Marina Machado Subject: Case 2 - Coping with Corruption in Trading with China Prof - 24/02/2014

1 - List all the different types of bribes, payments, or favors represented in this case under (a) FCPA, (b) Criminal Law of P C, and (c) Law A!ainst "nfair Competition of the P C# $hy is each either le!al or ille!al% nder the !CP"# there are two $ajor t%pes of bribes in&o'&ed which are e(tortion and regu'ar briber%) These two t%pes of bribes are so$ewhat si$i'ar but are not the sa$e depending on how the% are being de$anded for) *n the sense that briber% is tota''% i''ega' an%where in the wor'd whi'e e(tortion is not considered i''ega' in so$e counties but it is i''ega' in the nited State) +ne of the 'aws i$p'e$ented is The Cri$ina' ,aw of the P-C .Peop'e/s -epub'ic of China0# which c'assifies its t%pe of briber% as co$$on briber%) This t%pe of briber% inc'udes pa%$ents or gifts to state e$p'o%ees and officia's of state owned enterprises in return for benefits) "ccording to the case, under the !CP" there is a distinction between briber% and e(tortion depending on the acti&it% resu'ted fro$ &o'untar% or de$anded pa%$ent) *n fact# a'' countries consider this t%pe of pa%$ent i''ega' as * $entioned before) 1(tortion as * said is a 'itt'e different2 it is i''ega' to practice in nited States but in so$e countries is not considered i''ega') 1(tortion can be justified once a pa%$ent can be justified b% stating# the pa%$ent is needed in order to 3eep the contract or wor3 started) "'' these t%pes of bribes are considered i''ega' e(cept for e(tortion that is on'% considered i''ega' in the nited State) Meanwhi'e# the fact behind these 'aws of briber% is so$ehow co$p'icated and a'so depends on how the gifts are being presented or how it/s being de$anded for) The second 'aw i$p'e$ented b% the CPC is the ,aw "gainst nfair Co$petition for the P-C which is a'so ca''ed co$$ercia' briber% which prohibits business within the countr% to gi&e $one% or propert% to custo$ers to se'' or purchase products) These t%pes of briber% inc'ude pa%$ents or gifts to state e$p'o%ees and officia's of state owned enterprises in return for benefits) This 'aw a'so states that an%one who de$ands

or accepts $one% or propert% in return for benefit is gui't% of briber%) Those two 'aws are a bit confusing once it states that a gift cou'd not e(ceed 4500 but it does not state an%thing be'ow this a$ount which brings a 'ot of contradiction once so$eone cou'd accept so$ething inferior than the $a(i$u$ a$ount and not be considered gui't%) This just shows what co$panies are wi''ing to do and how $uch $one% the% are wi''ing to pa% to enter a contract with China or their $ar3et# a'so show so$e interference to the go&ern$ent to tr% a&oiding those practice) Most of the pa%$ents and other fa&ors are $ade to estab'ish guan(i in China) 6una(i $eans 7connections8 and it is i$portant part of the Chinese cu'ture) "ccording to 9estern standards $ost of these connections which inc'ude gifts and bribes are i''ega' but $ust be done in order to successfu''% dea' with Chinese businesses) This case presents with &arious i''ega' and so$e 'ega' t%pes of pa%$ents) & - For those practices that you listed as ille!al, classify each as lubrication, e'tortion, or subornation, and e'plain your reasonin!# Corruption is on the rise in China such as in $an% of other underde&e'oped countries) Chinese press fre:uent'% has detai'ed cases of corruption and of ca$paigns to crac3 down on it) The i''ega' practice of briber% can be easi'% c'assified under subornation) Subornation in&o'&es a 'arge pa%$ent# ser&ice# or gift gi&en to an officia' in order to get a process $o&ing faster or basica''% ha&e an officia' 'oo3 the other wa% if a 'aw is being bro3en) This practice happens a 'ot in $an% ; rd wor'd countries and * ha&e seen that a 'ot in $% ho$e town <ra=i') *n the S# e(tortion is i''ega' and it can be c'assified under both 'ubrication and )S sti'' c'assifies these actions as i''ega') "n e(a$p'e of subornation) 9hether the pa%$ent being $ade is s$a'' or 'arge to an indi&idua' or go&ern$ent the fact is the e(tortion is when two parties ha&e a contract to get to wor3 on a new construction site and one of those parties does not start wor3ing unti' so$e t%pe of pa%$ent is recei&ed# 'arge or s$a'') The contract shou'd out'ine when and how pa%$ent arrange$ents are $ade to the other part%# but when the wor3ing part% starts to as3 for $ore than what the contract states this cou'd cause prob'e$s) So$eti$es a s$a'' or 'arge pa%$ent outside

