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US Foreign Corrupt Practices Act 
and the Economics of Bribery 
Eric R. Pesik 
Adjunct Assistant Professor, School of Mana...
This lecture was originally presented by 
Eric Pesik, Adjunct Assistant Professor 
University at Buffalo, State University...
FCPA 
and others 
Economics 
of Bribery 
Protect 
Yourself 
Impact on 
Corporate 
Performance 
The 
Solution 
to Bribery
NBC News by Anthony Quintano by OFFICIAL LeWEB PHOTOS 
http://www.flickr.com/photos/quintanomedia/4878251402/ 
Current Eve...
Glaxo Smith Kline Building at Brentford by Maxwell Hamilton 
https://www.flickr.com/photos/mualphachi/4938443323
http://office.microsoft.com/en-us/images/results.aspx?qu=medical&ex=1#ai:MP900390537|mt:2|
China RMB by Eric Pesik 
https://www.flickr.com/photos/pesik/15418462009/
Walmart by Mike Mozart 
https://www.flickr.com/photos/jeepersmedia/13753807413/
Teotihuacan - Pyramid of the Moon by Artotem 
https://www.flickr.com/photos/artotemsco/11177757606/
Siemens Schweiz by Surber 
https://www.flickr.com/photos/44431572@N00/4042504420
Euros by Images of Money 
http://www.flickr.com/photos/59937401@N07/5930032284/
Top 10 FCPA Fines of All Time 
Siemens (Germany) 
KBR/Halliburton (USA) 
BAE (UK) 
Total S.A. (France) 
Alcoa (USA) 
Snamp...
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....
Cigarette by SuperFantastic 
https://www.flickr.com/photos/superfantastic/166215927 
$246 Billion Settlement
Where did it all begin?
Corporate logos are property of their respective companies, used here under the 
doctrine of fair use for purposes of iden...
Corporate logos are property of their respective companies, used here under the 
doctrine of fair use for purposes of iden...
Pedestrians on First Avenue 1972 by Seattle Municipal Archives 
https://www.flickr.com/photos/seattlemunicipalarchives/494...
Image: http://en.wikipedia.org/wiki/File:Leonid_Brezhnev_and_Richard_Nixon_talks_in_1973.png 
As a work of the U.S. federa...
Image: B-52 Stratofortress with bombs 
http://en.wikipedia.org/wiki/File:B-52G_with_bombs.jpg 
As a work of the U.S. feder...
Image: Same Year Different Weather, Author Unknown, Year Unknown 
Image: http://www.designer-daily.com/10-amazing-cold-war...
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 ...
Viktor Koretsky, A Solid Peace for the World!, 1965, Poster on paper. Ne boltai! Collection. 
http://blog.expositionchicag...
Songs of the Italian Communists., revolutionary songs released on 7″ singles by the Italian label ‘i dischi del sole’ 
Ima...
Corporate logos are property of their respective companies, used here under the 
doctrine of fair use for purposes of iden...
Lockheed is not . . . just another 
American company. It is the largest 
U.S. defense contractor, and it 
owes its existen...
http://office.microsoft.com/en-us/images/results.aspx?qu=MP900400667&ex=2#ai:MP900400667|
A 1960 comic book cover presenting communism as the iceberg that could sink America. 
Image: http://www.designer-daily.com...
Image: Secrets and corruption by Adán Sánchez de Pedro 
http://www.flickr.com/photos/aesedepece/8176804808/
President Jimmy Carter signing the Foreign Corrupt Practices Act into law in December 1977 (photo courtesy of Carter archi...
FCPA 
and others 
Economics 
of Bribery 
Protect 
Yourself 
Impact on 
Corporate 
Performance 
The 
Solution 
to Bribery
US FCPA 
http://office.microsoft.com/en-us/images/results.aspx?qu=flag&ex=1#mt:2|
What is the law?
What is Bribery? 
Giving or offering to give ... 
Wedding gift by julian wylegly 
https://www.flickr.com/photos/quattro_ft...
Government Officials 
Image: Secrets and corruption by Adán Sánchez de Pedro 
http://www.flickr.com/photos/aesedepece/8176...
Top 10 FCPA Fines of All Time 
Siemens (Germany) 
KBR/Halliburton (USA) 
BAE (UK) 
Total S.A. (France) 
Alcoa (USA) 
Snamp...
