Is It a Bribe…or Not?

 Do you know what violates the Foreign Corrupt Practices Act? Take our quiz and find out.

                   

By  JOE PALAZZOLO WSJ.com

The Foreign Corrupt Practices Act is among the statutes most feared by companies with global operations. It can also be one of the most confusing.

Since 2008, the U.S. Justice Department and Securities and Exchange Commission have extracted billions of dollars in criminal and civil penalties over alleged violations of the 1977 law, which bars U.S.-based or U.S.-listed companies from bribing foreign officials in exchange for business and requires them to keep accurate books and records. 

But the line between legitimate business expense and bribe is sometimes hard to apprehend, and the U.S. government takes an expansive view of the statute’s reach.

How well do you know the FCPA? Take this quiz, adapted from guidance published by the Justice Department and the SEC last year, to find out.

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Daniel Hertzberg

1. Gas Corp. is a large energy firm based in New York and listed on the New York Stock Exchange. It enters into a joint venture with a private European company, Euro Gas Ltd., to bid on a contract to develop an oil field in Nigeria.

Senior vice presidents at Gas Corp. and Euro Gas meet in New York and decide to hire a consultant, Middleman Inc., to funnel payments on the joint venture’s behalf to a deputy oil minister with influence over the bidding process. The payments are invoiced as consulting fees, but Middleman Inc. passes most of the money to the deputy minister. The joint venture wins the contract.

Which entities are liable under the FCPA?

A) Gas Corp.

B) Gas Corp. and Euro Gas

C) Middleman Inc.

D) All of the above

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SEXUAL FAVOURS ARE NOT CONSIDERED CORRUPTION IN CHINA

by , Transparency International

The conviction of a high-ranking Chinese official for corruption and the continuing reports of alleged sexual favours as part of the ongoing scandal involving drugmaker GlaxoSmithKline in China, exposes gaps in the anti-corruption legislation in the country.

The high profile corruption case against China’s former minister of railways Liu Zhijun is being heralded as proof that Chinese President Xi Jinping is serious about cracking down on corruption. But this is not the whole story. The fact that the prosecutor focused only on the money involved in the bribery case and decided not to prosecute Liu for receiving sexual bribes or favours highlights a substantial gap in China’s penal code which does not fulfill its commitment to the UN Convention against Corruption (UNCAC).

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The Breakdown of the BRICs

We at Fluent In Foreign have been recommending to our readers to look beyond the BRICS for over a year. Now Bloomberg sums up latest market events, which fully validate our recommendations.

Bloomberg/Business Week

Is the decade-long BRIC dream over?

Bloomberg reports that capital flight from Brazil, Russia, India, and China has sent their bonds, currencies, and stocks down together for the first time since 2006.

Since 2003, when Goldman Sachs (GS) predicted this league of developing economies would join the ranks of the world’s biggest, the MSCI BRIC Index has returned about 227 percent; this year, however, it’s trailing the Standard & Poor’s 500-stock index by the most since 1998. From 2005 through last year, investors piled $52 billion into BRIC mutual funds, according to research firm EPFR. This year investors have yanked $13.9 billion from the category.

Anything BRIC seems to be struggling. Last quarter the MSCI BRIC Index fell 12 percent; BRIC government bonds lost an average of 0.6 percent, and their currencies fell 4.1 percent against the dollar. That’s the first time emerging-market stocks, bonds, and currencies have dropped together, according to data compiled Bloomberg going back seven years. China is looking at its weakest annual expansion in more than two decades. India’s current-account deficit has pushed the rupee to an all-time low. Oil’s drop has slowed Russia’s economy for five straight quarters, and Brazil is dealing with poor growth, rising inflation, and street protests.

“Every decade there’s a theme that captures investors’ imagination—the 1970s was about gold, 1980s was all about Japan, and 1990s was about technology companies,” Ruchir Sharma, the head of emerging markets at Morgan Stanley (MS) Investment Management, told Bloomberg News. “Last decade it was about the BRICs. That theme has basically run its course.”

“After years of strong growth, the BRICs are beginning to run into speed bumps,” International Monetary Fund Chief Economist Olivier Blanchard said at a Tuesday press conference.

The selloff could be overdone. The MSCI BRIC Index’s 17 percent drop this year has left it trading at 1.2 times net assets, a 36 percent discount to the MSCI All-Country World Index. This for a group of economies that represented 62 percent of global growth last year, compared with just 11 percent a decade ago.

WHY YOU NEED TO GO INTERNATIONAL AS FAST AS POSSIBLE

IF YOU DON’T CLONE YOURSELF ABROAD, SOMEONE ELSE WILL, SAYS BRAINTREE CEO BILL READY.

