While corruption may exist almost everywhere across the globe, in some ways it is different in different places. There are some nuanced legal differences and resulting compliance concerns. In the United States and in much of Western Europe, when people pay you or take a bribe, they usually know that they are breaking the law. But in some countries, corruption is part of the culture. It may have occurred for dozens and dozens of years or even centuries and has become ingrained in society and considered a standard and customary practice. It can be called all different types of things like a gratuity, a skim, a sweetener, a facilitation payment, or just the cost of doing business. A review of Wikipedia reinforces the concept that corruption is ubiquitous. While these are generalizations and many countries have embarked on efforts to root out corruption, the Wikipedia entries are instructive, nonetheless. Here are three: for the Ukraine, Wikipedia states, "Bribes are given to ensure that public services are delivered either in time or at all. Ukrainians stated that they give bribes because they think it is customary and expected." For Angola, Wikipedia states, "Corruption is a pervasive phenomenon hindering economic growth and government-sponsored liberalization programs." For Brazil, Wikipedia states that "Corruption exists on all levels of society, from the top echelons of political power to the smallest municipalities." But whether corruption is more customary and accepted, or more prohibited, covert and clandestine, the law is the law and violations of the anti-corruption laws can be severe. Aside from the execution of Zheng, the Chinese Director of State Food and Drug Administration and many others in China, the penalties are severe everywhere. There are criminal penalties, civil penalties, disciplinary recourse, and of course huge reputational repercussions. Not only have companies been assessed enormous fines, but the employees, consultants, and other personnel of some of these companies have also paid large fines themselves and gone to prison. 11 of the top 13 largest fines involved recent cases. While all of these cases are instructive, let's focus on two slightly different cases to get a sense of recent corruption in different parts of the world. The first case involves Och-Ziff Capital Management Group, a large US hedge fund and private equity firm. Although Och-Ziff had implemented compliance policies and procedures designed to prevent corrupt activities from taking place, it's employees conducted illegal activities outside of the policies and the controls implemented by the company proved ineffective. Och-Ziff employees were able to distribute over $100 million in bribes to government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of Congo to obtain various business opportunities. So, they ended up paying $413 million as a penalty and entered into a guilty plea by one of the company's subsidiaries. In addition, the CEO and the CFO also settled charges with the SEC. The company's reputation was severely damaged. Investors in the Och-Ziff funds withdrew approximately $13 billion as a result of that case. The second matter I want to talk about concerns Odebrecht, a large Brazilian company with diversified businesses in engineering, construction, chemicals, and petrochemicals. Although headquartered in Brazil, Odebrecht operated globally. The Odebrecht case has many similarities to a matter involving a large German company, Siemens, many years before. Siemens was one of the largest companies in the world. From the outside, it seemed to be an extremely diversified and sophisticated corporation that operated in a globally transparent market place and exercised legitimate transactions. But what was discovered, however, was that bribery was their business model and that they had actually institutionalized corruption. There was an annual bribery budget of somewhere between 40 million and 50 million for managers and sales and the sales force to use in order to pay corrupt government officials across the world. When I say bribery budget, I mean it was a budget for bribes. Odebrecht also carried out corrupt activities in an organized and efficient manner by executives within the company in order to, similarly, secure government contracts. In total, $788 million were distributed as bribes by the company's representatives. This was possible because the company established the division of structure operations with computer systems separate and apart from the rest of the company for the purpose of making bribes. The company even purchased a branch of an Austrian bank located in Antigua to process the payments through a multilayered system of offshore bank accounts. As a result of the case brought against Odebrecht, government officials in numerous countries are under investigation or have been arrested and were convicted for accepting bribes from Odebrecht including officials in Brazil, Peru, Colombia, Ecuador, the Dominican Republic, Venezuela, and Argentina. There's even a case worth mentioning, not because of any resolution and penalty, but rather to demonstrate the cost to a company of simply having a corruption issue to deal with in the first place. In 2011, Walmart voluntarily disclosed to the SEC and the Department of Justice that it was conducting an internal investigation into possible violations of the FCPA and other crimes or misconduct. The internal investigation was in connection with their foreign subsidiaries including Walmart de Mexico, and whether allegations of violations and misconduct were appropriately handled by the company. The genesis of this disclosure goes back to 2005 when a former real estate executive at the Mexican subsidiary of Walmart exposed a bribery scheme, where they paid approximately $24 million to government officials to ignore laws and speed up the issuance of permits. Walmart investigated these allegations and it appears that they may have covered up their findings. They didn't disclose any of this to the SEC or the Department of Justice for five years. Now, regardless of the outcome and penalties related to this matter, you may be surprised how much Walmart has incurred in legal fees, forensic accounting, and auditing fees, the implementation of remedial measures and other costs related to the investigation. As of 2014, that amount was $439 million. By 2016, it reached $675 million. By 2017, it reached over $820 million dollars. One can only imagine that it will easily surpass $1 billion before the matter is over, $1 billion. Again, this is just the money that Walmart has already spent on their internal review and remediation of the global anti-corruption program. It doesn't include any fines, penalties, and the cost of additional remedial measures that they might incur in the future.
