Halliburton, Bribes, and Foreign Business Ventures

This article about how the French might indict Cheney for Nigerian bribes has caused me to give some thought to the bribery problem in general. In the Halliburton case, here is what happened.

According to accounts in the French press, Judge van Ruymbeke believes that some or all of $180 million in so-called secret "retrocommissions" paid by Halliburton and Technip were, in fact, bribes given to Nigerian officials and others to grease the wheels for the refinery's construction. These reports say van Ruymbeke has fingered as the bagman in the operation a 55-year-old London lawyer, Jeffrey Tesler, who has worked for Halliburton for some thirty years. It was Tesler who was paid the $180 million as a "commercial consultant" through a Gibraltar-based front company he set up called TriStar. TriStar, in turn, got the money from a consortium set up for the Nigeria deal by Halliburton and Technip and registered in Madeira, the Portuguese offshore island where taxes don't apply. According to Agence France-Presse, a former top Technip official, Georges Krammer, has testified that the Madeira-based consortium was a "slush fund" controlled by Halliburton–through its subsidiary Kellogg Brown & Root–and Technip. Krammer, who is cooperating with the investigation, also swore that Tesler was imposed as the intermediary by Halliburton over the objections of Technip.

I won't pass judgement on whether or not this is right or wrong for one simple reason – bribery is an accepted practice in many countries. This article, for instance, points out that:

"Bribery is a common way of doing business in a lot of places," says Steve Veltkamp, president of BizShop, an import/export business and consulting service in Port Angeles, Washington. Veltkamp, 47, notes that bribery is most common in underdeveloped countries. "Where basic jobs don't pay well, it's tempting for an official to 'supplement' income that way," says Veltkamp. "It's deeply ingrained."

This is a very important point. Culutural norms have a huge impact on doing international business. For instance, in Japan business cards are very important. I have been told that when doing business with the Japanese, receive a business card with both hands, read it, then put it away. Here in the U.S. I would probably just jam in my pocket for later, but in Japan that is disrespectful. In the same way, bribes in foreign countries are a normal and acceptable part of business. And anyway, what is the difference between a culturally acceptable bribe to an official and a "bribe" to a government in the form of a licensing or regulatory fee?

These questions are interesting, and while I understand that many people feel we should attempt to impose our morals on others, I agree with Lew Rockwell that the free market should do the talking.

These countries should stand up to the U.S. government by taking the only correct free-market position: there should be no laws against bribing foreign officials. In many countries, bribes are the only means for outwitting leviathan, and thus serve as an institutional bulwark of prosperity.

Think of it in terms of market pricing. A software company wants to set up a shop in Moscow, and the fee is officially set at $100. But in order to open its doors, the company needs to pay $10,000 in bribes to obtain a panoply of licenses and permits, and another $5,000 for legal protection. It doesn't matter to the company whether it pays the whole $15,100 directly or apportions it out between permits, bribes, and kickbacks.

Paying the full price for the permits to the government is seen as decent and honest, whereas private bribes are considered seedy. But why? If the government gets the money, it is paid out to government workers, who then pay taxes on their income. Bribery is far more efficient. It allows the full price for permits and protection to be split between direct and indirect payments to private parties, partially bypassing a useless and destructive middleman.

The truly moral thing for the businessman to do is pay all bribes necessary to get the job done. Only then will the Russian people get their software, the bribe-paying businesses their profits, and the bribers extra spending money. Everybody wins in this exchange.

In the long-term, bribes are complicated and add to the cost of doing business. Companies will take that into account when deciding where to locate, and the countries that require bribes will lose out to the countries that don't. I think in the long-term, the market will fix this problem. In the way that English has become the language of business, U.S. business practices will become the worldwide standard.

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UPDATE: Jeremy doesn't seem to agree with me, and neither do most of the commenters so far. Be sure to read them. I also tried to clarify some points in the comments. I am not suggesting that what Halliburton did was right, and I am not advocating bribery. I am taking the position that laws against bribery are unecessary because the free market will eventually eliminate bribes. That is the point Jeremy responded to and disagrees with.