A joint venture with a local partner, as it allows the Brazilian firm to share risk and expertise with a local partner.

Last-Minute Cram Sheet

• Corruption is the abuse of power for personal gain.
• The FCPA prohibits bribery of foreign officials.
• The UK Bribery Act criminalizes bribery.
• The OECD Anti-Bribery Convention aims to prevent bribery of foreign officials.
• Transparency International's CPI ranks countries by perceived levels of corruption.
• Bribery risk assessment evaluates corruption risk in specific countries or business environments.
• Compliance programs prevent and detect corruption.
• Due diligence verifies information about business partners, suppliers, or customers.
• Country risk analysis evaluates the risks associated with operating in a specific country.
• Global governance ensures compliance with anti-bribery laws and regulations.
• Corruption can occur in any country, regardless of its level of development.
• Bribery is never an acceptable business practice.
• Companies must conduct due diligence on business partners to identify potential corruption risks.
• The FCPA and UK Bribery Act have different definitions of bribery.
• The OECD Anti-Bribery Convention has 44 signatory countries.