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Anti-Corruption Efforts in Trading with China Case Study

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Updated: Jan 23rd, 2021

Types of bribes

Foreign Corrupt Practices Act (FCPA) explores two major issues, namely transparency, and bribery of foreign officials. Under this act, there is a deliberate attempt to differentiate between extortions and bribery. However, it largely depends on whether the actions taken are measures taken to discipline wrongdoers or just formality. As such, all forms of bribery are illegal and are condemned by virtually all countries.

Extortion, on the other hand, has its own negative impacts. In some cases, it is regarded as fair deals, while in other instances, it is illegal. Some traders in China enter the black market and buy fake certificates to make their goods pass the inspection process. In other cases, some customs officials are willing to reduce the dutiable value of imports to a certain level and alter some logistics so that they can benefit. This can be regarded as a fair deal and could be compared to haggling in the market. To sum it all, the Foreign Corrupt Practices Act has illegal practices while others are legal or can best be categorized as fair deals.

People’s Republic of China (PRC) and criminal law

The criminal law of PRC classifies bribery as a common illegal practice that entails compromising authorities to receive certain favors. These include gifts or payments to employees of the state and officials of public enterprises/corporations. The latter qualify to be bribery, especially when executed with the aim of obtaining accrued benefits as returns. The crimes also include an intentional act that is constituted with a clear knowledge of its danger.

Most importantly, this becomes a crime when a person goes ahead to commit the crime despite having full knowledge or is aware of the consequences that are attached to it. This is applicable to individuals who are over 18 years of age or those who can be regarded as adults. The types of crime involved are arson, drug trafficking, robbery, crimes of rape, causing death or serious injury, poisoning another person, and explosions, among others. There are, however, certain degrees that are involved in this crime, as is applicable in the People’s Republic of China (PRC). If a person commits any of the above acts while mentally fit, the crime is very illegal. But when the person commits when mentally unfit, the person may not face the law harshly as the person who is mentally fit.

Law against unfair competition of the PRC

The law against unfair competition of the People’s Republic of China falls under commercial law. Under this law, any person who is found guilty of operating business in a country in an effort to give property or money to customers so as to sell or purchase products is liable to prosecution under the law. Some practices in this law that are prohibited are like trade secrets, which essentially alter market competition and illegal practices such as smuggling of goods and dumping them in the market.

Majorly, the prohibition includes passing off a product into the market as legitimate while it is not, infringement of trade secrets, intimidation when it comes to trade dress, and authorizing the use of a name for an enterprise. This is illegal, and when culprits are caught, they are liable to fines and jail sentences that are determined by the severity of the matter.

Lubrication, extortion, or subornation

When an official in a company lies about something so that he or she can gain some benefits or particular favors, he or she has committed subordination. In particular, when it comes to the tendering process, some officials encourage others to lie about the value of the deal so that they may gain from the amount above the ideal cost. The latter also happens when a valuation officer corroborates with others to lie about the actual value of a product or property for the sake of benefitting with close friends in the process. Unfair competition falls under this category as it represents cheating or lying such that a person gets an undue advantage in the market.

Extortion is direct and appears as though it is forceful. It comes when the buyer in a market does not have a choice even when the seller puts the prices higher than usual. In such a case, the seller practices some methods that are unethical and against the fair competition in the market. Extortion falls under FCPA, which prohibits anything to do with unfair competition, especially when this is not dictated by demand and supply factors or a monopoly of a sort.

A person who is willing to get a visa may be asked to part with some amount so that he or she can access the services. Generally, a person should not give anything on top of what he or she is required by the government or other controlling agencies. Under extreme circumstances, it is possible that immigration officials may require the person to part with some money above the required so as to achieve this goal. A consulting company that has a monopoly in the market may also extort money from a company that is in dire need of carrying out consulting services. The company may be compelled to pay the added amount just for the sake of accessing these services. This is extortion under FCPA and is illegal.

Lubrication falls under bribery and extortion. It is when a person is required to give some amount of money, usually a small amount, as a bribe to business people or government officials who are lowly ranked. The main reason is to expedite a decision in the business, expedite a transaction or shipment. Lubrication often occurs in countries where such kinds of payments are not common. Officials in the migration department of any country may ask for bribes so as to process visas faster than is usual.

