Corruption Practices

Corruption Practices

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Cultural Expectations in USA Bulgaria and India
I. Executive Summary

II. Objective and Plan for Implementation

Turner Construction Company has the option to pursue similar kind of construction projects in 3 different countries: USA, Bulgaria, and India. As a mature global company trying to avoid prosecution from the U.S. government for using unethical practices oversees, Turner has decided to hire us as consultants to present a brief analysis of the corruption practices and cultural expectations in the three selected countries. The corporation has also requested from us recommendation from an international managerial perspective, whether we recommend them to invest in the country disregarding the financial aspect of the projects.

We decided to first provide an overview of Turner Construction Company and then to analyze the three countries USA, Bulgaria, and India pursuing the following methodology: a) geographic location and history of the country; b) recent developments; c) one or two cases of bribery or contractual abuses; d) cultural highlights and advice; e) recommendation whether to invest or not.

III. Turner Construction Company Overview

Turner Construction Company is the leading commercial builder in the United States, completing more than 1,600 projects a year across 42 business units in 27 states. The company has more than 4,700 employees and works with over 25,000 subcontractors, which collectively employ more than 250,000 trade and craftsmen. Turner has built strong relationships with owners, architects and subcontractors throughout the country. While it is headquartered in New York, Turner's nationwide offices presence offers clients the accessibility and support of a local firm with the strength, stability and resources of a national corporation. Turner Construction - International LLC offers professional building services in Africa, Asia-Pacific, Europe, Latin America and The Middle East. Turner provides comprehensive management services through the development, design and construction phases of general building projects. With construction volume of $6.1 billion in 2003, Turner ranks first or second in major segments of the construction industry.

Turner Construction has built head-turning projects for more than 100 years. The company that built Madison Square Garden has ranked among the leading general builders in the US since WWI; it provides construction and project management services for commercial and multifamily buildings, airports, stadiums, and correctional, entertainment, and manufacturing facilities. Founded in 1902 by Henry C. Turner, the company is the main operating unit of The Turner Corporation, which is a subsidiary of German construction group HOCHTIEF. Tompkins Builders, a subsidiary of Turner Construction, helped build the WWII Memorial in Washington, DC.

Turner delivers its services in a number of different ways, each dependent upon the needs of its clients. Typically Turner's services would fall into one or a combination of Preconstruction Consulting, Program Management, Project Management, Construction Management, Design-Build, Design-Build/Finance, General Construction, Building Maintenance, Multiple Building Program, and Logistics.

Turner provides its services in nearly all sectors of the construction industry and is a leader in many categories. Some of the markets in which Turner is active are in Aviation, Design (Build/Finance), eTechnologies, Green Buildings, Healthcare, Higher Education, Homeland Security, Industrial, Interiors, Justice, K-12 Education, Logistics, Pharmaceutical, Public Assembly, and Sports.

Some of Turner’s current US big projects include:
-$67 million contract to provide construction management services for Southern Ohio Medical Center in Portsmouth, Ohio
-$250 million North Pavilion / Cancer Hospital for Yale-New Haven Hospital in New Haven, Connecticut
-Preconstruction and construction management services for the new Yankee Stadium in Bronx, N.Y.
-$120 million contract to complete the final phases of construction on Cooper University Hospital in Camden, N.J.
-Contract By Jetblue Airways To Construct New Terminal At JFK Airport In Jamaica, N.Y.
-$85 Million Contract To Construct A Hard Rock Hotel In San Diego, California
-The 1.2 million-square-foot New Midfield Terminal at Indianapolis International Airport which scheduled to open in late 2008
Some of Turner’s international projects have included:
-International Convention Center of Birmingham, Birmingham, England
-Torres Atlantico, Angola
-Royal Terminal - King Khaled International Aiport, Riyadh, Saudi Arabia
-Incheon International Airport, Seoul, Korea
-NeXcomm Multiple Building Program, Paris, France
-Citibank Tower, Manila, Philippines
-CS Tower, Tokyo, Japan
-Echelon Square, Colombo, Sri Lanka
-Eric Williams Plaza Independence Square, Trinidad and Tobago
-Federation Complex, Moscow, Russia
-Friedrichstadt Passagen, Berlin, Germany
-Türkiye Is Bankasi Headquarters, Istanbul, Turkey
-World Trade Center Building, Osaka, Japan
-U.S. Navy Bachelor's Quarters, Guantanamo Bay, Cuba
-U.S. Security Enhancement Program, Various cities, Pakistan
-Beverly Hills Residential Community, Cairo, Egypt
-Mei Foo Sun Chuen, Hong Kong
-Allergan Frumtost, São Paulo, Brazil
-Motorola Campus, Juaguariuna, Brazil