 

Fast Company 


A little over three years ago, a skyrocketing startup called Groupon was ready to enter the European market. There was just one problem: while Groupon had been building its American business, a trio of German brothers named the Sawmers were building an analogous one in Germany called CityDeal, hastening to copy Groupon’s success. And so Groupon had to pony up what was reported to be around $100 million (later reported to be in the form of a huge chunk of Groupon stock) to acquire its German clone and competitor.

Setting aside the many woes of Groupon today, the lesson still stands: if you’re building a successful service or product in America or in any country today, there will be someone ready to copycat your service or product in other countries. Fortunately, says Bill Ready, the CEO of payments company Braintree, there are tools in place to enable you to scale internationally much quicker than even three years ago.

“Why didn’t Groupon expand internationally quickly?” asks Ready. For one thing, the Sawmer brothers and their practices weren’t as well known a phenomenon as today. But secondly, says Ready, it’s just “really hard, and one of the hardest things is the payments aspect.” Each country has its own regulatory issues and payment networks. But what if someone could help smooth over all that bureaucracy for you? This is one of the things that Braintree does; it gives e-commerce companies access to 140 different currencies. That’s why, Ready says, Braintree clients like Airbnb, Fab, and Uber have all expanded internationally much more quickly than Groupon before them. Companies today “are in a better position against the copycatting phenomenon than Groupon was three to four years ago,” he adds.

Braintree’s movement into the international payments space is a relatively new one for the company, which wants to be for e-commerce what Square is for in-person transactions. Braintree now processes about $8 billion in payments a year to Square’s $10 to 15 billion–for reference, PayPal processes something like $150 billion.

The core functionality Braintree offered was to create smooth payment experiences for its clients. Ready uses an analogy from cell phones to illustrate: before the iPhone came along, he says, developers could make apps for phones if they wanted to, but they’d have to learn all the ins and outs of how the signal from AT&T differed from that of Verizon and other carriers. Butt he launch of the iPhone meant that coders simply had to learn iOS–and an explosion of app innovation followed. For Ready, Braintree lends a similar smoothness.

“Imagine if at the end of an Uber ride you had to sign into your PayPal account,” Ready says, explaining the kind of smooth payment experience Braintree powers. “It would kill the magic.”

“We give access to the best aspect of the payments network,” Ready continues. “Why should you have to understand all the crazy ins and outs of Visa and MasterCard and how they’re different from one another? You shouldn’t have to care about those things.”

In addition to its international push, Braintree has likewise expanded into mobile. Ready felt strongly that mobile commerce would be the future when he joined the business as CEO two years ago, which led to Braintree’s acquisition of mobile payments company Venmo in August. Venmo services may soon help fuel your in-app impulse buys: registering your payment information with Venmo can create a one-touch checkout experience in apps, so no more awkwardly punching in your credit card number on your iPhone’s tiny keyboard.

Many people told Ready he was crazy when he placed a bet that people would make large purchases on mobile, but the people who told him he was wrong two years ago have since recanted. “It feels great when it turns the other way, and people think your idea is crazy-good rather than just crazy.”

And this idea of pushing your young startup to expand abroad rapidly–is it crazy orcrazy-good? After all, the reigning wisdom in the startup world is to start local and only then to carefully expand.

Ready clarifies: “I would still say it’s sage advice to really figure out what you’re doing before you mash on the accelerator,” he says. Specifically, be sure to nail your business model on a small scale first. “But I think as soon as you figure out your model, that means everyone else is seeing your model as well. As soon as you figure out your model, you should hit the accelerator quickly to take your business international.” So it’s not exactly that you should be opening a Paris office while you’re still in your parents’ garage. “I don’t think it’s so much saying that you should do it at a different point in time,” Ready clarifies, “just that you should do it faster.”

So get ready for a meeting pitching your co-founders that the idea of building a Berlin branch is crazy-good. After all, says Ready, “entrepreneurship is an act of insanity.”

The World’s Most Innovative Countries: The Global Innovation Index 2013

INSEAD-WIPO-Cornell University rank 142 countries on their innovation capabilities. Sixth annual index reshuffles the top ten and shows gap widening between rich and poor countries.

The top 25 countries may be the same –  albeit in a different order from past years – but this year’s Global Innovation Index, produced by INSEAD, WIPO and Cornell University shows there is no short-cut to successful innovation: it takes continued development of talent, sustained investment, institutional support… and the right mindset.

That accounts for some of the major position shifts in this year’s top ten countries. “The U.S. is one of the countries which, in spite of the crisis, has maintained its level of investment in research and development and in innovation-related sectors. We see, for instance, a remarkable increase in spending on computer software which is directly applied to research and innovation,” said Bruno Lanvin, Executive Director, INSEAD European Competitiveness Initiative & co-author, Global Innovation Index Report. The USA moved up from 10th place last year to number five this year.

