Bribery Charges Against HP, Oracle and IBM Validate Gov’t Regulation

You generally don’t have to walk very far in the United States to hear someone say that government regulation is stifling the e

conomy. Cut taxes, get rid of those damn silly rules and everyone will be millionaires!

America actually got rid of a lot of those silly rules, and most Americans wound up a lot poorer than they were when the rules were in effect.

Sure, lots of useless regulations exist, but some of them actually do good. For example there’s the Foreign Corrupt Practices Act (FCPA).

Right now HP, Oracle and IBM are being investigated by Polish authorities for bribery allegations concerning one Andrzej Machnacz, who served as senior technology officer for Poland’s national police and, later, the nation’s Interior Ministry. As ProPublica reports, prosecutors say Mr. Machnacz:

“received more than a $1 million in cash and brand-name gifts in exchange for steering government contracts to the three American companies, as well as to a Polish company called Netline. According to prosecutors, the gifts included a BMW motorcycle, a Nissan SUV, a Harmon Kardon home theater, a Sony 50 inch television, 12 HP laptops, several iPads and a refrigerator.”

In exchange for all this Mr. Machnacz allegedly bought systems that were far more expensive and sophisticated than the country needed. From the ProPublica report:

“Because of the rapid pace of change in the technology field, the technology Machnacz had purchased still needed to be updated every several years. It was like we built brand new highways and rode horse carts on them,” the former Netline executive said. “It was money wasting.”

To be clear, all three companies deny any wrongdoing and say they are cooperating with Polish authorities. More from the report:

“IBM went some lengths to tout its successful collaboration with Machnacz, featuring a Polish project in a glossy 2009 brochure that spotlighted 16 innovative technology efforts around the world. The brochure included a glowing account of how IBM had worked with Machnacz to create a network of handheld computers that gave Poland’s police instant access to a vast array of data. With a few key strokes, cops could learn whether they were dealing with a stolen car or a wanted man, the brochure said.”

That could wind up being a very expensive brochure. So far the three companies do not appear to have been contacted by U.S. authorities. That will probably change in the near future, though.

Strange as it may seem, the Department of Justice and the Securities Exchange Commission have been going after a lot of companies under the FCPA. The Wall Street Journal says dozens of businesses are being investigated:

“A new whistleblower program at the SEC, established in the summer of 2010 with the passage of Dodd-Frank, has added fuel to the government’s FCPA enforcement efforts. The program provides cash incentives for employees to blow the whistle on securities violations, including breaches of the FCPA. If the SEC gets involved and finds wrongdoing after a whistleblower complaint, a tipster stands to gain as much as 30 percent of any monetary sanction the agency recovers. The agency’s whistleblower office, which often works in conjunction with the Justice Department, reported receiving 115 tips alleging violations of the FCPA in the fiscal year that ended in September 2012.”

This is not the first time the SEC has had a whistleblower program. The old program was dismantled well before the financial crisis. I learned this from Bill Black, who helped put hundreds of bankers in jail following the savings and loan debacle of the 1980s. In a column earlier this week Black pointed out the synopsis of another recent article in the WSJ:

“The SEC is filing significantly fewer civil fraud cases this year, as its efforts to punish misconduct related to the financial crisis start to ebb.”

Black then goes on to note that it is hard to believe the SEC is filing fewer such cases now:

“There were zero prosecutions of elite bankers for the accounting control frauds that drove the financial crisis. And there were zero civil or enforcement cases by the SEC against the elite officers who grew wealthy through the frauds that drove the financial crisis that actually left the officers suffering a net loss from their frauds and required them to admit their frauds.”

Vigorous government regulation is necessary for markets to function properly. Without it you get financial crises similar to the one America is currently trying to recover from.