International Business & Corruption Essay Example

amount of money involved. Petty bribery is typically a result of extortion driven by economic factors. Small amounts of money are often viewed as nothing more than a small "tip" or a token of gratitude for facilitating processes. Usually, these bribes involve expediting bureaucratic procedures for businesses to acquire permits or licenses. However, more severe corruption occurs when government funds are redirected towards private individuals. This form of corruption can have harmful effects on national economies, international trade, and the economies of developing nations.

The act is known as grand bribery and involves high-level officials making payments driven solely by greed. It is not uncommon for top public officials to embezzle money from their governments through multinational assistance, resulting in the misappropriation of billion-dollar amounts. Nigeria, a country with around 25 billion barrels of premium crude oil, faces challenges in extracting and managing this resource. Addax Petroleum Company was accused of attempting to steal over a billion dollars from the Nigerian government during their agreement with the Nigerian National Oil Corporation (Nwabuzar, 2005).

The text highlights a case involving six Nigerian businessmen who reportedly attempted to scam a Brazilian national named Nelson Sakaguchi, which serves as an example of the ongoing crime in developing nations. Sakuguchi, who was the Managing Director of Banco Noereste, fell victim to a scam promising him a contract to lift Nigerian crude oil in exchange for $242 million, eventually leading to the collapse of the bank (Nwabuzar, 2005). This incident exposes Nigeria's corruption, as demonstrated by another unsuccessful venture involving Royal Dutch/Shell and Malabu Oil & Gas, which resulted in a federal district court case in New York City.

Shell was taken to

court by Malabu for allegedly colluding with Nigerian officials to illegally obtain its oil prospecting license. The license, known as OPL 245, was a massive area in the deep waters of the Niger Delta, believed to contain over 1 billion barrels of oil. Malabu demanded a mere $1 billion in compensation to resolve the issue. The petroleum minister at the time, Dauzia Etete, who was appointed by Abacha, granted himself the license to develop the block and arranged for Malabu to become the license holder. In return for covering the costs of production and exploration, Malabu offered Shell's Nigerian subsidiary 40 percent of the profits. What makes this even more significant is that Etete asserts that he secretly met with V and secretly recorded their conversations.

P. Qtiku Abubakar was offered a cut as a condition to prevent the revocation of his license on OPL 245. These conversations included bribes given to Abubakar, Shell’s managing director Ron van den Berg, and President Obasanjo. After a parliamentary committee hearing, the government canceled Malabu’s prospecting license. Additionally, Shell also lost its stake as Ron van den Berg did not attend the hearing, leading to a warrant being issued for his arrest. Eventually, after a few months, the Nigerian government permitted Shell and ExxonMobile to participate in the bidding process for the license.

Shell has acquired and secured Malabu in a $210 million bid. Nevertheless, Malabu claims that Shell's bid was influenced by privileged information about the block's reserve. Furthermore, Malabu accuses Shell of using oil service contracts to gain favor with the vice president and acquire a stake in Intels. However, there are doubts about the credibility of Etete,

the accuser.

According to Sansoni (2003), the Nigerian police are currently searching for him due to money laundering charges, which impede the country's ability to attract much-needed foreign direct investment. Similarly, in the United States, there is a tarnished reputation exemplified by the Shell case. Enron, previously the seventh largest US corporation, filed for bankruptcy in November of 2001 and holds the record for being the biggest bankruptcy in history. This collapse was driven by allegations of illegal activities and criminal charges as well as lawsuits from shareholders and employees. The company's accounting practices and corporate integrity were questioned while fraudulent financial reports were discovered.

Enron was a company known for effectively concealing its financial losses. The chief financial officer, Andrew Fastow, instructed accounts to record projected profits as immediate revenues in order to maintain the appearance of profitability for the company. Additionally, Fastow established a consulting agency called LJM2, specifically to conduct business transactions for Enron. This agency was utilized as a means to obscure Enron's actual losses. Sherron Watkins, the vice president of corporate development, expressed doubt regarding Enron's practices and Fastow's financial strategies, and she articulated her concerns in a comprehensive six-page document.

"I am extremely concerned that we will face a series of accounting scandals," cautioned Watkins to Lay ("Letter to Kenneth Lay"). She inquired, "Can our accounting experts unravel these agreements now?" pointing out that following the Condor and Raptor deals in 1999 and 2000 respectively, the company witnessed significant and elevated stock prices. Various Enron executives sold their stocks during this period. "Then we attempt to undo or rectify the agreements in 2001, it's akin to robbing a bank in one year

and attempting to repay it two years later. Nice attempt, but investors suffered; they bought at $70 and $80 per share expecting $120 per share, and now they are at $38 or even lower," stated Watkins (Enron, 2003). She also expressed her worries about dissatisfied employees who possess sufficient knowledge of the dubious accounting practices that could potentially resurface and create issues.

Her concerns were later rejected, resulting in the decline of the company's stock. This led to Jeff Skilling resigning as CEO, which further caused a significant drop in the stock value. Shortly after Skilling's resignation, Watkins's fears were realized as Enron filed for bankruptcy in a New York court on December 2, 2001.

