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« World Bank debars China construction companies, Romania medical equipment supplier | Main | Elisabeth Danon on the globalization of deferred prosecution agreements »
Wednesday
May102017

Is corporate bribery more like a car accident or an airplane crash?

Nearly 100 percent of the FCPA Blog's readers have experienced traveling in a car when it broke down. But how many have experienced a commercial airplane breakdown while in flight? Almost zero percent.

Why the difference? The answer has everything to do with federal compliance policy.

We might like to think that commercial aviation is 99.999 percent safe. But if it were only this safe, we’d see over 2,000 deaths per day from airliner mishaps. In fact, air travel is 99.9999999 precent safe. Why? One of the reasons, in effect, is federally mandated compliance. Airline companies are required by law to invest very heavily in training personnel and monitoring operational systems. Governments make these requirements so high, despite their extraordinary expense, because the consequences of an operational failure are catastrophic.

With automobiles, by contrast, we require little more than introductory driver training and cursory periodic vehicle inspections. But we certainly could do much better. The co-author of this post is a former Marine Corps pilot and three-time winner of the Baja 1000. He knows first-hand how to design and maintain vehicles that, even in the most grueling conditions, will almost never break down. If we all drove such cars, the highways would certainly be much safer.

But the vehicles alone would cost around half a million dollars each. And that’s just the start-up costs: we’d have to train people to properly drive them, and we’d have maintenance costs too. Instead, we tolerate countless accidents and traffic jams, not to mention the roughly 1.25 million automobile-related deaths worldwide per year.

There is a reason governments do not require aviation-type compliance for automobile driving. We have determined that although the likelihood of a breakdown is high, its consequences just aren’t sufficiently severe to justify the costs. And those costs are two-fold: the private costs of maintaining aviation-type compliance, and the public costs of lost transportation when those private costs forced most of us out of driving altogether. All but the very richest would be taking the bus (and the bus would be more expensive too!).

Analogize to anti-corruption compliance. Is accepting some corruption sensible because the marginal costs of trying to eradicate it at every level just become too high? Imagine the cost of detecting and prosecuting the ubiquitous corruption that exists in the bureaucracies of less developed countries. Anti-corruption compliance programs that were 99.9999999 percent effective would put most companies out of business; that seems self-defeating. But should we do better than modern automotive compliance?

We could look at transnational corruption in two basic ways: like an absolutist who believes this is a long-term fight for a human right to live without being abused by those whom we’ve trusted to govern, and requiring the highest conceivable compliance costs; or like a utilitarian, who believes in balancing the costs of preventing bribery against the value of allowing companies to continue providing goods and services even in high-risk environments.

Ultimately, our federally mandated compliance requirements depend on three factors: the assessed harms of bribery, the costs of preventing it, and the value of keeping companies in business.

This, in turn, has implications for numerous areas of compliance policy. How high should we set the bar for a reasonable compliance program?  How often would a truly compliant company, which had in good faith implemented gold-standard programs, experience noncompliant events? How quickly do we assume that a noncompliant event is evidence of an inadequate compliance program? Ultimately, what measures should we take to incentivize compliance, and punish noncompliance?

Anti-bribery policy thus ultimately rests on our answer to this question: do we think of bribery as aviation serious, or automotive serious? Or perhaps something in between?

_________

Kent Kroeker is a former Marine Corps pilot, professional race car driver, mountain climber and international lecturer on risk management in hostile environments. 

Andy Spalding is a lecturer at the International Anti-Corruption Academy, Professor at the University of Richmond School of Law, and Senior Editor of the FCPA Blog.

Reader Comments (1)

Bribery and corruption are two major contributors to economic development and also involve most on positions of power in mast spheres be it Government or corporate or NGIs or charities or religions.
Small amounts generally involve small persons who get high penalties but where amounts are large the suspects end up with minimal penalties as they may be white collars who escape shame. Recent cases of big 4 accounting firms penalized may be evidence enough.
Gursharan Singh CMIIA Malaysia
May 16, 2017 | Unregistered CommenterGursharan Singh
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