IV. USA – Overview and Recommendation

United States of America is a republic bordering both the North Atlantic Ocean and the North Pacific Ocean, between Canada and Mexico. United States has a total area of: 9,631,420 sq km

The United States of America has a very rich history that dates from 1492 when Christopher Columbus discovered The New World. Christopher Columbus set sail from Spain on his voyage of discovery; he was seeking not only unknown lands, but a new way to eastern Asia. In Subsequent years US was also settled by France and the Dutch looking for special metals.

England Permanent settled United States in 1607 in and 1920 in Massachusetts due to overpopulation in England and some groups to avoid religious prosecution. The colonies declared Independence from Great Britain in 1776. Following the independence the United States entered into a bloody civil war between the North and the South over the issue of slavery and the inherent disagreement between the states and the federal government.

The United States in its history witnessed other tumultuous moments namely the civil rights, WWI in 1914, he great depression in 1929, WWII, the cold war the Vietnam war and the Gulf war in 1990. In its most recent history United States suffered an attack by terrorist, Sept 11 2001 which destabilized the economy, and prompted US to invade Afghanistan and Iraq.

The US has a large and a technologically powerful economy wih a per capita GDP of $42,000. The US economy is market-oriented where private firms make their own decisions. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan do. However, such liberalism changes when it comes to issue of bribery and corruption.

>b) recent developments

There have been numerous cases of US companies being involved in cases of bribery i.e. Halliburton which was once presided over by the current vice president of United States has been plagued with bribery scandals. In October 2002 the French magistrate launched an investigation into $180 million in bribes paid by oil companies to government officials in Nigeria between 1995 and 2001 to win a oil contract in the Niger River Delta. The contract was won by a four-nation consortium headed by Kellogg, Brown & Root (KBR), Halliburton’s construction arm. Its partners were Technip of France, the Italian firm Snamprogetti, and JGC of Japan.

The money was funneled through a series of bank accounts in Gibraltar, Switzerland and Monaco, all controlled by a London lawyer who had performed no work for the project. The money was a kick back given to former Nigerian dictator Sani Abacha.

Parallel to the investigation by the French magistrate, the US Justice Department’s fraud section—which prosecutes federal anti-bribery law violations and the Securities and Exchange Commission also launched an investigation into bribery allegation by Halliburton.

After the invasion of Iraq, and the consequent reconstruction efforts, there have been numerous case of bribery of public officials. Most recently an American businessman – Philip Bloom pleaded guilty to conspiracy, bribery and money-laundering charges. Also charged were Michael Brian Wheeler and Debra Harrison, both lieutenant colonels in the Army Reserve.

Philip H. Bloom admitted to giving more than $2 million in cash and gifts to U.S. officials in exchange for their help in getting reconstruction contracts for his companies. Bloom's firms won $8.6 million in reconstruction deals, with an average profit margin of more than 25 percent. Bloom commonly used gifts of cash, cars, plane tickets and jewelry to secure lucrative reconstruction contracts from December 2003 to December 2005. Bloom also supplied women to provide sexual favors at his Baghdad villa.

Bloom currently faces up to 40 years in prison, five years of supervised release and a fine of $750,000. He also must repay the government $3.6 million and forfeit $3.6 million in assets .

In order to understand bribery in United States and the penalties involved with such acts, we must understand the US business culture.

