Corporate Corruption: The Other Side of the Coin

Arjuna Aloysius, Director, Perpetual Treasuries and its CEO Kasun Palisena are in remand for their involvement in the Bond scam.

Prof. Susirith Mendis

I mentioned in a previous article on integrity in public life that “the low ebb of integrity and corruption in the corporate world needs another telling”.

So here it is.

I saw the growing tree of corruption spreading its canopy that covered all the undergrowth of development and underdevelopment – the politicians, the professionals the state officers who were on the take. And little grew underneath. Never did I think of the roots below surface; it was always the ‘bribe taker’ and not the ‘bribe giver’ behind that caught the eye. And I was complacent. Then I was rudely awakened by one event.

It was 1976. All hell broke loose when the ‘Lockheed Scandal’ hit all the world’s newspaper headlines – and everything ugly and frothing and had been brewing underfoot unseen and unobserved, spewed onto the surface.  Prince Bernhard, Prince Consort to Queen Juliana, Queen of Netherlands, had received a $1.1 million bribe from Lockheed to ensure the Lockheed F-104 would win out over the Mirage 5 for the purchase contract. With this scandal, the stature of the Royal House of Netherlands declined so much, so fast, that Queen Juliana was compelled to abdicate in 1980 giving way to her daughter Beatrix, the current Queen.

This had serious repercussions on the corporate sector in the US. In late 1975 and early 1976, a sub-committee of the U.S. Senate led by Senator Frank Church concluded that members of the Lockheed board had paid members of friendly governments, to guarantee contracts for military aircraft. In 1976, it was publicly revealed that Lockheed had paid $22 million in bribes to foreign officials in the process of negotiating the sale of aircraft including the F-104 Starfighter, the so-called “Deal of the Century”. Among the other renowned ‘takers’ of Lockheed largesse as revealed by the Frank Church Report include West German Minister of Defence Franz Josef Strauss ($10 million) for the purchase of 900 F-104G Starfighters in 1961; Japanese Prime Minister Kakuei Tanaka ($3 million) in February 1976; and the biggest of all, Saudi Arms dealer Adnan Khashoggi ($106 million) in commissions between 1970-75.

An F-104 Lockheed Starfighter.
An F-104 Lockheed Starfighter.

Closer home, the ‘Bofors Scandal’ rocked the Rajiv Gandhi regime to its foundations. The scandal related to illegal kickbacks paid in a US$1.4 billion deal between the Swedish arms manufacturer Bofors with the government of India for the sale of 410 field howitzer guns.  At home, we know and heard enough of the ‘MIG deals’, ‘coal deals’, ‘bond scams’ and secret bank accounts in Dubai. All to do with corporate kickbacks and purported payoffs to politicians.

Since the Lockheed Scandal, corporate bribery has been a well-known phenomenon the world over. There are other phrases used by the cognoscenti in this field. They include ‘corporate crime’, corporate corruption’, corporate violence’, ‘corporate bribery’, ‘white-collar crime’ and ‘corporate illegal behaviour’. What the ‘Lockheed Scandal’ revealed was only one aspect of the many-faceted nature of corporate misdemeanour (to use a sanitised generic term). Other than ‘corporate crime’, which we will not deal with here, corporate corruption and bribery occurs at 3 levels: (i) political contributions, (ii) domestic corporate bribery, and (iii) foreign payoffs. The Lockheed scandal broke open the last of its levels. In terms of the cash exchanged, it was the component with the biggest budgets of the corporations because the returns were as big as or bigger than the payoffs.

But what I intend to focus in this article is ‘domestic corporate bribery’. I think all discerning citizens of Sri Lanka in all its ethnic and political diversity, agree on its pervasive existence. But a few words on ‘political contributions’ before that. We all know this too; that big corporate entities give ‘donations’ to political parties and political individuals. Not only ‘corporate entities’, but corporate individuals too. And we all know who they are as well. I remember as a kid, listening to the elders, just preceding the General Elections of 1960 (can’t remember whether it was March or July one) talking about a major chicken feed company in Sri Lanka, ‘donating’ a then princely sum of Rs. 50,000/- each to both the UNP of Dudley Senanayake and the SLFP of CP de Silva/Sirima Bandaranaike.

Domestic corporate bribery has been with us since time immemorial. It is nothing new. So much so, it has become a part of the world’s commercial culture. It is extreme in quality and quantity and all-pervasive in extent. It is even accepted in genteel society and in the elegantly suited corporate board rooms as “standard business procedure”. Some even split hairs and speak of the differences between bribery and “lawful commissions”; that ‘commissions’ given and taken during a business deal is legal and not bribery! A very thin hair indeed. The largest corporations the world over are involved. They transcend national and international borders. The deals are in hundreds of millions of US dollars.

