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US Foreign Corrupt Practices Act and the Economics of Bribery by @EricPesik

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This lecture was originally presented October 25, 2014, by Eric Pesik, Adjunct Assistant Professor, University at Buffalo, State University of New York School of Management.

International Executive MBA Program, International Business Law, Politics, & Ethics, Module 13, MGT 612, Intake 18.

Presented at SIM Management House, Singapore Institute of Management, 41 Namly Avenue, Singapore 267616

Publié dans : Business, Droit
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US Foreign Corrupt Practices Act and the Economics of Bribery by @EricPesik

  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 You are free to share, copy, distribute, and transmit this work; to remix or adapt this work; and to make commercial use of this work, under the condition that you must attribute this work to Eric Pesik (but not in any way that suggests that I endorse you or your use of this work). Each slide contains source attributions and URL; before reusing, you must obtain the original images from the original sources, and you must comply with any applicable license restrictions imposed by the original source. http://creativecommons.org/licenses/by/4.0/

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