Business_Ethics

Profitability of Ethical Business 1 Running Head: PROFITABILITY OF ETHICAL BUSINESS PRACTICES IN LATIN AMERICA Profitability of Ethical Business Practices in Latin America Bryon E. Eichelberger Wayland Baptist University Profitability of Ethical Business 2 Abstract Conducting business outside the United States can be very profitable for many US companies. With a weaker Peso, reduced labor cost and ideal transportation benefits due to rising fuel cost, Latin America is very appealing; however there is risk to be considered. Cultural differences can place companies into situations that they are unfamiliar with. Not all countries uphold the same ethical standard as the United States and the fines for breaking the law can quickly reduce profits. Overall, attention to corruption and related practices of companies and countries is on the rise. Consumers are known to alter their buying activities based on their concept or knowledge of the corruptness of a company. Profitability of Ethical Business 3 Profitability of Ethical Business Practices in Latin America U.S. companies have the benefit of such a large domestic market that many have been relatively late to enter international markets (Magliona, 2005, para.1). The fear of doing business abroad also has led American companies to underestimate the opportunities in regions such as Latin America. Soaring fuel prices make it more expensive to ship goods from Asia and more costly to fly executives to and from meetings overseas. Plus, the weaker dollar and rising inflation in China have pushed up manufacturing costs there, while congestion at the major Southern California ports can mean delays for importers who don't plan ahead. Many U.S. companies have had great success operating in Latin America. It didn't take Microsoft long before a majority of its revenues came from outside the United States, and Wal-Mart has certainly moved aggressively into foreign markets such as Latin America (Magliona, 2005, para.15). There are great opportunities, especially with burgeoning free trade between the U.S. and that region, but don't lose sight of legal and other pitfalls. Profitability of Ethical Business 4 Weak and partisan government institutions, along with the absence of checks and balances, transparency, and accountability, have provided numerous opportunities for corruption. The public’s view of business has never been very high. Evidence suggests that many citizens see business ethics as a contradiction in term and that there is only a fine line between a business executive and a crook (Carrol, 2006, p.172). The lack of public pressure from an ideologically biased or muzzled press has made Latin America an attractive and safe place for corruption (Lescure, 2002, para.4). A September 2008 survey on corruption conducted by Miller & Chevalier Chartered found that business people operating in the U.S. are not significantly concerned on a day-to-day basis about corruption affecting their businesses, perhaps as a result of robust U.S. enforcement (Tillen, 2008, para.1). The practice of bribery appears to be pervasive across many parts of the world. It is well known that the United States, unlike other countries, has to contend with the 1977 Foreign Corrupt Practices Act (FCPA) that attempts to address the issue of bribery for U.S. companies. The FCPA was structured to help U.S. companies understand what bribery is and what is or is not acceptable Profitability of Ethical Business 5 behavior at home and in other countries. For example, some payments are acceptable if they do not violate local laws. Bribes given to influence political decisions are banned - but bribes to facilitate ongoing business activities are not (Beed, 2010, p.1). Unlike the United States where domestic anti-bribery laws are routinely prosecuted and the Foreign Corrupt Practices Act (FCPA) is aggressively enforced to combat foreign bribery, business executives in Latin America express cynicism regarding anti-corruption laws in the region (Tillen, 2008, para.3). Professor of business ethics Manuel Velasquez doubts that, in the absence of accepted enforcement agencies, any multinational corporation will suffer for violating rules that restrict business for the sake of common good. He argues that since any business that tried to conform to moral rules in the absence of enforcement would cease to be competitive (Newton, 2006, p.316). As the U.S. Government continues to aggressively enforce the FCPA against non-U.S. companies and individuals, awareness of the FCPA is likely to increase in Latin America.  