Arthur Andersen, the accounting firm, was hired to close the books. Unbeknownst to the SEC, Enron happened to be Andersen's largest corporate client. Events took a negative turn as document trails were destroyed through shredders, computer hard drives were wiped clean, and files pertaining to Enron were eliminated. Shortly after, Anderson's actions faced intense scrutiny with accusations from the Department of Justice of obstructing justice.

The scandalous fallout from Wall Street to the White House resulted in ongoing charges. Following the Enron scandal, the United States has made efforts to prevent a similar situation from occurring again. The repercussions of this scandal are still apparent in current news. Corruption has had a damaging effect on the nation's economic growth. Citizens have learned negative attitudes, realizing that honesty, ethics, and moral values no longer bring benefits.

The production of substandard goods and services occurs in order to reduce costs, causing a lack of necessary upgrades to equipment and performance. Corruption not only persists in government

infrastructure, threatening the legitimacy of a nation's government, but also leads citizens of affected countries to view the corrupt nation negatively. The corruption undermines their credibility. China, a nation experiencing economic growth as a result of globalization, is also tarnished. Like Nigeria, China is not only associated with the cultural system of guanxi, with concerns about whether it is based on unethical norms or a hidden system of corruption, but also faces a significant increase in crime in 2005.

The rise of crime in China is closely tied to the concept of guanxi, which refers to a system of personal connections involving long-term social obligations (Millington, 2005). This system operates on the principle of "who you know" and involves exchanging beneficial favors. Guanxi is considered a valuable asset for many Chinese companies (Braendle, 2005), requiring careful nurturing and maintenance to establish a strong network worth investing in. In business transactions, most Chinese individuals prefer dealing with familiar and trusted people.

Gift giving is a deeply ingrained practice in Chinese culture. It is customary for individuals and entities, such as visiting companies, bank representatives, organizations, retailers, etc., to bring gifts when they visit. This applies not only to business visits but also when visiting the homes of associates. The closer the relationship between individuals, the more they expect favors to be exchanged. Networking through gift giving is prevalent among Chinese people.

The definition of corruption in the context of guanxi is not clearly defined, ranging from simple gestures like having dinner together to engaging in illicit activities and evading laws and social responsibilities. According to a study conducted by Andre Millington et al, there are several issues related to

guanxi. These issues include instances of covert and illegal activities during business transactions, such as offering vehicles and making illicit payments to suppliers based on the quantity of products ordered. In addition, employees have been dismissed from their purchasing companies for accepting bribes from suppliers. It was observed in 1995 that legal enforcement had begun impacting guanxi practices (Millington, 2005). However, the survey indicated that although the gift-giving aspect of guanxi can be controlled through legal means, it is unlikely to be completely eradicated. Some individuals believe that as long as there are people with low salaries, there will always be opportunities for them to receive gifts in exchange for favors. In fact, due to gift-giving guanxi relationships, small salaries are sometimes known to increase two or threefold.

Guanxi, an essential practice in China, greatly influences employment, housing, and medical services within the informal economy. Nevertheless, there are apprehensions regarding its potential threats to the economy's integrity. As per Braendle's findings, guanxi can yield both favorable and adverse outcomes. It is important to highlight that connections between businesses and the government may further undermine China's already precarious governing system.

Guanxi, as noted by Braendle (2005), hinders economic growth and progress. In China, business-to-government corruption is rooted in a guanxi network, which acts as an alternative market system with unclear property rights, economic roles, and limited information flow. In certain cases, decisions based on law or regulations may be overshadowed by the influence of a strong guanxi network (Braendle, 2005). This form of guanxi is viewed as harmful and unethical, blurring the line between corruption and guanxi. However, these offenses pale in comparison to the wave of bank

robberies that occurred at the start of 2005, as reported by The New York Times.

Bank of China saw its branch manager flee with more than $100 million in stolen funds, while a dozen employees from a different bank were apprehended attempting to escape with nearly one billion dollars. Adding to the misfortune, China Construction Bank experienced some of its midlevel officers absconding with almost $8 million. All of these instances of theft were perpetrated by employees, branch managers, loan officials, and top bank executives. However, these were merely a few examples of crimes committed in China. In April 2004, managers were arrested for engaging in illegal trading of bonds valued at $3.6 billion, stolen from Delong brokerage firms.

Huayin Trust and Dalian Securities had around $3.4 billion stolen in December 2004, involving over two dozen employees accused of embezzlement, forgery, and contractual fraud (New York Times, 2005). China has a long list of international crimes. Despite being one of the first 34 countries to sign OECD's anti-bribery convention in 1997, Turkey has made little effort to control corruption. The crimes committed in Turkey have hindered its ability to exploit various economic opportunities. Former Prime Minister Tansu Ciller was accused of manipulating the sale of state assets for personal gain. Last year, Murat Demirel, the nephew of former President Suleyman Demirel, attempted to dock his small boat on Bulgaria's Black Sea banks. Demirel, who was once an owner of Egebank, was prohibited from leaving the country while investigations into the bank's downfall were ongoing.

