Lotus Hospitality, a U.S. publicly-owned company doing business in China, deals with state-owned enterprises in a variety of countries. It is common for Chinese companies to pay custom officials in these countries amounts ranging from $100-$500 to enable their goods to be off-loaded at the receiving docks in each country. To show its appreciation for the many years of doing business in these countries, Lotus invited 50 government officials and employees of state-owned enterprises to attend the Olympic Games in China at the company's expense, and ultimately paid for such guests as well as some spouses and others who attended along with them. Sponsored guests were primarily from countries in Africa and Asia, and they enjoyed three- and four-day hospitality packages that included event

Question

tickets, luxury hotel accommodations, and sightseeing excursions valued at $12,000 to $16,000 per package. In return for the generosity of Lotus Hospitality, the state-owned enterprises promised to give preference to Chinese companies when multi-million dollar contracts are awarded.Describe the nature of these payments under the Foreign Corrupt Practices Act (FCPA) and assess their legality. What are the potential ethical issues of allowing certain types of payments under the Act?

What will be an ideal response?

Answer 1

The payments of $100-$500 to expedite off-loading of the goods are facilitating payments because they are made to expedite a process, but one that should occur as a normal course of business except for the payment. It is common in many countries to have to "grease the wheels" to get things done that should be done anyway because it is part of the acting officials routine duties.

The sponsoring of guests from state-owned enterprises to attend the Olympics in China are bribe payments to win lucrative contracts to be awarded to Chinese businesses as a return favor. It is a "quid pro quo," or something that is given to someone or done for someone in return for something given to or done for someone else. The covering of expenses for the guests is a payment to be awarded the future contracts so they are made to induce a behavior that otherwise should not necessarily be done until and unless a competitive bidding process is allowed to play out.

Facilitating payments involve a set of questionable behaviors because:
The custom official has an incentive not to carry out her duties of resolving the issues entrusted to her as swiftly or as efficiently as is to be expected of a conscientious public servant. 
The Chinese companies are entitled to the service, and have it delivered on a timely basis. 
The official may ask for larger and larger payments over time especially if foreign suppliers agree to make these payments readily. 
Facilitating payments may represent a step towards a culture of corruption in society above all if instances of easy wealth, legal impunity and willingness to break the law proliferate. 
The Chinese companies may take the initiative to offer other officials facilitating payments believing it is part of the cost of doing business in these countries even if such payments are not requested. 
Facilitating payments lead to inefficiencies in the providing of services to Chinese and other companies that play the game. 
Shareholders are not aware of the payments generally speaking and probably would not approve of the use of the company's resources in that way. 
If the use of facilitating payments becomes common practice, they have a corrosive effect on people's trust in legal, administrative and judicial procedures. 
Ethical legalism is at play in this case. Facilitating payments are legal but not very ethical. Just imagine if every company had to make such payments to get things done (They do in some countries). The level playing field for multinationals is lost unless every company makes the payments and then the requested payments would likely increase in amount. It becomes a snowball effect and once a company agrees to such payments, it has begun the slide down the ethical slippery slope.

Facilitating payments have a pernicious effect on the working of the requesting government administration because all too often they are the slippery slope to more serious forms of corruption. They impose additional costs on companies and citizens and in the long run threaten the ethical foundations of organizations.