Is Your Technology Partner Corrupted?

Arun has covered the IT industry in India since the time 80386 was cutting edge, MS DOS was the predominant desktop OSTechnology is supposed to bring in greater transparency to many things: From business processes and commercial transactions to law enforcement and government’s social initiatives. And to a large extent this is true. For instance, we now know how many seats are available—and sometimes even which seats—before booking a bus or train ticket. We can access at the click of a button the various filings made by companies to the different regulators across the world. And we can also find out the price of any stock in any market at a particular time and decide to buy or sell the shares and not blindly trust the broker. And there surely are many such examples.  But, are technology companies themselves above board when it comes to their own business dealings? After all shouldn’t they be the first ones to eat their own dog food or, to use a different phrase, sip their own champagne?  The answer, alas, seems to be no. Not only do technology companies fall short when it comes to avoiding corrupt business practices, they also seem to be attracting a fair bit of attention from the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC), which are targeting tech firms for violations of the Foreign Corrupt Practices Act (FCPA). Out of the 90-odd companies that are the subject of an ongoing and unresolved FCPA-related investigation, about a sixth are tech companies. And these are not some fly-by-night or shady companies, but marquee names like IBM, Oracle, Hewlett Packard, Microsoft, and Motorola Solutions.  These investigations under the FCPA are to do with allegations of corruption and bribery committed by these companies in different parts of the world. For instance, IBM is being probed by the DOJ over corruption allegations in Poland, Argentina, Bangladesh and Ukraine. This is in addition to the charge that IBM had made improper cash payments to government officials in South Korea and China to win government contracts worth $54 million (about Rs 324 crore), which the company had settled with the SEC by paying $10 million (about Rs 60 crore), but without admitting or denying the allegations.  Similarly, Oracle had settled a SEC charge that it paid over $2 million (about Rs 12 crore) to secure contracts from the Indian government by paying a penalty of $2 million, again without admitting or denying the allegations. The case with HP is no different. The US government agencies are investigating HP’s—alleged—corrupt transactions in Russia, Mexico, and the Commonwealth of Independent States dating back to at least 2010, when the DOJ and SEC began looking into transactions in Serbia. What’s ironic is that the corrupt practices are alleged to have happened in different parts of the world—from Asia to Europe to Latin America—the investigations are done by US government entities.  But, why is it that so many technology companies seem to be falling foul of FCPA laws? It is not that they are inherently corrupt in their business practices. So, why is this situation prevailing? Perhaps, the technology sector’s fast pace of business coupled with its reliance on partners—to conduct business transactions and its reliance on the government as a significant customer segment, can to a certain extent, explain the industry’s over-representation in the FCPA landscape.  However, the answer to the woes also lies in developing a better understanding of the current FCPA enforcement environment and developing a strategy for managing the specific risks their business faces. For instance, companies in the financial services field have always been highly aware of the FCPA and other such regulations and they have taken great pains to ensure compliance, thus avoiding allegations of bribery at all cost, though they may be up to some other financial skulduggery.  Besides having a strategy, tech companies need to make sure that strict adherence to the FCPA and other similar laws are non-negotiable and have to put in place processes to ensure that. These would include, according to a resource guide on FCPA by DOJ and SEC, a commitment from senior management and a clearly articulated policy against corruption, an effective code of conduct and compliance policy, regular training for both new and current employees, disciplinary measures against employees who violate the policy (perhaps a zero tolerance policy against corruption) and incentives for employees who follow it, and regular due diligence on third parties and the transactions with them.  It’s perhaps time that these tech companies dusted off the guide and put into practice the recommendations.