Image: Greed by Liz West 
http://www.flickr.com/photos/53133240@N00/2207307656/
Image: Cut your Bills by Images of Money 
http://www.flickr.com/photos/59937401@N07/5857660216/
UK Bribery Act 
UK Flag 
http://office.microsoft.com/en-us/images/results.aspx?qu=uk+flag&ex=1#ai:MP900422830|
Facilitation Payments 
Cash By JMR Photography 
http://www.flickr.com/photos/jmrosenfeld/2903513401/
Commercial Bribery 
Meeting Nieuwe Leden by Voka Kamer van Koophandel Limburg 
http://www.flickr.com/photos/vokakvklim/452...
The value of a dollar by rahims 
http://www.flickr.com/photos/rahims/2110236034/
China Bribery Amendments 
National flag of the Peoples Republic of China 
http://office.microsoft.com/en-us/images/results...
http://commons.wikimedia.org/wiki/File:Xi_Jinping,_Sept_19,_2012.jpg
http://en.wikipedia.org/wiki/File:Modi_at_the_69th_UN_general_assembly.jpg
http://en.wikipedia.org/wiki/File:JokowiPresidentialOath.jpg
Every Country 
Prohibits 
Bribery 
Signpost by Andrea_44 
http://www.flickr.com/photos/8431398@N04/2680944871/
Protect your company
Protect yourself
UK Border Agency raid by UK Home Office 
http://www.flickr.com/photos/49956354@N04/5114138896/ 
Individual Liability
51 
THE COURT: ...you seem like such an unlikely person to be here. 
THE DEFENDANT: I agree with that assumption. 
THE COU...
The odds of getting caught? 
http://office.microsoft.com/en-us/images/results.aspx?qu=crime&ex=1#ai:MP900440905|mt:2|
Mandatory Hotlines 
Hotline by Alex 
https://www.flickr.com/photos/eflon/3261104775
It is now possible to make a lot of 
money by being a whistleblower... 
employees who know about compliance 
problems are ...
Social Media 
Image: Texting waiting texting waiting by Eric Flexyourhead 
https://www.flickr.com/photos/ericflexyourhead/...
The odds of getting caught used to be 
10%. Now I think the odds of getting 
caught are probably close to 90%. 
Richard L....
UK Border Agency raid by UK Home Office 
https://www.flickr.com/photos/49956354@N04/5114138894/
Press conference by Eneas De Troya 
https://www.flickr.com/photos/eneas/3488154090
UK Border Agency raid by UK Home Office 
http://www.flickr.com/photos/49956354@N04/5114138896/
Image: Dark Room by Carlos Luz 
http://www.flickr.com/photos/carlosluzz/3934285538/
He was starved, pummelled and 
interrogated for days on end in an ice-cold 
room where sleeping, sitting or 
even leaning ...
Image: Peter Humphrey televised confession on China's central broadcaster CNTV
FCPA 
and others 
Economics 
of Bribery 
Protect 
Yourself 
Impact on 
Corporate 
Performance 
The 
Solution 
to Bribery
Talk to the hand by John Lambert Pearson 
http://www.flickr.com/photos/orphanjones/2123340817/ 
Never Pay a Bribe to Anyon...
Know your Customers 
No Pictures by Dplanet 
http://www.flickr.com/photos/dplanet/94442623/
Parlament by Convergència Democràtica de Catalunya 
http://www.flickr.com/photos/convergenciademocratica/6197445493/ 
Who ...
Be Careful of Intermediaries 
Businessman by Kripptic 
http://www.flickr.com/photos/kripptic/1954828422/
Midvale Company employee by Kheel Center Cornell University 
http://www.flickr.com/photos/kheelcenter/5279251361/ 
Keep Ac...
The Problem of Fake Receipts 
Chinese Receipt by Phoebe Baker 
http://www.flickr.com/photos/phoebe_photo/5541278078/
Don’t get Trapped 
Businessman Behind Web by Internets Dairy 
http://www.flickr.com/photos/16339684@N00/2784622731/ 7 
0
11% 
11% of 
companies 
admit “firms 
like theirs” bribe 
Image: Don by D Planet : http://www.flickr.com/photos/dplanet/94...
20% 
Corruption 
costs the 
equivalent of a 
20% tax 
Image: We Want You by D Planet: http://www.flickr.com/photos/dplanet...
40% 
40% of 
companies 
claim to have 
lost business to 
competitors 
who won 
contracts 
unethically 
Image: Adjust Tie b...
64% 
64% see bribery 
and corruption 
as having a 
negative 
impact on 
business 
Image: Don by D Planet : http://www.flic...
Bribery short-circuits the 
marketplace. Where bribes are paid, 
business is directed not to the most 
efficient producer,...
