It’s a Mistake To Think America is Helping China Fight Corruption

Recently, an American bribery scandal has been a hot topic among Chinese citizens. It’s been discovered that an employee of the American self-adhesive giant, Avery Dennison Corporation, bribed a Chinese government official. Many people feel uncomfortable about the investigation into this case because it’s not being done by the Chinese government, but by the American government.

Avery Dennison has been fined $200,000 and forced to put a halt to its illegal activities. Actually, this is not the first time an American company has bribed Chinese officials. In April 2004, American-based multinational telecommunication provider, Lucent Technologies, was fined $2.5 million after high level managers vacationed with Chinese government officials in America. In May 2005, the American Diagnostic Products Corporation (DPC) was fined $4.79 million after it was discovered that they bribed Chinese hospitals in order to get sales contracts. The institution responsible for fining these companies is the American Securities and Exchange Commission (SEC), established in 1977 by the United Sates Foreign Corrupt Practices Act.

Before this, U.S. law did not prohibit American companies from bribing foreign officials and there was no threat that companies would be publicly investigated for doing so. Therefore, it became quite common for American companies to use bribes as a bargaining tool in foreign countries. After the U.S. Foreign Corrupt Practices Act was passed, U.S. Federal prosecutors decided to focus their energy on the public’s concern about bribery overseas.

At the time, the SEC did not need to look far to begin investigations because approximately 100 companies – of which, many are part of the Fortune 500 – already admitted to the SEC that, in the past, they bribed foreign officials. However, prosecutors needed to make a strong case so they decided to start with a very well-known company. After almost two years, the prosecution finally indicted American aerospace manufacturer, McDonnell Douglas (MD), in the first overseas bribery case.

In 1974, Pakistan International Airways was interested in buying several wide-bodied jet airliners. Even though MD’s DC-10 passenger airliners were very competitively priced, South Asia had always been Boeing’s territory. MD decided to use “special measures” to get this order and open up Asia’s airplane market. Every Pakistani airline was owned nationally at the time, so the decision to buy planes generally came from high government officials. MD made deals with two important players – one was President Bhutto’s cousin, Ashiq Ali Bhutto; the other was the president’s chief of staff. Communicating via middlemen, the two parties agreed that for every plane Pakistani International Airways purchased, they would receive $500,000. The money would be delivered by a liaison to Ashiq Ali Bhutto. In 1976, Pakistan International Airways bought four MD planes, spending over $10 million. MD then gave $2 million in “advantage costs” through the middleman to Ashiq Ali Bhutto.

In 1979, prosecutors indicted four high level officials from McDonnell Douglas. At a plea bargain on 9 September, 1981, MD admitted in court to its crimes of deception and making false statements, and agreed to pay $550,000 in criminal penalties in addition to $1.2 million in civil penalties. Prosecutors then dropped the charges against the four officials.

Many people want to fight corruption in government and have a tendency to be more concerned with the officials receiving the bribes than those giving them. This raises the question: Why would America truly want to help China fight corruption? In reality, it seems that they don’t. The U.S. intervenes not to build honest relations in foreign countries, but to promote fair competition between American companies. The main body of the U.S. Foreign Corrupt Practices Act requires that SEC-regulated companies build a series of perfect financial and accounting systems and follow regulations about paying foreign government officials in order to guarantee the propriety of competitive behavior. The act prohibits giving payments to foreign officials if the payments enable a company to increase profits unfairly; however, the act actually does not prohibit giving money to government officials for “regular” government behavior. Furthermore, it does not prohibit paying kickbacks or tips that are allowed by the country’s legal system. In the MD bribery indictment, the U.S. federal prosecutor clarified the act further, saying that the core of the indictment was not that MD gave bribes to win contracts with Pakistan International Airways, but that this behavior was improperly reported and explained. The duplicitous quality of the payments was not proper “competitive behavior.” From this, it is clear that the main purpose of America’s clampdown on overseas bribery is to prohibit improper market competition, not to fight corruption.

Needless to say, China still has a long way to go for its society to be wholly grounded in the rule of law. In some areas and industries, bribery or “gift giving” has become common place. There’s almost a almost hidden rule now that those who bribe will benefit, and those who don’t will suffer losses. Companies may have to give bribes just to keep up with their competitors. Through all of this, China’s rule of law has been tarnished and its market economy warped. Some foreign companies that observe the official code of conduct in their own countries soon learn this way of doing business in China and take to heart the old adage, “when in Rome, do as the Romans do.” Indeed, people’s behavior is influenced by environment and proper behavior can only be fostered in a society firmly rooted in the rule of law. If one is to say that through 30 years of hard work, China has already completed its transformation from a planned economy to a market economy, then China’s struggle for the next 30 years is to transform its improper competition market to one based on proper and fair competition. In short, China must succeed in building an economy founded on the rule of law.