When a substantial amount is paid as a bribe, the official ignores some processes that are crucial or the stages of verification just to get the deal between him or her and the user to go ahead. This is unethical practice since it denies people who cannot access such quick services an opportunity to be served fairly. Lowly ranked government officials often fail to tend to people who do not like to tow this line.

Illegal dealing in FCPA

As noted earlier, there are some acts that can be regarded as legal or fair, while others can be categorized as outrightly illegal. There are some favors, payments, and bribes that can be categorized as conspicuously illegal. For example, it is against laid down laws and regulations to bribe foreign officials, political parties, or candidates. The payments which are made ‘under the table’ are purely illegal.

For example, if a company’s official pays another one in order to gain certain benefits, it is illegal and attracts some penalties. When it comes to favors, undue promotions or extending high benefits to the other without due process of the company’s law is illegal. From the case study, an American company made some arrangements through a Chinese consultant for some banking officials from China plus their family members to go on a vacation.

The consultant was reimbursed for an array and was given some gifts as a way of appreciating the underhand dealing. These favors can attract some penalties not only under the provisions of the company’s regulations but also under the country’s laws. In other cases, a company can get pushed to take lucrative businesses or a deal that is attractive to take.

While it may not be illegal for a company to take a business that has huge returns when it comes to business, it is illegal for the tendering company to give the go-ahead to such dealings. All forms of favors fall under the ‘facilitation of payments.’ While this can mostly come under unethical practices, it can also attract penalties from courts and business regulating bodies. Mostly it is applicable to public companies that are bound by company laws that are drafted by the government’s regulating agencies. The tendering process must be clean and fair, and where an official of a consultant bribes a tendering official or gives out favors, the official is liable to punishment.

The ethical response to each of the payments, favors, or bribes that have been identified

This discussion has concentrated mainly on the illegal part of bribes, favors, and payments. However, there is the unethical part of everything and mostly involves failing to follow one’s consciousness. When government officials compel customers to pay some amounts that are unwarranted, the affected person fails his or her internal consciousness. Usually, unethical practices are listed in the company’s code of ethics, rules, and regulation applicable to each employee in the organization. When an official makes some illegal payments to nonexisting consulting companies for the purposes of gaining positively, he or she is flouting the company’s rules and regulations and acts unethically.

There is an unethical practice in favors advanced to persons who, in the first place, do not warrant such benefits. A number of times, managers are accused of flouting normal processes when it comes to recruitments, training, and promotions. Some people in the organization are bound to get more favors, which they do not deserve. Rightful people often find themselves ignored, and those who do not deserve to get full attention. This is something that is not supposed to occur in any organization, and it is very unethical.

Needless to say, bribes are unacceptable. Bribery is not only a crime under FCPA but is unethical behavior that contravenes the general rules and regulations of a company. A contractor can pay a bribe to an official in a government’s corporation so that the official can influence the tendering process. The consulting company can make the official place the company in a position that gives it a good opportunity. This flouts rules and regulations that are placed in the company and which contravene normative management. Large-scale bribery becomes a crime in a court of law, but unnoticed bribery practices remain unethical under the company’s cycles.

In your view, which of the expenses detailed in the lawsuit could be in violation of the FCPA and which could be legitimate business expenses as the American Company contends? Discuss

In my view, the expenses detailed in the American lawsuit could be a violation of the Foreign Corrupt Practices Act when businesses in America are conducted in corrupt ways. This does not only restrict to corruption cases that are committed within the country but also those within the host countries. According to the FCPA lawsuit, there is a provision against anti-bribery. This prohibits any unauthorized pay, promise, or giving monetary handouts and gifts to foreign officials in order to obtain favors. As an example, it is a violation of the act to influence any act or decision policies involved in business transactions within or outside the affected country.

At the expense of businesses, it is unlawful to secure improper privileges from trading partners. Besides, obtaining and retaining business transactions through fraud is considered unlawful, according to the FCPA Act. It is evident that the act considers it unlawful to involve oneself with a third party transaction in which bribes will be used when making the transaction. The company in the USA contends to the provision of better standards, such as imposing high duties on businessmen and companies to ensure that the rate of corruption is decimated. The essence in this is that the companies and businessmen will higher agents and representatives who are of good reputation; thus, they are unlikely to violate the provisions of the FCPA.

