Bribes, Corruption, and Ethics

This article and interview looks at the ethics of paying bribes.

At Harvard Business School, one of professor Rafael Di Tella's areas of study is how political corruption and common crime can be controlled in a variety of contexts. So it was only natural that Di Tella would be asked to comment when the editors of Harvard Business Review created a fictional case around the topic of extortion.

"The Shakedown" looks at the conflicts faced by the owner of a software development center in Kiev. Pavlo Zhuk, the U.S.-based co-owner, is notified by his partner that their Kiev office has been visited by Ukraine Tax Authority agents demanding payment of late taxes. They have been given one week to pay. Zhuk himself was involved in paying bribes to expedite the establishment of phone lines for their business, shortening the process to a few weeks instead of years, and has even admitted he is amenable to paying "so-called facilitation payments to get bureaucrats to do their jobs, especially if that's what everyone else does." However, the promise of "serious consequences" if payment isn't made sounds more like extortion. Zhuk doesn't want to shutter the business, but also wants to act as ethically as possible.

It seems straightforward. Most people would say don't pay a bribe. It is illegal to pay one according to American law. But, in many countries, it is a standard acceptable practice. We talked about this in business school, and were told that American companies get around this by hiring local "consultants" in each area who help get things done (i.e. who pay the bribes for them). I keep hoping that globalization will help standardize business practices, and that problems like this will eventually go away.

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