German Company Bilfinger SE violates the FCPA

The Foreign Corrupt Practices Act (FCPA) establishes standards for the acceptability of payments made by U.S. multinational entities or their agents to foreign government ­officials. The act includes ‘bribery’ payments made by U.S. subsidiaries of no-U.S. companies, an example of which is Bilfinger SE, an 80%-owned German entity doing business in Nigeria.  The German entity doing business in Nigeria entered into a joint venture consortium agreement with subsidiaries of a Panamanian company.  The Panamanian company had principal places of business in the U.S. and had shares traded on the New York Stock Exchange.  The joint venture consortium allegedly made bribe payments to Nigerian officials.

The FCPA makes it a crime to offer or provide payments to officials of foreign governments, political candidates, or political parties for the purpose of obtaining or retaining business. The act also prohibits corporations from indemnifying fines imposed on directors, officers, employees, or agents. FCPA does not prohibit “grease payments” (i.e., permissible facilitating payments to foreign government employees whose duties are primarily ministerial or clerical because such payments are sometimes required to persuade recipients to perform their normal duties.)

On Tuesday, December 10, 2013, Mannheim, Germany-based Bilfinger SE, an engineering and services company in the energy sector, agreed to pay a $32 million penalty to resolve charges that it violated the FCPA by bribing government officials in Nigeria.

The U.S. Department of Justice (DOJ) Monday filed three-count criminal information in U.S. District Court for the Southern District of Texas charging Bilfinger with violating and conspiring to violate the FCPA’s anti-bribery provisions. Bilfinger entered a deferred prosecution agreement with the DOJ for three years.

The corrupt payments by Bilfinger were intended to obtain and retain contracts for Nigeria's Eastern Gas Gathering System (EGGS) project valued at $387 million. Bilfinger agreed with the DOJ to retain an independent corporate compliance monitor for at least 18 months.

From 2003 to 2005, Bilfinger conspired with Willbros Group Inc. and others to pay more than $6 million in bribes to Nigerian government officials to win and keep contracts for the EGGS project, the DOJ said.

According to the DOJ, Bilfinger and Willbros formed a joint venture to bid on the EGGS project and inflated the price of the joint venture’s bid by three percent to cover the cost of paying bribes to Nigerian officials. As part of the conspiracy, Bilfinger employees bribed Nigerian officials with cash that Bilfinger employees sent from Germany to Nigeria. At another point in the conspiracy, when Willbros employees encountered difficulty obtaining enough money to make their share of the bribe payments, Bilfinger loaned them $1 million, with the express purpose of paying bribes to the Nigerian officials.

The ethics of bribery are best evaluated against some standard of behavior. The key issue is whether to evaluate an action as ethical using the basic standards and values of the home country or those of the country in which a business operates. It boils down to whether the appropriateness of an action is relative to the society a company operates in or the society it operates out of.  Here are two contrasting views.

The key idea in the following argument for the central thesis of ethical relativism:

The only standards by which it makes sense to evaluate an action are the standards within the culture of the agent who performed the action.  No other standards are appropriate. This makes no sense to me because taken to an extreme it means that a company would be following the old adage: ‘When in Rome, do as the Romans do.’ Does that mean a U.S. company is ethically justified in stealing, corrupting politicians, and bribery, assuming it is a way of life in Italy? How can that be? The level playing field that is the bedrock of international business would crumble under its own weight and international companies would exist in an environment of anything goes.

An argument that the only appropriate standards of ethical evaluation are those of the culture within which the action to be judged is found:

To evaluate an action as right or wrong is to measure it using some particular standards or values. To evaluate an action according to the standards or values of the culture to which its agent belongs is to evaluate it against standards or values appropriate to it.

To evaluate an action according to the standards or values of a different culture is to ask it to answer to foreign standards or values, which are arbitrary, and, thus, an inappropriate basis for evaluation. Therefore,

Actions are ethically sound or unsound only relative to the standards and values internal to the culture of the agent who performed the action.

Ethical issues in international business can be murky. Some multinationals claim bribery is a way of life in some countries it operates in and, therefore, should be acceptable payments without which U.S. businesses would not be able to compete. The problem with this argument is as far back as 1997, the world's industrialized countries agreed to a treaty that would outlaw the practice of bribing foreign government officials.

The treaty, negotiated in Paris by 29 countries that belong to the Organization for Economic Cooperation and Development, includes European companies and Japan. Others have followed suit since then. Bribery no longer is the standard for international business and has no place in an ethical business culture.

Blog posted by Steven Mintz, aka Ethics Sage, on December 19, 2013