American culture emphasizes individual initiative and personal achievement. Independence and self-reliance are highly valued and also extends to the workplace where business is frequently carried out autonomously. In the matrix developed by Geert Hofstede, US has a 91 compared to 48 and 49 of India and Bulgaria ( Exhibit 1) consecutively The concept of individualism in our opinion triggers unethical behavior such as bribery since people will only consider their own goals and overlook the impact their behavior we have on others. However due to the stringent and often efficient legal system of US, American businessmen or firms doing business in United States tend to commit acts of bribery with less frequency.
Equality also plays an important part in the American business culture. Despite the many differences within American society, there is a collective understanding of the notion of equality that underlines many social relationships in the US. Americans believe in having equal rights, equal social obligations, and equal opportunities based on the concept of individual merit . This factor can explain why there is very low tolerance for bribery in United States since it undermines equality by giving unfair advantages to those who pay bribes and limits equal rights and opportunities. The above mention factors will also explain why in the United States personal relationship is not very significant in the business culture.

According to bribes by business sector published in transparency international public works and construction industries rank the highest in he likelihood to pay bribes. Bribery imposes significant risks on any construction and engineering company or consulting engineering firm, which is involved in a construction project in United States. US has a stringent legal system that prosecutes any, and every form of bribery and corruptions more specifically the Foreign Corrupt Practices Act of 1977 (the FCPA or the Act) , which imposes criminal penalties on American enterprises that bribe officials of foreign governments.

The US economy and culture is suitable for investment; however firms should be cautioned not to get involved in bribery. United States has a very low perception of Bribery ranking 20th in the world with a 7.5 scale ( Exhibit 2) according to the research conducted by Transparency International. Bribery in United States will lead to undesirable results such as: termination of contracts; claims of compensation by affected parties as consequences of bribes; claim for repayment to the amount equivalent to the bribe; seizure by criminal authorities of the proceeds the company has received in relation to the project; criminal prosecution, fines and blacklisting; and finally the company will acquire negative reputation which will affect future contracts.

In conduct business in United States firms should be aware of the punitive measures that will come as results of practicing acts of bribery, furthermore it should be understood by foreign firms that American counterparts may not accept gifts since such acts are discouraged and there are limited caps on the value of gifts that can be accepted. In general we advise firms to conduct business in United States as long as they do it in a very ethical manner.

V. Bulgaria – Overview and Recommendation

Bulgaria is located in the Southeastern part of Europe, west of the Black Sea, bordering with Romania (North), Turkey and Greece (South), Serbia and FYROM Macedonia (West). Established in 681 AD, after a Central Asian Turkic tribe of the Bulgars successfully defeated the Eastern Roman Empire and overtook the control of the local Slavic, Thracian and Roman population. The country lost independence for several decades to the Byzantine Empire in the 12th century and in 1396 to the Ottoman Empire. A successful Russian – Ottoman War in1878, liberated Bulgaria and started the modernization of the country.

Due to conflict of interests of the Great Powers, Bulgaria was not allowed to recover the territories with Bulgarian population after its liberation from the Ottoman Empire, which dictated a foreign policy of pursuing military solution to the territorial problem. Consequentially, Bulgaria lost two Balkan Wars, as well as the World War I and II. In 1946, the Bolshevik Red Army forced a Communist Regime and Soviet influence, which lasted until 1990 when the first Democratic elections were held. In 2004, Bulgaria joined NATO and on 1 January 2007 will join the European Union.