Who is making money?
The World Bank estimates that the 
equivalent of $1 trillion is offered 
in bribes every year. 
Carmen Nobel 
The Real Cos...
Why do we bribe?
FCPA 
and others 
Economics 
of Bribery 
Protect 
Yourself 
Impact on 
Corporate 
Performance 
The 
Solution 
to Bribery
Economics of Bribery 
Who bribes? 
How much do they pay? 
What value do they get?
Theatrical poster for Fight Club, copyright © 1999 by 20th Century Fox. 
The copyright is owned by either the publisher or...
Image: St Munchins Contract Signing 60 by St Munchin's College 
http://www.flickr.com/photos/stmunchins/6864640994/
Image: Money and Magnifying Glass by Images of Money 
http://www.flickr.com/photos/59937401@N07/5858011914/
Economics of Bribery 
Who bribes? 
How much do they pay? 
What value do they get?
Who bribes?
1,388 fraud cases 
100 countries 
6 continents 
2 year period 
ACFE Report to the Nations on Occupational Fraud and Abuse ...
Companies 
don’t pay 
bribes. 
People pay 
bribes 
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=serious...
Fraud Triangle 
Pressure
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...
Living 
Beyond Means 
Control Issues, 
Unwillingness to 
Share Duties 
Financial 
Difficulties 
Unusually Close with 
Vend...
Never a 1:1 relationship
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 
Oper...
Data: ACFE Report to the Nations on Occupational Fraud and Abuse (2012) 
Male 
65% 
Female 
35% 
Gender of Perpetrators
ACFE Report to the Nations on Occupational Fraud and Abuse (2012) 
16% 
18% 
25% 
29% 
45% 
Female 52% 
18% 
55% 
48% 
Mal...
ACFE Report to the Nations on Occupational Fraud and Abuse (2012) - Scaled Risk Factor (Frequency * Amount) 
1.0 
7.4 
10....
ACFE Report to the Nations on Occupational Fraud and Abuse (2012) - Scaled Risk Factor (Frequency * Amount) 
1.0 
4.1 
3.3...
Who Pays Bribes? 
Image:http://office.microsoft.com/en-us/images/results.aspx?qu=smile&ex=1#ai:MP900424431|
*Except in Canada 
Image:http://office.microsoft.com/en-us/images/results.aspx?qu=businesswoman&ex=1#ai:MP900431737|
Reality Check
What is the percentage of men 
prosecuted by US Dept of Justice 
since January 2008? 
96.7%
What is the average age of persons 
currently in prison for FCPA 
violations? 
58
Look around your company
Economics of Bribery 
Who bribes? 
How much do they pay? 
What value do they get?
How much do they pay?
166 historical bribery incidents 
107 publically listed firms 
20 stock markets 
52 countries 
36 year time period 
Cheung...
Median Bribe 
Amount 
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=MP900442178 
Data: Cheung, Stephen Y...
$1.06 M 
$11.43 M 
Low Rank Officials High Rank Officials 
Image: http://office.microsoft.com/en-us/images/results.aspx?qu...
$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 ...
Image: http://www.flickr.com/photos/34728058@N08/4818131438/ 
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stoura...
1.22% 4.42% 
Bribe % 
Low Rank 
Official 
Bribe % 
High Rank 
Official 
Image: http://office.microsoft.com/en-us/images/re...
Economics of Bribery 
Who bribes? 
How much do they pay? 
What value do they get?
What value do they get?
Does crime pay?
What is the ROI of bribery?
Bribed and Got Caught 
http://office.microsoft.com/en-us/images/results.aspx?qu=crime&ex=1#ai:MP900440905|mt:2|
Bribed and 
got away 
with it 
http://office.microsoft.com/en-us/images/results.aspx?qu=MP900443285&ex=1
Theatrical poster for Fight Club, copyright © 1999 by 20th Century Fox. 
The copyright is owned by either the publisher or...
Image: http://www.fanpop.com/clubs/marlon-brando/images/9109847/title/godfather-fanart 
Don’t write if you 
can talk, don’...
Use the records 
of firms that 
got caught 
Image: http://office.microsoft.com/en-sg/results.aspx?qu=MP900185047
I’m not interested in 
what happened 
after they got 
caught 
Image: http://office.microsoft.com/en-us/images/results.aspx...
Look backwards in 
time... to when the 
contract was 
awarded 
Image: http://office.microsoft.com/en-us/images/results.asp...
