Topic: Ethical Conduct in Export Business (Part 2)

How Poor Ethics Plays Out

Here’s how poor ethics can play out, and don’t think for a second these scenarios do not apply to you as a small business exporter! In any company, you or one of your people could be tempted do one of these things to increase or expedite  business:

  • Make a call to get an export delivery sped up, and if it is done, in return you could offer a prestigious club membership to the organization controlling the port, trucking lines, or what have you
  • Make improper payments through your intermediaries (wholesalers or sales agents, for example) to foreign government officials to win business in India, China, and Russia
  • Fail to prevent a sales agent or importing wholesaler from taking the performance-based bonuses you gave them as gifts and secretly using them to make unauthorized payments to governmental officials in Korea
  • Pay routine bribes, referred to as “flowers,” to Argentinian officials in order to obtain lucrative sales contracts with government hospitals
  • Make illicit payments to a US government veterinarian responsible for certifying your American company’s beef products for export sales
  • Accept improper payments made by employees at your UK subsidiary to food industry officials in the United Kingdom

 Ethical Ground Rules

So how do you avoid or handle bribery temptations and disputes in the first place? It gets back to your company culture, vision, and shared values. Ask yourself this:  What’s your gold standard for the way people should behave in pursuit of export business?

Not only should you define this standard, but  you should develop guidelines and procedures around it, implement a training program for all levels of worldwide business to quickly address red-flag temptations, get involved, and have a process in place to investigate and address any reports of misconduct. This is done to stay within the law.

Beyond developing your standard, offer an open two-way dialogue with your employees about your ethical policy, enforce it rigorously with practical conversations having to do with real-world situations, and seek feedback. As Angus Loten of says, “Making employees feel secure enough to raise concerns is a key factor in creating an ethical workplace.” Drive the message home until it sticks. Make sure everyone involved in the company, regardless of where they are located, applies the culture of integrity (trust, credibility, etc.) in discussing both their private and public lives so there are no murky areas. And there should be no exceptions to the policy—not even for star performers!

Who Should Be in Charge of a Gold Standard Code of Ethics?

In “How to Avoid Bribes in International Business,” published by, I write:

Designate someone at the top . . . to be responsible for FCPA compliance and be accountable for the FCPA program. This should be an individual who stays at the pulse of all international activities and is not necessarily top legal counsel (small firms typically don’t have their own in-house legal representation so it shouldn’t be an issue) or the president. The designated person can work in tandem with the top legal inside or outside counsel and president, but he/she should also have the ability to act on his/her own, be capable of making sound moral judgments and demonstrate prudent ethical decisiveness.  The bottom line: Engage someone—maybe it’s you—to take charge of writing guidelines and upholding strict ethical standards throughout the entire organization. You want to investigate any red flags and remediate where necessary. “Applying ‘situation ethics’ in developing countries is the fastest way to destroy a global organization. To sustain their success, companies must follow the same standards of business conduct in Shanghai, Mumbai, Kiev, and Riyadh as in Chicago,” says author, Harvard Business School professor, and former CEO of Medtronic Bill George.ix

My suggestion is to use US federal law, including the FCPA, as a baseline for determining appropriate behavior and as a model for your own country’s value structure, and apply those things to your dealings with all countries. And always, always, explicitly state your ethical guidelines so people know what to expect. Then be consistent with your actions.

There are other ways in the export field to easily, and unintentionally, break the law.

The next sections detail a few areas to be aware of when it comes to getting into ethical trouble and that it is important for the person in charge of your ethics program to write into your guidelines.

 Travel Act

The  Travel Act involves traveling around or using the mail system to violate a law. TA “prohibits traveling between states or countries or using an interstate facility in aid of any crime, and carries a 5-year jail sentence for most offenses.”x To avoid violating the Travel Act, don’t pay bribes to officers or employees of companies you are conducting business with in other countries to obtain or retain  business.

 Money Laundering

Trade-based m oney laundering  consists of concealing and disguising proceeds, usually via wire fraud, false or double-invoicing, or over- or underinvoicing goods that are exported regularly around the world. A good portion of money that has been laundered is moved out of the country through undervalued exports (to move money out) or overvalued exports (to move money in). Buyers and sellers agree on a price and so as long as the price is not unrealistic, the chances that customs officials will detect suspicious activity by bankers, brokers, or law enforcement officials are slim. Hence, the opportunity to earn, move, and store proceeds disguised as legitimate trade becomes a small business exporter’s new alternative remittance system. To avoid money laundering, don’t let financial complacency creep into your financial methods: follow the money trail from beginning to end, match up your exports to imports, and obey the law.

