They WILL be asking you to pay bribes. What will you do?

Several years ago, I had to travel unexpectedly to Kiev from Moscow, while not having secured an entry visa in advance. My Ukrainian clients had petitioned the Ministry of Foreign Affairs and had arranged for a visa to be processed at the airport upon my arrival. Once my plane landed, I was met at the gate by an airline representative and escorted to a Consul’s desk for visa processing. It took about 15 minutes to complete the necessary paperwork under the watchful eye of the immigration officer on duty.

As I handed him the completed application, he asked me for the $157 visa fee.  I handed him $160 in eight twenty-dollar bills. He carefully looked at the money, looked at me in a meaningful manner, stamped my passport, and said, “I won’t hold you up.”  It took me a few moments to grasp the meaning of his words, but as I realized that he made no attempt to get me my change, it hit me.  He gracefully was trying to shake me down for three! dollars.

Back home if someone tried this kind of stunt, I would have had a fit and would not allow anyone to get away with anything like this. Yet, sometimes things abroad are not that simple.  It is all about the upside vs. the downside. My upside was three dollars, and the fact that I would momentarily prevail in a good against evil struggle.  My downside was that the official and his cronies could have made my life miserable at the airport. From performing exhaustive luggage and personal searches, to finding fault with my paperwork and making me wait for hours while making me late for my meeting, to denying me entry altogether.  These were the things that could have awaited me had I started an argument over this tiny amount of money.

Thus I took my passport, gave the official the best look of disdain I could muster, and walked away.  Sometimes it is really necessary to lose the battle, to try to win the war.

As I was walking through the airport that day, my mind wandered to another situation, 10-years earlier, where on a class trip to Hong Kong with my graduate school class we were scheduled to go to China for a day to visit several factories and businesses.  At the border, our class was detained since the last name of one of my classmates of Irish heritage was misspelled on the visa paperwork:  McAndrews instead of MacAndrews*.  The Chinese border guard explicitly requested a $20 bribe to overlook the situation and let us through.  Our chaperone, as the representative of a fine educational institution had politely but firmly refused.  Well, that refusal, which incidentally was the right stance to take, cost the entire class two and a half hours at the border crossing waiting as the border officials took their sweet time processing all other entrants and ignoring us until we threatened to cause an international incident.   Once through the border, we of course were completely off schedule and had to drop several stops on our planned itinerary.  We ended up missing two very valuable appointments and only got to see a bicycle factory, an event in itself not worthy a special trip to China.

Sometimes wars may be lost, even though we win the battles along the way.

*Name has been changed

They WILL be asking you to pay bribes.  What will you do?  The legally and politically correct answer: DON’T DO IT.  The real answer is IT DEPENDS. And before all the conscientious readers jump on me, and all the Federal law Enforcement agencies begin breaking down my doors, here is what I mean:

There are three kinds of corruption: petty bribes, upfront bribes, and success fee bribes.  Petty bribes are like the ones described in the stories above. You can either take a righteous stand to have your life made miserable by an official over a few dollars, or you can go along with it and chuck it off to the cost of doing business. It may not be the right thing to do, but this is real life, not a movie.

The second kind of bribe is the worst kind. Some government official or private company employee will ask you for money, either directly or through an intermediary, telling you that payment is necessary to get your project done, or your contract signed off.  DON’T DO IT. Not only is it illegal, but also it is not smart, as you have absolutely zero recourse if your project does not happen, and you stand to lose all your money.  This kind of bribe uses the same strategy as extortion.  If people are trying to extort your business, paying them will not ensure peace; it will only invite more extortion.

The third kind of bribe is called the success fee bribe, and it is the most complicated of the lot.  Here the government official, or private individual, who is helping you to circumvent the system, will want to pre-negotiate a split of the profits on the backend for helping to successfully complete a deal.  According to the Foreign Corrupt Practices Act (FCPA) even offering or discussing what looks like a bribe to a government official is illegal for any U.S. citizen, or business entity with ties to the U.S. Further this type of arrangement requires people who are accepting the bribe to have superb trust in the person giving it. As the officials not only have their jobs at stake, but also are usually waiting to receive rather large payments after the deals are completed.

The good news for you is that unless you are a well-known and trusted supplier or service provider, such arrangements won’t even be discussed.  When and if someone approaches, do not even engage in the discussion, as it is fraught with peril.

Will you lose business? Absolutely.  How can you mitigate, if not eliminate this risk?

Bring something of value to the table; something that will make your offer compelling enough to the buyer to make them consider your offering over the competition.  One example may me bundled financing (longer term and/or a lower rate). This often works in emerging markets where local financing is either quite expensive, or often not available.  Some other examples of value added, which could be used are: speed of delivery, open credit terms (which can be extended with the use of Export Credit Insurance) and of course unique product or service offerings.

In supplying goods and services into the public sector bidding always remember that the local interests usually do not need outsiders to set up schemes for spending tendering government contracts and organizing kickbacks.  This means that outsiders are often used as pricing patsies and their chances of winning are slim to none. Direct participation in government tenders  also increases risks of being drawn into corruption schemes. Thus it is advisable to stay away from tendered government contracts all together.

Make you anti-corruption stand known and firm. If you deliver a consistent message to your counterparties, you will earn respect down the road, as even most corrupt politicians and businesspeople oftentimes respect principle and conviction.

Take, and have all your relevant employees participate in a workshop and study Foreign Corrupt Practices Act (FCPA). Create an internal FCPA compliance policy and distribute to all employees, vendors and insert it as part of every bid and tender your company submits.

Build your business in compliance of FCPA and you will assure yourself sound good night sleep.

This post is an excerpt from my  book “Fluent In Foreign Business™”  published in May by the Princeton Council on World Affairs (www.princetoncouncil.org) and available on http://www.amazon.com/FLUENT-IN-FOREIGN-Business-Expanding/dp/1462862780  and at other major book sellers in hard cover and soft cover editions, as well as eBook http://tiny.cc/oimha  © 2011 all rights reserved

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

2 Responses to They WILL be asking you to pay bribes. What will you do?

  1. Valerie says:

    Excellent article, Alexander. Thanks for sharing!

  2. E says:

    I agree with it especially coming from a background of corrupt systems that have entreated the worldview of the people, but I disagree with your remarks of tendering in government projects out of fear of corrupt dealings. Most of these governments are truly keen on good suppliers as much as they are interested in bribes and thus this frustrations especially in Africa leads to officials negotiating because they can also see they are getting a raw deal. Do not for a moment think they do not know who are the best in the industry they are looking before believe me I speak from experience. Not condoning corruption at all at all but don’t you think that’s why most African countries are heading East? Isn’t American loosing a market it had assumed it is theirs over the years not because of experience but because of pricing and lack of trying and waiting to be called in instead of participating in a fair competition.

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