Foreign Corrupt Practices - Nigeria

FINAL INTEGRATIVE CASE 1

fOREIGN cORRUPT pRACTICES aCT – NIGERIA

Submitted by Andres Lucas

Bribery is a form of corruption that exploits a market power asymmetry. There are two actors in a bribery transaction. In one end you have an actor that has power to influence the utility function of the other actor. To do so, the actor wielding the power has to engage into an illicit behavior for which the actor is compensated. The second actor is interested in maximizing its utility function and hopes to gain an advantage with regards to other actors participating in the business operations environment. From a philosophical and theological perspective, bribery is seen as an unethical act going against the moral principles of philosophical views and religious beliefs. Bribery arises from the need to break the rules set by our societal norms and social contracts of expected behaviors in order to satisfy egocentric needs without regards to the needs of the whole. It is an act that exploits power that only benefits a few and that may also cause indirect harm to exogenous parties to the bribery transaction.   From a libertarian point of view, bribery goes against freedom to contract since there is a power asymmetry exploited by one of the parties, so bribery would be regarded as an immoral act. Kantianism considers an action moral if it is also morally right to extend it to the general public. Bribery is viewed and perceived in the public eye as an immoral act, so bribery would be viewed as immoral by Kantianism. A utilitarian might view bribery as a need to maximize the utility function, thus a necessary evil in order to operate under circumstances where market power asymmetries are exploited, as long as no exogenous parties are affected by the bribe. However research has shown that bribery brings negative consequences to the endogenous actors as well as exogenous parties that far outweigh the perceived utility gained by engaging in the bribery act. From this macro view, bribery would also be seen as an immoral act to a utilitarian since there is a negative impact to exogenous parties to the bribery act.

Research has also shown, from a pure macro and economic perspective, that bribery actually diminishes the utility function of the actor seeking gains by paying a bribe. Also bribery enters into a dynamic cycle in which the actor wielding the power can find new ways to add potential utility diminishing factors that it can use to its advantage in order to obtain larger compensation  to serve the utility maximizing behavior of those actors willing to pay a price to bypass the norms and rules of operations. It has been shown at the macro level that such a cycle causes these utility maximization actors to actually experience a decrease in utility in the long run and that they lose with respect to other actors not engaged in bribery practices.

So given that bribery is viewed as an immoral act when tested against different philosophical ideologies and religious beliefs, why do people engage in bribes? As humans, we are bounded ethically due to our immediate need to serve our self-interests. When engaging in a bribery act we are seeking an outcome that immediately benefits our ego and self-interest without regards to other consequences surrounding us. What about legality of bribery? The transaction between the actors in itself is not illegal; it is an exchange of valuables between the actors. In many cases it is an exchange of money for a service. This is why bribery may be hard to detect since actors engaged in the transaction can be stealthy in hiding the transaction as if it were other services rendered. Such scenario occurred in the Mayfair case where Meadows and Owens used euphemisms to hide the actual transactions from auditors. Bribery becomes illegal based on the societal and political context surrounding the transaction as well as the consequences the act may have. The context is set by the laws and policies in which the actors transact which describe the expected social behavior. In a bribery transaction, one actor has the power to circumvent established rules and laws thus making the act illegal. Also the potential consequences that may arise after the bribe transaction had been committed can also make the act illegal. For example, an individual bribes a traffic inspector in order to obtain a driver’s license without taking a driving exam. The individual obtains a license and the next day is involved in a major accident due to his lack of experience. This accident could have been avoided if a driving exam had been administered and the individual not approved for a driver’s license.  Thus the bribery act is also illegal due to other exogenous consequences that may arise if the bribe is committed.

 In the Mayfair-Nigeria case we have a major corporation and government involved in bribery practices. Why would Mayfair engage in bribery if it is an immoral and illegal act? As a member of a Corporation, Owens and Meadows may have a different frame of reference from their own moral frame. Oil and gas corporations are innately risk takers, given the nature of the business they are engaged. They are willing to take large risks if there is potential for a high return. Thus corporations are utilitarian. They will seek utility maximization and will weight their options by evaluation of a risk-reward utility function. Why would the Nigerian government officials engage in bribery if bribery is illegal in the country? One possible explanation is that in Nigerian society bribery takes place at every level (micro and macro) and it is perceived as a necessary evil to serve self-interest and that this societal context has extended to government officials. Also, Nigerian law enforcement may be loose and many government agencies do not spend the time and effort in prosecuting officials engaged in bribery practices. Another factor may be that so many government official are engaged in bribery that exposing one actor may not be beneficial due to the potential of a retribution (if you expose me, I will expose you).

I will now provide a theoretical framework that could explain why Mayfair Corporation decided to engage in bribery practices in Nigeria. From this framework I will try to draw how decisions made by the actors in the case can serve as references in future situations where I may suffer from similar ethical boundaries when engaged in decision-making.

Oil is a scarce commodity in the world. Basins from which oil can be extracted are hard to find and not widely available around the globe. Also our world economies and way of life are dependent on fossil fuel energy so oil is in great demand. Corporations in the business of finding and extracting oil take great risks in order to find and produce oil. Given the size of risk, there are not many oil exploration companies in the world and the existing companies compete fiercely in extracting and producing oil.  Nigeria is one country that has the been blessed (and cursed) with having oil. Thus Nigeria already has an upper hand since it controls a percentage of world oil reserves. Oil and Gas companies need to continually add to their reserves in order to remain competitive in the market. So the frame in this scenario is that Nigeria has a commodity that Mayfair needs in order to remain competitive in business. Nigeria has power to regulate its oil industry and can freely add tax and customs duties, which represent a revenue to the Nigerian government. Mayfair is a multi-national corporation and will seek the opportunities that best maximize the corporation’s shareholder’s value.