These developments will lead more companies doing business in Latin America to adopt compliance programs (Tillen, 2008, para.7).  They will also lead to Profitability of Ethical Business 6 greater cooperation between U.S. companies and Latin American countries when conducting due diligence.  Such developments can work to level the playing field throughout the Hemisphere regarding business risks related to corruption. The criminal penalties include fines and imprisonment. Under the anti-bribery provisions, an entity faces a maximum criminal fine of $2,000,000 per offence and individuals who willfully violate these provisions face a maximum criminal fine of $250,000 per offense, imprisonment of up to five years, or both. An entity that willfully violates the accounting provisions is subject to a criminal fine of up to $25,000,000, while an individual may be criminally fined up to $5,000,000, imprisoned up to twenty years, or both. United States v. Willbros Group, Inc., and Willbros Int’l, Inc. (S.D. Tex. 2008) NATURE OF THE BUSINESS Procurement of contracts for oil and gas construction projects by Willbros International Inc. (“Willbros International”), a wholly-owned subsidiary of Willbros Group, Inc. (“Willbros Group”), both Panama corporations. PAYMENT 1. Amount of Value Approximately$10.8 million. 2. Amount of business related to the payment Approximately $390 million. ENFORCEMENT On May 14, 2008, Willbros Group and Willbros International entered into a three year deferred Profitability of Ethical Business 7 prosecution agreement. Willbros Group and Willbros International agreed, jointly and severally, to a fine of $22,000,000 payable in four installments. United States v. Latin Node, Inc. (S.D. Fla. 2009)36 NATURE OF BUSINESS Interconnection agreements with state-owned telecommunications companies in Honduras and Yemen by Latin Node, Inc., (“Latin Node”), a privately held U.S. corporation acquired in 2007 by eLandia International Inc. (“eLandia”), a U.S. corporation. Latin Node provided telecommunications services using Internet protocol technology. PAYMENT 1. Amount of the value $2,250,543. ENFORCEMENT On March 23, 2009, the DOJ filed charges against Latin Node. On April 3, 2009, Latin Node pleaded guilty to one count of violating the anti-bribery provisions of the FCPA and agreed to pay a $2,000,000 fine. United States v. Crawford Enterprises, Inc., Donald G. Crawford, William E. Hall, Mario S. Gonzalez, Ricardo G. Beltran, Andres I. Garcia, George S. McLean, Luis A. Uriarte, Al L. Eyster, James R. Smith (S.D. Tex. 1982) NATURE OF THE BUSINESS Sale of gas compression systems to Petroleos Mexicanos (“Pemex”), the national oil company of Mexico, by Crawford Enterprises, Inc. (“Crawford”), a Texas corporation and a domestic concern.  PAYMENT 1. Amount of the value 4.5% of each Pemex purchase order in which Crawford was involved. Total of $9.9 million. 2. Amount of business related to the payment Crawford, and other companies involved, received $225 million in purchase orders from Pemex. ENFORCEMENT 1. Amount of the fine In a 49 count indictment, Crawford and nine individuals were charged with conspiracy and multiple counts of bribery of foreign officials. Crawford pled no contest and was fined $3,450,000 (Shearman & Sterling, 2010). Profitability of Ethical Business 8 References Beed, Teresa K. (2010), University of Montana. Bribery And The U.S. Foreign Corrupt Practices Act: Do They Hinder Global Competition' Carroll, Archie B. (2006). Business and Society. Ethics and Stakeholder Management. Lescure, Michelle (2002, Apr). Speaking Out Against Corruption. Retrieved August 13, 2010, from http://www.worldpress.org/Americas/521.cfm Magliona, Claudio (2005, Nov). Doing business in Latin America: opportunities and pitfalls. Retrieved August 13, 2010, from http://www.thefreelibrary.com/Doing+business+ in+Latin+America%3A+opportunities+and+pitfalls- a0139170970 Newton, Lisa H. (2006). Taking Sides. Clashing Views in Business Ethics and Society. Shearman & Sterling (2010), Latin Business Chronicle. FCPA in Latin America: Case Studies. Retrieved August 13, 2010, from http://www.latinbusinesschronicle.com/app/article. aspx'id=4308 Profitability of Ethical Business 9 Tillen, James G. (2008, Dec). Comparison of Effects of Corruption on Business in the United States and Latin America. Retrieved August 13, 2010, from http://www.roubini.com/latam-monitor/254781/ comparison_of_effects_of_corruption_on_business_in _the_united_states_and_latin_america