Despite offering the coastguard a bribe of $136,000, he was refused and sent back to Turkey to face trial. The Uzan family, known

as the country's most notorious thieves, have fled the country. Kemal and one of his sons, Hakan, managed to deceive Motorola and Nokia out of a staggering $5 billion dollars. Cem Uzan, a media mogul and former partner of ex-president and Prime Minister Turgut Ozal, cleverly avoided signing any incriminating documents and still resides in Turkey. The Turkish government continues to search for the missing Uzans in hopes of recovering the alleged $6 billion dollars they owe.

This enveloping corruption in Turkey has resulted in a negative economic impact on the country, leading to low levels of foreign direct investments. In fact, it has only managed to attract investments from countries that are equally or more corrupt (Economist, 2005). Similarly, the economic growth of Asia has been severely affected by corruption. In Vietnam, a senior anticorruption investigator was apprehended for accepting bribes.

A high-ranking law enforcement official’s son in Malaysia has been accused of cheating or obtaining money through deception. Meanwhile, the celebration of the completion of a new $4 million international airport in Bangkok was marred by allegations of corruption in major contract deals. General Electric, after acquiring the company that sold x-ray scanners to the airport, discovered that the company's agents had bribed officials in the Philippines and Thailand. As a consequence, General Electric had to pay nearly $2 million in fines for violating the Foreign Corrupt Practices Act. The reduction of bribery has become a priority for national governments, trade associations, business firms, and international government and non-governmental organizations due to its perceived threat to society. Furthermore, there is a growing emphasis on eradicating corruption in developing nations and their economies.

For a long time,

the only countries that prohibited their citizens from bribing foreign officials were the United States and Sweden (Weber, 2004). Transparency International, a non-governmental organization focused on combating corruption, is urging African nations to support the UN Convention on Corruption and encouraging the newest members of the European Union to participate in anti-corruption efforts (Nwabuzor, 2005). As the sole international non-governmental organization dedicated to fighting corruption, it aims to bring together civil society, businesses, and governments globally to eliminate corruption and create a world free of it (TI, 2004). With over eighty-five independent national chapters worldwide, it strives to combat corruption at both national and international levels.

Nationally, Transparency International (TI) chapters focus on increasing accountability advocates. Internationally, TI works to raise awareness about the harmful impacts of corruption and advocates for policy reform. It also aims to implement multilateral conventions and monitors compliance by governments, corporations, and banks (Transparency International, 2004). TI has played a significant role in supporting the OECD's endeavors to minimize and prohibit business bribery. Access to information is essential in the fight against corruption, and TI helps disseminate information through newsletters and reports on bribery and corruption.

The Corruption Perception Index and Bribe Payers Index are two well-known reports by Transparency International. Transparency International has been actively pressuring governments, donor agencies, and international organizations to combat corruption by setting higher standards and implementing stronger sanctions against businesses involved in bribery. The organization has also advocated for the exclusion of companies found guilty of such crimes from future contract bidding. Political corruption has also been a key focus for Transparency International. In response to the growing use of immunity laws to protect corrupt politicians

from prosecution, TI created the Standards on Political Parties and Favours in 2004, which provides guidelines for countries aiming to establish and enforce political regimes. Additionally, Transparency International partnered with Social Accountability International to launch the Business Principles for Countering Bribery in 2002, as part of its ongoing efforts to foster relationships with the private sector.

The program offers workshops for corporate audiences in over 25 countries worldwide and also serves as the basis for a forum with more than 65 companies that have adopted a zero tolerance policy towards bribery (TI, 2004). In Nigeria, specific agencies have been established following incidences of scams to investigate corruption allegations against public officials. One such agency is the independent Corrupt Practices Commission, which focuses on investigating public officials and corruption claims. Additionally, a Money Laundering, Economic and Financial Offences Commission has been created to tackle issues related to banking, tax evasion, smuggling, and other similar areas. Despite the Nigerian government's efforts to combat corruption in the country, it may take some time to witness substantial progress. Merely reprimanding multinational corporations is not enough to deter them from engaging in corrupt and unethical practices. China has taken measures to clamp down on corruption, including covering over $22.5 billion dollars in bad loans at the China Construction Bank and the Bank of China (New York Times, 2005). In the United States, there was a demand for reform following prominent scandals involving companies like Enron, Tyco, and MCI WorldCom.According to the Securities and Exchange Commission (SEC) chairman William Donaldson, the Sarbanes-Oxley Act of 2002 is considered to be the most significant securities legislation since the original federal securities laws of the

1930s. This act was implemented to enhance the precision and dependability of corporate disclosures, with a specific focus on obligating chief executives to personally certify the accuracy of their companies' financial statements (Enron, 2003).

No single organization, bill, act of congress or commission can or will deter global corruption. It will require the combined efforts of all national governments. Each government will need to stand together, strong, and unwavering against all forms of criminal behavior with the aim of reducing crime.

Works Cited

1. Barboza, David. "Wave of Corruption Tarnishes China’s Extraordinary Growth." New York Times. 22 Mar 2005 pC1 col 02.
2. Braendle, Udo; Gasser, T.; Noll, J. "Corporate Governance in China-Is Economic Growth Potential Hindered by Guanxi?." New York Times.
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