Princess Juliana, formerly Queen Juliana of the Netherlands.
Princess Juliana, formerly Queen Juliana of the Netherlands.

From my professional perspective, pharmaceutical corporations are doing it in a massive scale, bribing doctors on a daily basis; and governments, health ministers and officials less regularly, but more substantially. Reports estimate that corruption and payoffs account for as much as six percent of global health expenditure (or more than USD 300 billion).  The magnitude of the corruption in the pharmaceutical industry can be seen by the fact that Pfizer agreed to a civil settlement of $1 billion (One billion!) with the US Department of Justice, following allegations that it illegally promoted their drugs, Bextra, Geodon, Zyvox and Lyrica as reported by Transparency International. The US government also alleged that Pfizer paid kickbacks to healthcare providers (a sanitised term for ‘doctors’) to induce them to prescribe and market these and nine other drugs. The Pfizer settlement (part of a larger $2.3bn settlement covering the activities of a subsidiary) is the largest ever civil fraud settlement agreed with a pharmaceutical company.

I digressed a bit. We need to ask some questions and try to answer them.

WHY do they do it?

(i) To ward off competition and gain advantages over their competitors. It has been analysed that domestic corporate bribery is higher when the competition is greater. “The more prominent and financially successful a corporation becomes, the more likely it is to break the law” says a new study led by a Michigan State University scholar that challenges previous research. They argue that unrealistically high pressure on thriving companies increases the likelihood of illegal behaviour, as the firms are faced with continuously maintaining or improving their performance as against their competitors. The pressure comes from both internal and external sources. Internal pressure includes company officials’ perception of how they’re faring against the competition, while external pressure is driven by heightened investor expectations brought about by strong market performance. Companies are most apt to engage in illegal activity once they become prominent and feel significant public pressure to maintain or improve performance. The research findings also suggest it’s the prospect of poor performance in the future – not the past – that compels firms to break the law, get an advantage and bribe the critical resource.

(ii) To maximise profits. “The drive for profit leads to corporate deviance” is a little-known adage. It comes down a chain of command. Often from principals overseas, to corporate CEOs and section Heads. Depending on the importance of the prospective ‘bribe-client’, the deals are done during all expense paid exclusive corporate dinners (remember Cambridge Analytica?) right down to the wayside grocery stores or medical clinics. Maximising profits is not only driven by simple greed for making more money. It is also, perhaps, driven by an addictive trait of knowing that more profits bring more investment and greater expansion and glory to the company and its owner/CEO. A compulsion towards a false ‘self-actualisation’ – driven by an acquisitive, hedonistic imperative.

MP Namal Rajapaksa was arrested in 2016 on charges of money laundering.
MP Namal Rajapaksa was arrested in 2016 on charges of money laundering.

HOW do they do it? With surreptitious deposits in secret bank accounts in Swiss Banks, in Panama, Bermuda or Virgin Islands; the crude cash under the table; paid vacations to exotic locations; expensive dinners in 5-star hotels; luxury gifts; scholarships for kids in foreign universities; provision of call girls and cases of liquor for Christmas. (It is a well-known ‘secret’ that Joseph Kennedy, father of JFK, ‘bought’ the ‘Boston Globe’ with cases of Haig scotch whisky during JFKs Presidential campaign in 1960.)

WHAT are the mechanisms used? As much as possible, the corporate sector wishes to cover their tracks. They don’t want to be seen, or worse found out, that they are involved in ‘bribe-giving’. Litigation in open court is both very expensive and not good for business. Therefore, many devious means are used to ward of any financial blood hounds or media busy bodies. Local methods used include deceptive false bookkeeping entries, mislabelling accounts as advertising and marketing expenditure or even maintaining phony subsidiary companies that serve two purposes – channelling illicit cash and showing false losses. But if you are big time, you can be safer with off-shore companies in tax havens that do the transactions to secret bank accounts and related money laundering exercises.

That this is happening every day, every hour and illicit cash in the millions are changing hands as I write these lines, is certainly disconcerting and frustrating – if not downright depressing.

So where do we, the average ‘Citizen Pereras’ stand? What can we do? Are we not mere spectators watching big timers playing in the big leagues and small timers playing in the third league or provincial and local government tournaments? No not quite. Is there anything we can do? Yes! Enlightenment! We can change pillows, for instance! Some consolation, indeed!

OK, I agree. This is not a matter for light entertainment or flights of funny fancy.

So let us take heart; let us not lose it. Let us listen to these words falsely attributed to the Buddha:

“In the confrontation between the stream and the rock, the stream always wins; not through strength, but through perseverance.”

susmend2610@gmail.com
Top