Bribery is Just Standard Operating Procedure
Greg is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the wake of last week's SEC press release announcing a $12.4 million settlement with Allianz (FRA: ALV) for violations of the Foreign Corrupt Practices Act, it’s hard to ignore the implication that bribery and corruption in big business have become standard operating procedures. In the past six months alone, five major international corporations have settled lawsuits filed by the SEC for similar offenses involving secret payoffs to government officials, fraudulent payments to nonexistent companies, and kickbacks to influential people in exchange for big money contracts.
In July, Orthofix (NASDAQ: OFIX), a Texas-based international bio-medical corporation that focuses on spinal implant products and other regenerative orthopedic products, settled a lawsuit that accused them of bribing Mexican officials in exchange for contracts with government hospitals. The illegal pocket-lining lasted for more than seven years, from 2003 to 2010. Orthofix agreed to pay fines in excess of $5.2 million to squash the lawsuit.
In August, two more lawsuits were settled within a week of each other. Oracle (NYSE: ORCL) agreed to pay $2 million to stop charges that they knowingly hid profits and used some of the money to bribe Indian officials. The rest of the secret funds allegedly were funneled through shell corporations and phony vendors in a massive multi-million dollar embezzlement scheme that lasted from 2005 to 2007.
Similar charges were filed and subsequently settled in a case against Pfizer (NYSE: PFE) that alleged the company knowingly violated FCPA regulations for a period of 11 years by bribing officials in eight countries across Europe and Asia. Payoffs were concealed and listed as legitimate business expenses like marketing, advertising and training, when in fact the money was actually allegedly handed over to foreign officials who pushed through drug approvals and government doctors who prescribed excessive amounts of Pfizer products. The company agreed to pay $45 million to settle the case.
In September, Tyco International (NYSE: TYC) settled a lawsuit with the SEC that alleged the company bribed officials throughout Asia and the Middle East in an effort to obtain and retain high-paying government contracts. These FCPA violations continued from 1999 to 2009, and involved more than 50 foreign countries. Secret payments and illegal deals were made with government officials and improperly listed as legitimate expenses or commissions in an effort to cover up the misconduct. Tyco settled for $26.8 million.
The pattern is all too clear – line the pockets of influential officials in exchange for government contracts, disguise the payments as legitimate business expenses, and make as much money as possible until the authorities catch on. There’s really no apparent fear of the law or of the consequences either. These corporations rake in millions of dollars, sometimes tens of millions, over the course of many years as a result of successful illegal business practices. What actually happens when they get caught? Another payoff! Although structured as a fine for violating international regulations, offending companies simply make a deal with the U.S. government and continue doing business as usual.
Clearly there is an advantage to bribing people of power in foreign countries, and multi-national corporations have likely already accounted for bribes and secret payouts, as well as the potential fines and settlements for getting caught.
Gambone has no positions in the stocks mentioned above. The Motley Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!