of the contract is needed in order to get things going and to $a3e sure that things are going according to the ti$e schedu'e) * honest'% do not see a prob'e$ with these t%pes of pa%$ents that are 7outside8 of the contract# but in the $ore corruption) ( - $hich of the payments, favors, or bribes are ille!al under the Forei!n Corrupt Practices Act (FCPA)% The !oreign Corrupt Practices "ct - !CP" $a3es it i''ega' for co$panies to pa% bribes to foreign officia's# candidates# or po'itica' parties) Se&ere pena'ties can be assessed against co$pan% officia's# directors# e$p'o%ees# or agents found gui't% of pa%ing a bribe or of 3nowing'% participating in or authori=ing the pa%$ent of a bribe) S these t%pes of actions are not considered 'ega'# which brings $ore regu'ations to the ga$e a&oiding ris3s with

) - Assumin! that the FCPA did not e'ist, what is the ethical response to each of the payments, favors, or bribes you have identified% *n countries where corruption runs in a spread wa% 'i3e China and <ra=i'2 it is e(tre$e'% hard to change the wa% things are done) The ethica' response for these irregu'arities if there was not !CP" wou'd be to c'arif% to societ% and its representati&es the differences between right and wrong) Corruption and subornation just dece'erate progress and this is suffered b% e&er%one in the specific societ%) -epresentati&es and po'iticians shou'd 'oo3 to an ethica' prospect where e&er%one or at the 'east the $ajorit% wou'd be benefited) This wou'd bring a 'ot $ore progress and 'ess har$ into the societ% o&era'') nited States shou'd be an e(a$p'e of regu'ating a countr%) *t is not perfect but without regu'ations a countr% cannot progress the wa% it shou'd)

* - +n your view, which of the e'penses detailed in the lawsuit could be in violation of the FCPA, and which could be le!itimate business e'penses as the American Company contends% ,iscuss# * thin3 the $ost significant aspect of the 'awsuit is the e&idence against the "$erican co$pan% pa%ing Chinese 6o&ern$ent +fficia's o&er a $i''ion do''ars in fees for ser&ices and a'so e(tending gifts to a consu'tant that inc'uded hote's# shopping sprees# and entertain$ent 'u(uries) "nother negati&e aspect the "$erican co$pan% has against the$ in the 'awsuit is the fact that the "$erican co$pan% arranged for two Chinese ban3ing officia's and their fa$i'% $e$bers &acations around the wor'd to countries 'i3e >ong ?ong# !rance# the the S# and *ta'%) *t e&en goes on to ta'3 about how S Co$pan% paid for Chair$an/s wife and son of the Chinese co$pan% to ta3e