Look at the time 
when they were 
bribing and getting 
away with it 
Image: http://office.microsoft.com/en-sg/results.aspx...
Example: 
In 1992, Elf Aquitaine paid $46M to bribe government 
officials to allow them to acquire German oil refinery 
as...
Abnormal returns
Shareholder value
166 actual bribery incidents 
107 publically listed firms 
20 stock markets 
52 countries 
36 year time period 
Cheung, St...
For the 166 bribes studied, 
the average return was 10.5 x 
Image: US Dollar Bill Notes: http://upload.wikimedia.org/wikip...
10.5 X 
5.5 X 
All Bribes 
High-Rank Politicians 
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris, ...
The more you pay, 
the less value you get
But that’s not 
the end of the story
Do firms that 
bribe perform 
better? 
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=MP900443251&ex=1
FCPA 
and others 
Economics 
of Bribery 
Protect 
Yourself 
Impact on 
Corporate 
Performance 
The 
Solution 
to Bribery
Bribery impact on 
corporate performance
Research 
3 years before 
and 3 years 
after 
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=reports&ex=1...
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 ...
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 
Compan...
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 T...
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 Pr...
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 ...
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 Abno...
Crime does not pay 
Image: http://office.microsoft.com/en-us/images/results.aspx?qu=handcuffs#ai:MP900402864|
Bribe-paying firms 
underperform the market
Why?
Effect of Corruption 
Culture of Corruption 
Noncompliance Spill-over 
Compromised Internal Controls 
Short Term Planning ...
Lab meeting going on by Jun Seita 
http://www.flickr.com/photos/jseita/5407005494/ 
Culture of Corruption
Noncompliance Spill-over 
Bank of England by Duncan Harris 
https://www.flickr.com/photos/duncanh1/5647094748
Hacking by Johan Viirok 
https://www.flickr.com/photos/viirok/2498157861 
Compromised Internal Controls
Check Writing by David Goehring 
http://www.flickr.com/photos/carbonnyc/2204277278 
Short Term Planning
Thug by Paleontour 
https://www.flickr.com/photos/paleontour/446315283 
Agency Problem
Prisoner’s Dilemma 
Placing the go stone by Luis de Bethencourt 
http://www.flickr.com/photos/luisbg/2094497611/
Effect of Corruption 
Culture of Corruption 
Noncompliance Spill-over 
Compromised Internal Controls 
Short Term Planning ...
FCPA 
and others 
Economics 
of Bribery 
Protect 
Yourself 
Impact on 
Corporate 
Performance 
The 
Solution 
to Bribery
The solution to bribery
It’s only when the certainty 
of getting caught and punished 
exceeds the potential rewards 
that corruption will be stamp...
Risk Versus Reward 
Image: Money Scales by Images Money 
http://www.flickr.com/photos/59937401@N07/5857910508/
Even if you don’t get caught, 
bribe-paying firms 
underperform the market
Bribery is a lose-lose 
proposition
Rational Utility-Maximizers 
Abandoned Art School 24 by Tiffany Bailey 
http://www.flickr.com/photos/xshamethestrongx/6342...
Image: Adam Smith’s Wealth of Nations 
see http://en.wikipedia.org/wiki/Invisible_hand
Individuals maximizing their 
own personal profit 
can benefit society as a whole 
without the need for government 
interv...
Bribery is a lose-lose 
proposition
Talk to the Hand by NMR Photo 
http://www.flickr.com/photos/jinx1380/4983207375/
http://office.microsoft.com/en-us/images/results.aspx?qu=MP900442989&ex=1 
The Smartest Guy in the Room
Talk to the Hand by NMR Photo 
http://www.flickr.com/photos/jinx1380/4983207375/
Image: Dark Room by Carlos Luz 
http://www.flickr.com/photos/carlosluzz/3934285538/
Ethical virtue 
is the only thing 
that matters 
Socrates 
Image: http://www.britannica.com/EBchecked/topic/551948/Socrate...
FCPA 
and others 
Economics 
of Bribery 
Protect 
Yourself 
Impact on 
Corporate 
Performance 
The 
Solution 
to Bribery
Source Acknowledgements 
Culture, Compliance, and the C-Suite - How Executives, Boards, and Policymakers Can Better Safegu...
About the Author 
Professor Pesik 
Eric Pesik is an Adjunct Assistant Professor with the University at Buffalo, State 
Uni...
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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/[email protected]/5857412037/
$1.9 Billion
$16.7 Billion
$13.0 Billion
Bribery (Siemens)

Published in: Business, Law
License:
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