While the rest of the top ten countries in the GII remain the same as last year, their positions have shifted, with Singapore falling out of the top 3, where it has resided for the past two years, to 8th position.

Lanvin also notes that a “stop-and-go” policy in terms of innovation investment is generally detrimental to innovation performance. “It is much more difficult to stop investment in innovation and to resume it in a year or two… than to maintain a consistent flow of investment into innovation. Some countries have continued to do that. The U.S. is one example which has translated that into significant improvements in the ranking and governments have been using innovation investment as a countercyclical policy instrument.”

For Singapore, Lanvin attributes the fall mainly to the change in methodology which put more weight on the output side of innovation, such as creativity on the internet, licensing trademarks under the Madrid system, patents, R&D and trade-related items.

“Singapore remains very high in terms of input and dropped significantly in terms of output which is where the methodical changes have been the strongest. For instance, we see the rank of Singapore dropping when we introduce items relating to the creation of GTLDs (General Top Level Domain) names on the internet or creative industries so these are areas where we expect further adjustments will be made next year,” he added.

Top Ten 2013 Ranking
1 Switzerland (Number 1 in 2012) 6 Finland (4)
2 Sweden (2) 7 Hong Kong (China) (8)
3 United Kingdom (5) 8 Singapore (3)
4 Netherlands (6) 9 Denmark (7)
5 United States of America (10) 10 Ireland (9)

In its 6th edition, the GII measures 142 countries, using 84 indicators, which include the quality of universities, availability of microfinance and venture capital, to gauge innovation capabilities and measurable results. On a global basis, research and development (R&D) spending levels are surpassing 2008 levels in most countries and existing innovation hubs are thriving.

The Innovation Learners

There were encouraging signs from the developing markets in this year’s GII with 18 emerging economies outperforming peers in their respective income groups (The Republic of Moldova, China, India, Uganda, Armenia, Viet Nam, Malaysia, Jordan, Mongolia, Mali, Kenya, Senegal, Hungary, Georgia, Montenegro, Costa Rica, Tajikistan and Latvia).

“The reason why these countries have emerged as the upcoming future champions of innovation is basically they are focused on three main pillars of innovation: They have generally fostered education, they have attracted talents and created talents for innovation; second they have also nurtured the climate of investment around innovation, they have created a culture of venture and risk capital which has helped local investors; and last but not least they have also built strong and dynamic structures of innovation, that is the institutional  part of it which should not be neglected,” said Lanvin.

Divide remains

But, as with last year’s GII, a significant divide remains.

“It is clearly good news for the countries at the top as the top 10 are the same as last year, the top 25 are the same as last year with some games of musical chairs within those groups, but the gap between these top countries and the rest seems to be increasing,” said Lanvin.

Part of the reason for this, say the report’s authors, is that innovation success leads to a virtuous circle, where investment attracts further investment, as well as talent and innovation. Poorer countries start from a lower financial basis and are having a hard time catching up.

Even middle income countries such as Brazil, Russia, India and China (BRICs), says Lanvin, are coming up against an invisible wall, where they have progressed steadily over the years but are now stuck. He suggests that “beyond the obvious ingredients for innovation: public, private investment, education and R&D, there is an ecosystem that needs to be built around factors that may be more difficult to define and measure, which have to do with the fact that innovation is not just the result of innovation, but it’s also a mindset.”

“The elements that are required to develop the talents around innovation, the degree of cooperation, still have yet to be defined and measured,” he added.

The Hub Effect

One way such weaknesses can be overcome, says the GII, is by looking at “local specifics” in different parts of the world to develop hubs of innovation activity. The report says that too many innovation strategies have been focused on trying to replicate successes in other parts of the world, such as Silicon Valley, rather than develop their own strengths.

“For national-level policy makers seeking to support innovation, realising the full potential of innovation in their own backyards is often a more promising approach than trying to emulate successful innovation models elsewhere,” said Francis Gurry, the Director General of WIPO. “These hubs leverage local advantages with a global outlook on markets and talent.”

Such hubs have come to define the bee hives of economic activity and innovation taking place in cities such as Dubai and Singapore, with centres of excellence such as Internet City in Dubai, the Middle East’s biggest ICT hub and Singapore’s “Knowledge Hub” where INSEAD’s Asia Campus sits amid a bustling cluster of academic and research institutions.

“What happens at the sub-national level typically in clusters or among regions or in the city are at least as important as the countrywide type of data,” says Lanvin. “We see the emergence of these multifaceted, multitalented, multilayered type of clusters as an ingredient for success.”

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