At present, Bulgaria has a population of 7,385,367 , with 98.6% literacy rate, aging population, and negative migration rate. The labor force of 3.34 million is highly educated and works primarily on a fixed salary rate. The GDP per capita of $9,600 growing at 5.5% per year is evidence of economic growth due to strong Foreign Direct Investments from European countries and cash inflow from Bulgarian immigrants living outside the country. There is a concern of possible “bubble” situation regarding the price of real estate, which is growing at pace greater than 10% per year. Some analysts justify it with the increased interest of European citizens in purchasing property in major tourist areas in the countryside. The country’s currency – the Bulgarian Lev (BGL) is pegged to the euro (EUR) via currency board, which maintains BGL 2.00 per EUR 1.00 exchange rate. The low inflation rate of 5% and decreasing unemployment rate (presently 11.5%) as well as the upcoming opening of the European markets create a favorable environment for investment. However, the legal system, based on Roman Law and its enforcement, combined with the 13.4% of people below poverty line and cultural/historical elements create an environment that allows evolvement of corruption.
A vivid example of how corruption affects international companies investing in Bulgaria is the case of the German Logistic Company Willi Betz. Willi Betz is a transportation company with revenue for 2006 of EUR 720 million that employs 7,750 people in 56 countries, owns 2,500 vehicles and 4,000 trailers. It acquired 55% stake in the Bulgarian state international ground transportation company SOMAT through a privatization process in 1994. However, in September 2006 the company chief executive Thomas Betz admitted in court in Stuttgart bribing officials in Bulgaria in order to operate successfully its Bulgarian partner – SOMAT. The confirmed amount he specified as “expenses necessary to operate the partner in Eastern Europe” is about EUR 4.5 million. He was also charged with illegally employing 900 Bulgarian drivers with tourist visas only to actually work in Germany. The public relations office of Willi Betz clarified that the money were paid for speeding the administrative process, paying local consulting companies, which is usual in the countries of Eastern Europe like Bulgaria.

To illustrate further the nature of the corruption practices in Bulgaria as well as the inefficiency of the Bulgarian legal and administrative systems is the case of the Bulgarian National Agency for Tax Revenue Collection employee Alexander Angelov. The state associate admitted in court asking a bribe of EUR 750,000 from the former CEO of the recently privatized state metallurgical company “Kremikovtsi” Valentin Zahariev, for securing delayed payment of about EUR 15 million owed by the executive in taxes. Mr. Angelov was caught with EUR 67,500 marked money on 4 July 2006 and convicted on 1 November 2006. His associate Kiril Yovchev, who was the intermediary, was given a probation period and 320 hours of free labor for the state and a penalty of EUR 1,250. Mr. Angelov took advantage of a new rule in Bulgarian legislation stating that in case of admittance, the defendant is given a verdict that is smaller than the minimum required by law (between 3 and 10 years). He got 30 months to serve in jail and a ban to be an accountant or state tax employee for 2 years.
In order to analyze the corruption practices in Bulgaria, one must understand that the communism and the so called by Bulgarian anthropologist “the subjugated person syndrome” has still significant in Bulgarian corporate culture in terms of creating high tolerance and in some cases admiration for the people brave enough to violate the law. As the Appendix 2 indicates, Bulgaria does not show improvement in the Transparency International Corruption Perception Index: 4.1,4.0,4.0 respectively for the period between 2004 and 2006 possibly because of the mistrust of the general population in the government as well as the relatively high power distance of 75 (Appendix 1). The high uncertainty avoidance of 68 compared to the other two countries analyzed signals that the population needs well communicated and structured written and unwritten laws and regulations and is more probable to seek security in low-paid state jobs. However, the sense of inequality on what individual delivers to the country versus what he/she gets out of it created a favorable environment for corruption as evident in both cases. A potential investor needs to rely heavily on local legal experts and aggressively cooperate with the struggling legal system, which is under a lot of pressure for improvement from the European Union, in order to avoid paying bribes and still get things done.

When dealing in Bulgaria, the future managers of the joint ventures or partially owned companies should try to establish personal contact with both the employees as well as the administrative workers which provide the licensing. However, a very clear border of what is acceptable to provide for state administration workers and what is considered bribe should be established on a corporate headquarter level. Tight financial control of the subsidiary is necessary to assure that the investor will not end up in court in its home country for unethical practices as the case of Willi Betz shows.

We recommend cautious investment in Bulgaria through a joint venture with local company to limit the potential liability in case of bribery problem. On the other hand, financial control would be difficult to assure unless 51% of ownership is secured. The Turner’s negotiation team should structure a very explicit contract detailing every possible aspect of the future relationship with the future partner in order to avoid surprises from highly creative in interpreting contracts and regulation Bulgarian managers.

Disclaimer
The above essay was written by a college student and merely states opinions of a college student. However, if you feel strong about responding to the opinions stated, please write to articles@directorym.com and express your concerns.


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