 Mail and Wire Fraud

Mail and wire fraud happens when someone knowingly executes or attempts to execute a scheme via mail or wire communication to defraud another for the purpose of obtaining money or property. To illustrate how this works, let’s say,  for example, you export products to an importing  wholesaler in Vietnam. Per the instructions of the wholesaler, you send money by wire to an off-the-books bank account in the market that the company controls. Out of that account, illegal commissions and kickbacks are paid to local or contiguous country officials but disguised as trade allowances, distribution costs, trade show expenses, refunds, or other seemingly legitimate expenses.

 Tax Violations

Tax violations  can be anything from taking illegal tax deductions for bribes to declaring false sales commissions. When exporting, failing to pay income taxes on the amounts you owe, especially as they pertain to foreign-earned income, can result in severe penalties (costly fines and imprisonment, for example) and other major sacrifices down the road, including reputational consequences. Many governments, that of the United States for one, are increasing taxes and stepping up tax enforcement for exports. The solution: Get the help you need from an international tax accountant, have open and frank conversations about  all your money-making export activities with him, and honestly and willingly report and pay what you owe in taxes. This allows you to manage and anticipate potential tax risks on export activities.

 Certification and Reporting Violations

Producing a  false  certification—whether it be an Electronic Export Information (EEI), an export license, a health certificate, a claim made to the Export-Import Bank for a direct loan or loan guarantee—may give rise to criminal liability for manufacturing a false statement. Don’t do it. You should enforce a zero tolerance policy on any deviation from total truth, transparency, and accuracy. A case in point: In 2007, the Disciplinary Committee of the Royal College of Veterinary Surgeons (RCVS) concluded that an Oxfordshire-based veterinary surgeon should be removed from the RCVS Register on the basis of disgraceful professional conduct. According to the RCVS, “John Williams of the Avonvale Veterinary Practice in Ratley, near Banbury, admitted signing export health certificates for three horses in October 2006 to state that they had received negative test results for the contagious equine metritis organism, before these results were actually available. At the time, Mr Williams was working in his capacity as an Official Veterinarian (OV) for DEFRA.”xi In a nutshell, never  ever provide a false certification (forged documentation, for example), and  never bribe people to provide one either.

The Honest Export Business

So, what is an honest export business? It’s one that uses its moral compass as a guide to be as truthful, accurate, and transparent as possible in its dealings and one that maintains a high level of standards in everything it  does .

Rules and Regulations of Each Country

A subdivision of the US Department of C ommerce’s International Trade Administration, the Trade Compliance Center, in its issuance of policies on bribery (            p ), is the US Government’s key source of monitoring foreign compliance with trade agreements to see that US firms and workers get the maximum benefits from these agreements. The center also provides access to information to help US exporters understand and evaluate opportunities created by trade agreements that the United States has negotiated. Additionally, the  WTO  offers the Trade Policy Reviews  (TPR;          / tp_rep_e.htm ), which are fully searchable market-access reports with information on foreign trade policies and regulations. To ensure you are current, spend some time reviewing these.

Learn More About Bribes and C orruption

The following key resources will help get you up to speed on bribery and corruption issues and  help  you create an ethics policy for your company:

  1. Top Ten Basics of Foreign Corrupt Practices Act Compliance for the Small Legal Department: ( legalresources/publications/topten/SLD-FCPAcfm ). This document provides ten points small legal departments need to be aware of to stay FCPA compliant.
  2. The United States Department of Justice’s information on the Foreign Corrupt Practices Act: ( criminal/fraud/fcpa/ ). The Department of Justice offers several ways to contact the office to get information on the FCPA. The FCPA helps you to protect your business and reputation and to understand what the law and regulation requires of you. It can also help you identify the customers who are a higher risk.
  3. Trade Compliance Center : ( Bribery/index.asp ). Run by the US Department of Commerce’s International Trade Administration, the Trade Compliance Center offers a “Bribery” page on its Web site covering trade agreements between the United States and other countries and international conventions devoted to combating bribery and corruption.
  4. Documents related to the OECD’s Bribery in International

Business conference:  (               bribery/oecdantibriberyconvention.htm ). Held by the Organization of Economic Cooperation and Development, this conference provides cutting-edge measures for governments and businesses to combat corruption. Many of the statements and information provided at the conference are available for download at  the  OECD’s Web site. As the OECD says, “Corruption knows no boundaries, or border …”xii

  1. The FCPA Blog : ( ). Pro business and pro compliance, The Foreign Corrupt Practices Act blog provides free and unrestricted coverage of all things related to the Foreign Corrupt Practices Act enforcement actions. It can help you understand how corruption happens, what it does to people and companies, and how anti-corruption laws and compliance programs work.
  2. Transparency International: (http://www.transparency. org ). Transparency International works together with governments, businesses, and citizens to stop the abuse of power, bribery, and secret deals.


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Till then, you will succeed


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