Skip to: Content
Skip to: Site Navigation
Skip to: Search

Investor alert: Bribery risks are rising

Despite government crackdowns and shareholder demands for greater transparency, the risks of bribery will increase as multinational corporations push further into emerging markets.

By G. Jeffrey MacDonaldCorrespondent / August 1, 2012

A pedestrian stands by a Wal-Mart store in Mexico City. The US and Mexico, as well as Wal-Mart itself, are investigating allegations that the retailing giant's Mexican unit paid millions of dollars in bribes to get building permits and other favors.

Edgard Garrido/Reuters/File


It's getting tougher for companies to get away with bribery these days. Shareholders are demanding greater transparency in business dealings. Governments are cracking down.

Skip to next paragraph

But that doesn't mean the practice is disappearing. As risky as the practice is, the temptation to grease the wheels of corporate deals with cash and other under-the-table gifts is growing as companies push further into underde-veloped nations and competition heats up. That means greater risk for investors in companies with international dealings.

"It's a reflection of the desire to expand into territories that are not highly regulated," says David Holley, senior managing director at Kroll Advisory Solutions, a risk-mitigation company based in New York. "There are opportunities in places where there are less stringent rules when it comes to [using bribes] to get things done."

Bribery can be costly, both in dollars and reputations, for companies that get caught. For Siemens, two years of investigations ended in 2008 when the company paid $1.6 billion to settle bribery charges brought by Germany and the United States in connection with a $1 billion contract to produce national identity cards for Argentina, among other international contracts. Siemens ended up forfeiting hundreds of millions in profits. Eight of its former executives face charges in the US.

The damage begins long before cases come to court. The US and Mexico, as well as Wal-Mart, are investigating allegations that the retailing giant's Mexican unit paid millions of dollars in bribes to get building permits and other favors. Such investigations consume company resources, spark shareholder lawsuits, and create a public-relations mess.

"Wal-Mart is a good corporate citizen … and yet look at the damage to its reputation," says Karen Egger, senior program manager for Transparency International, a nonprofit anticorruption group based in Berlin. "[We hope] that will be a good lesson."

Multinational corporations are making progress but need to do more to battle corruption, a new Transparency International report finds. And the risks of bribery are rising. Half of the 139 multinationals Kroll surveyed in late 2011 and early 2012 said their risk exposure would go up in coming years; only 8 percent expected it to fall.

Although bribery is risky, refusing to bribe someone carries risks, too. In developing nations, locals often expect compensation for moving things along. Payment to corrupt government officials can open doors to significant deals, expedited permitting, and speedy access to essential infrastructure such as ports.


Read Comments

View reader comments | Comment on this story

  • Weekly review of global news and ideas
  • Balanced, insightful and trustworthy
  • Subscribe in print or digital

Special Offer


Doing Good


What happens when ordinary people decide to pay it forward? Extraordinary change...

Danny Bent poses at the starting line of the Boston Marathon in Hopkinton, Mass.

After the Boston Marathon bombings, Danny Bent took on a cross-country challenge

The athlete-adventurer co-founded a relay run called One Run for Boston that started in Los Angeles and ended at the marathon finish line to raise funds for victims.

Become a fan! Follow us! Google+ YouTube See our feeds!