On the other hand, there are business expenses that are considered legitimate. For instance, companies in America allow businesses to pay foreign officials in order to safeguard the regulations of government actions. In this case, these companies are able to facilitate limited actions to be carried out on behalf of the government, such as issuing visas, licenses, and work permits. Foreign officials also ensure that business merchandise is cleared thoroughly for custom duty as well as providing security services for goods provided.

It is imperative to note that certain countries perceive this provision as yet another form of corruption or bribery largely due to the fact that it is perceived to violate local laws and can result in criminal penalties. Nevertheless, there are cases companies in America permit this business expense and consider it legitimate in limited circumstances. Worthwhile, it is only when it is approved by the company general council that grease payment is considered legal. As already mentioned, American companies make grease payments to foreign officials in China in order to receive quality services. They also give gifts to consultants in public service places such as hotels.

Discuss the legal/ethical issues raised by the comment by the retired foreign service agent and the consultant

The ethical issue raised by the retired foreign service agent and consultant is that corrupt practices can do more harm than good. He is greatly concerned by the level or extent to which FCPA has been enforced. In his comments, he aims to subvert corruption, a vice that has befallen American investors and exporters within the country and in host states such as China. The foreign US service agency emphasizes the need for American entrepreneurs to get obliged to non-corrupt practices.

According to his perspective, he confirms that it is only when investors in America decimate corruption that they will be able to compete with foreign countries in the market. Notably, he understands that corruption in America is a huge challenge to investors, even in the host countries. He asserts that in order to level the playing fields, the self dealers, supplies, agencies, and kick-backers should out rule in appropriate dealings. It is evident that when crimes and corrupt dealings become rampant, the investments are affected adversely.

List alternative to paying bribes in international markets and discuss the plusses and minuses of each

There are several alternatives that can be used instead of paying bribes within the international market. For instance, protectionism is one of the major alternatives that can be used to eradicate bribes. This involves the use of intermediaries, quotas, tariff barriers, and subsidies on domestic products. However, it is imperative to note that bribe in the international market has been disguised in various forms.

It has been done in the pretext of promoting economic growth and to distort unfair competitions. Notably, alternative means should be able to encourage distributive channels of goods and services in the international market. Moreover, they should not undermine the predictability and effectiveness of market trends. As one of the alternatives, the government should subsidize the costs of goods and services to ensure that they are cost effective. This implies that regulations should be made on levy taxes and customs duties to selectively control competition within industries. Moreover, it is advisable to enhance the strict measures of criminal laws. This will make the payoffs quite difficult, and those involved will tend to avoid it.

The use of intermediaries can also be an alternative to decimate bribing. As a common strategy, this idea has sneaked through international markets where large companies and businessmen apply it in transactions. The criterion behind this strategy is that companies and businessmen hire representatives who act as local agents. This curtails investors from adventuring new markets in foreign countries.

This also reduces operating costs and time. According to the research conducted, it is evident that the intermediaries act as buffers that suffocate the need for bribes. Local and foreign investors give money to their agents who make payments on their behalf. Nevertheless, such anti-bribery strategies have limited significance since very few measures are taken to enforce them. Besides, there are high risks since the agents might become over exploitative in the market. A country can decide to make voluntary export restraints through the use of quotas. This implies that a country should limit the number of goods and services received or exported.

This enhances that there are limited restrains that are being made to investors and thus creates fewer chances for bribing. One of the pluses of protectionism is that it benefits a particular country as a whole. Additionally, it is highly effective in discouraging bribery. On the other hand, the minus associated with these options is that it discourages free trade. There are several obstacles that are established through the use of quotas. The other disadvantage is that it discourages investments for people with surplus capital.

Finally, nearly every state has its prohibitive laws against bribing. Countries like the USA and China have clearly defined statues that expressively outlaw bribery among multinational companies. This applies to those in the interior and in host countries. Contrastingly, other countries consider it the responsibility of foreign countries to curb bribery for their hosted investors. In as much as corruption is concerned, several approaches must be used in order to forbid the act. Otherwise, as was stated earlier, corruption can do more harm than good in the international market and even to the reputation of countries involved.

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