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ENTERING GLOBAL MARKETS

The Truth About Bribery and Doing Foreign Business

The probe into Walmart's alleged bribery of public officials is interesting, but perhaps unsurprising. In Mexico, "mordida" is a way of life. Can you do business internationally and stick to all your morals?

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Last week, Walmart got caught with its hand in the cookie jar.

An investigative report by The New York Times uncovered a web of extortion and bribery that allegedly permeated the company's Mexican operation. In the report, the newspaper alleges that Walmart executives, using "gestores," or Mexican middleman, bribed bureaucrats in order to expedite the acquisition of building permits that enabled the company to scale rapidly. The alleged bribes totaled more than $8 million over several years.

Violations of the Foreign Corrupt Practices Act, the 1977 law enacted to prevent foreign corruption, is a serious offense. If the executives are convicted, each count is punishable by a maximum of five years in prison.

The story reverberated through all the major media outlets in the United States for the past week. But in Mexico, the story was received with tepid shrug. After all, the concept of "mordida," which translates roughly to "a little bite," has existed for decades, if not centuries, in Mexico.

News of Walmart's scandal "didn't surprise me in the least," says Lee Iwan, an American expatriate living in Mexico who helps foreign businesses expand to Mexico. "Any kind of big company that's looking for land permission to get their business set up-;the government is going to have their hands out. Walmart definitely isn't the only company doing it."

In 2006, a poll conducted by CEI Consulting and Research showed that 87 percent of Mexicans will have paid some sort of bribe by the time they die.

Whether or not Walmart knowingly engaged in illicit activity is almost beside the point. Corruption and bribery, in business and in personal life, is a fate accepted by most Mexicans-;as well as many foreign entrepreneurs. According to Transparency International's 2011 Corruption Perceptions Index, Mexico scored a 3 out of 10-;with 0 being most corrupt, 10 being least corrupt. Of 182 countries surveyed, Mexico placed roughly between Egypt at Burkino Faso. In 2006, a poll conducted by CEI Consulting and Research showed that 87 percent of Mexicans will have paid some sort of bribe by the time they die.

Although mordida has existed for decades, there have been attempts to curb its impact. In 1982, president Miguel de la Madrid was elected an anti-corruption platform he called "moral renovation."

President Carlos Salinas de Gortari, elected six years later, established hotlines dedicated to handling bribery-related grievances. He also printed seven million booklets entitled "Fair Treatment Is Your Right," guidelines on how citizens should react to a request for a bribe.  

The Significant Implications for Business From Abroad

Clearly, mordida is still enmeshed in daily Mexican life. Mexico's current president, Felipe Calderon, straddles a complicated line. Cracking down on corruption means getting rid of mordida; but when mordida is so entwined into daily business practices, where do you begin?

On the same token, mordida complicates matters for business owners, especially foreign entrepreneurs, looking to expand into Mexico.

Just last year, two executives at Lindsey Manufacturing, a private company based in California, were accused-;and convicted-;of bribing Mexican officials at the Mexican state-owned utility Comisión Federal de Electricidad, or CFE.  (Among the prosecution's evidence was a check for nearly $300,000, which, they alleged, was used to purchase a brand new Ferrarri.)

The executives maintained their innocence, and indeed, the case was later overturned on the grounds of prosecutorial misconduct. But the trial illustrated the extent to which the Department of Justice has begun to actively seeking out corruption overseas not just from major, multi-national players, but smaller firms as well.

"Today's guilty verdicts are an important milestone in our Foreign Corrupt Practices Act enforcement efforts," said Assistant Attorney General Lanny A. Breuer in a statement at the time. "Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last."

The realities of doing business overseas are often much more complicated when dealing with widespread bureaucracy and limited accountability.

"I remember going over the FCPA," in college, says Elizabeth Helsley, an American consultant living in Mexico. "Our professor said that this is a law that's very nice in theory, but for those of you who are doing business anywhere else in the world, you're going to have a tough time complying with it."

Real Tole of the Mordida

Jose Amate Perez, who grew up in Oakland, moved to Ensenada, Mexico, in 1985. Ensanada, a coastal city of about 300,000 people 200 miles south of Los Angeles, is a popular destination for snowbirds and American retirees. Temperatures rarely dip below 65 degrees-;or above 80.

Perez, who helps small and medium-sized American enterprises expanded to Mexico, admits to helping his business clients pay mordida throughout the 1980s and early 1990s. He's blunt about it, too-;on invoices, he says, he'd include one a line item titled "Pay as you go public service fee."

"That was the mordida," he says with a laugh. "That's what you did. You paid as you went along. That was the way it was. I was paying mordida left and right. Mordida is paid to move your shit through the system."

But in the mid-1990s, Perez had a change of heart. He says he got fed up with paying bribes, and, encouraged by president Salinas de Gortari's campaign to end mordida, Perez stopped, cold turkey. But it wasn't easy.

"It's like the mafia. Once you start paying them, they expect it all the time."
-;Jose Amante Perez, business owner, Ensenada, Mexico

"It's like the mafia," he says. "Once you start paying them, they expect it all the time."

Complexities and Shakedowns, Even in the Moral High-Ground

Lee Iwan, a native of Chicago, says he's never paid a bribe since he moved to Mexico 18 years ago and began helping overseas clients expand internationally.

"I know people who have never paid bribes," he says. "It is part of daily life but it is something you can avoid. We use the term bribery, and the hairs at the back of my neck stand up. But at the end of the day, that's what it is."

While the FCPA, along with Mexican officials, have launched earnest campaigns to fight corruption, the reality is that foreign business owners will have to decide themselves if they're willing to pay mordida to expedite the acquisition of permits or licenses in order to operate. It certainly makes it easier for business owners to pay up, and it's common practice. But is it ethical? Is it moral?

"People that have the power to say yes or no," says Iwan.

But it's complicated. Recently, one of Perez's clients-;an American-;was stopped by an immigration official. According to a somewhat arbitrary Mexican law, all foreigners who set up a corporation in Mexico must put a sign on their office door that indicates the corporation's name. According to Perez, the immigration officer told his client that he was liable to revoke the American's Visa because no sign was visible. His client's response? He paid the official $200, and went about his day.

"I was pissed off. It was a shakedown," he says. "If you don't have someone with you who knows the system and won't put up with that bullshit, you're really vulnerable as a foreigner."

IMAGE: Nathan Rupert/Flickr
Last updated: Apr 27, 2012




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