tennis 'essons as we'' as go'f fees) The "$ericans responded that a'' of the pa%$ents $ade were 'egiti$ate pa%$ents that were needed in order to 3eep the contract with the software co$pan%) n'ess it states in the contract that the S Co$pan% needed to pa% for the Chair$an/s son tennis and go'f 'essons# then * be'ie&e that these are not 'egiti$ate reasons for the S Co$pan% to $a3e e(tra&agant purchases in order to 3eep S the contract with the Chinese software co$pan%) "'though this is an i''ustration of a ci&i' 'awsuit and the !CP" and the pa%$ent $ade b% the 6o&ern$ent was not in&o'&ed# it wou'd be prett% hard to con&ince these two entities that )S) Co$pan% to the Chinese co$pan% was so'e'% based on )S) Co$pan% went o&erboard with the principa's of their contracts) *t see$s 'i3e the

the gifts and pa%$ents for $a3ing sure that their contract with the Chinese software co$pan% was 'oc3ed in co$p'ete'%) This t%pe of corruption shou'd not be to'erated in an% countr% and both co$panies shou'd be e(posed) *f it were not for co$panies 'i3e these# we wou'd not need a'' of these foreign corruption 'aws) This is a perfect e(a$p'e of wh% we do need these 'aws and other regu'ations i$p'e$ented and precise'% fo''owed)

- - ,iscuss the le!al.ethical issues raised by the comments by the retired Forei!n /ervice a!ent and the consultant# * be'ie&e that the agent was tr%ing to he'p S Co$panies co$pete in a foreign

$ar3et that is corrupt# but on the other hand he is just as bad as the peop'e of that countr% that are corrupt) >e is corrupt hi$se'f and not standing behind the 'aw for which he wor3s for and stands for) *f so$eone is ac3now'edged to be a !oreign Ser&ice "gent and is supposed to enforce and abide b% the 'aws of which he enforces# then wh% is this officer in this position if he or she cannot do the job@ *n a'' fairness# the 'aw shou'dn/t e&en e(ist if those that are supposed to enforce it do not abide b% it) nfortunate'% the stor% does not get into the host countr% the !oreign Ser&ice "gent is wor3ing in# * a$ sure that wi'' ha&e a greater weigh on $% opinion on this subject# but honest'% if he is wor3ing in the $ost corrupt countr% rated b% the CP* in 200A which was >aiti# then as far as * a$ concerned $ost co$panies wi'' not e&en want to do business in a countr% that is e(tre$e'% corrupted) * wou'd not if * was in charge of a $u'tinationa' co$pan%) * thin3 that the Ser&ice "gent shou'd either be fired for not doing his or her job correct'% or re'ocated so$ewhere e'se where he or she is not put in that position of power to $a3e up the ru'es and be part of the prob'e$ in that particu'ar host countr%) 0 - List alternatives to payin! bribes in international mar1ets and discuss the plusses and minuses of each# +b&ious'% corruption in business agree$ents is a serious prob'e$2 but * strong'% disagree that as a business owner or e(ecuti&e %ou shou'd ha&e to participate in and acco$$odate such unethica' practices in order to be successfu') >owe&er * do be'ie&e that it wou'd be e(tre$e'% foo'ish to engage in internationa' business and not anticipate prob'e$s arising b% fai'ing to acco$$odate corrupt business re:uests) *t is &er% hard to a&oid bribes in unde&e'oped countries with a 'ow 'e&e' of education and infor$ation) The first thing to do wou'd be in&esting on education to bring $ore infor$ation to peop'e a'ong with se&ere regu'ations to a&oid those unethica' actions) "'so# co$pro$ising an

agree$ent that is beneficia' to both parties is the 3e% to at 'east consider pa%ing bribes) * sa% that because $ost of the ti$e co$panies just want to see their side and the po'iticians or representati&es just thin3 on the$se'&es instead of both focusing and 'arge benefits to its popu'ation) There was a po'itician in <ra=i' that has his own s'ogan and he used to sa%2 B* a$ corrupted but * get things doneB2 we'' it is wrong but at 'east he got things done in fa&or of his co$$unit%) so $% point is to better regu'ate the$) nfortunate'% with greed% po'iticians and corrupt societies and co$panies * a$ afraid we wi'' ne&er see a da% without these irregu'arities