Examining the Lax Treatment of Commercial Bribery in the United States: A Prescription for Reform

• Author: Jeffrey Boles
• DOI: http://doi.org/10.1111/ablj.12020
• Date: 01 March 2014
• Published date: 01 March 2014

Examining the Lax Treatment of

Commercial Bribery in the United

States: A Prescription for Reform

Jeffrey Boles*

INTRODUCTION

Suppose a hospital hires a purchasing manager to buy medical equipment

for its patient care use, and it gives the manager direct authority to

procure goods for it. The hospital tasks the manager with buying 100

medical monitors, and the manager learns that one of these monitors

retails for $2,000 in the local marketplace. Instead of buying the monitors

at the lowest possible price, the manager agrees with a local supplier that

the hospital will purchase 100 monitors from the supplier at $5,000 per

monitor, and in return, the supplier will give the manager a $200,000

kickback. In accordance with this agreement, the manager refuses to

entertain any quotes or bids from any other medical monitor supplier.The

manager successfully processes the hospital purchase order to buy 100

monitors from the contracting supplier,who, in turn, gives $200,000 to the

manager as promised, unbeknownst to the hospital. When the supplier

compensates the manager for buying the supplier’s monitors at grossly

inflated prices, their covert arrangement defrauds the hospital and gives

the supplier an unfair advantage over other suppliers in the industry.

For many in the world of commerce, this hypothetical1kickback

arrangement is merely business as usual. Insiders accept the reality

that kickback payments flow freely through the marketplace and are a

*Assistant Professor,Department of Legal Studies, Fox School of Business, Temple University.

Ph.D., 2006, University of California, Berkeley; J.D., 2006, University of California, Berkeley

School of Law.

1This hypothetical is based upon facts as alleged in United States v.L anas, 324 F.3d 894, 897–99

(7th Cir. 2003). See also Bob Wacker, Inside a Case of Commercial Bribery: How a Kickback Scheme

in Hawaii Led to LI Sting,N

EWSDAY, Feb. 8, 1988, at 1.

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American Business Law Journal

Volume 51, Issue 1, 119–174, Spring 2014

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customary part of doing business. For others, the arrangement is a classic

instance of bribery infecting commercial relationships and harming busi-

nesses. These contrary perspectives manifest themselves in commercial

bribery jurisprudence, the governing body of law that addresses bribes

between nongovernmental parties.

Commercial bribery takes place entirely within the private sector. It

involves the passing of payments to employees2or other agents in return

for special treatment. The briber “buy[s] influence” in the private sector,

and the bribed agents violate their principals’ trust for personal gain.3

Both parties gather economic incentives from their participation in the

bribery arrangement. This practice normally transpires in commercial

transactions4where one company makes secret payments to an employee

of another company for that employee’s personal benefit, and the

employee, in turn, directs business to the bribing company and to the

exclusion of other companies.5This arrangement usually concludes with

the bribing company obtaining a business contract with the employee’s

company.6Courts7and commentators8have opined that such arrange-

ments seem commonplace, and even rampant, in many industry segments.

2Unless otherwise noted, references to employees and employers within this article also

encompass other forms of private sector agents and principals, respectively.

3Calnetics Corp. v. Volkswagen of Am., Inc. 532 F.2d 674, 687 (9th Cir. 1976) (internal

quotation marks and citation omitted).

4See Note, Commercial Bribery: The Need for Legislation in Minnesota,46MINN.L.REV. 599,

599–600 (1962) [hereinafter Need for Legislation].

5Assoc. Radio Serv. Co. v. Page Airways, Inc., 624 F.2d 1342, 1358 (5th Cir. 1980) (detailing

general practices regarding commercial bribery); United States v. Di Girolamo, 808 F. Supp.

1445, 1448 n.1 (N.D. Cal. 1992) (“Commercial bribery may assume any form of corruption

where an employee is induced to act against the best interests of his employer or to compete

unfairly with a competitor.”) (citation omitted).

6Franklin A. Gevurtz, Politics, Corruption, and the Sherman Act After City of Columbia’s Blighted

View, 27 U.C. DAVIS L. REV. 141, 169 (1993) (discussing a classic case of commercial bribery);

Daniel Chow, The Interplay Between China’s Anti-Bribery Laws and the ForeignCorrupt Practices Act,

73 OHIO ST. L.J. 1015, 1030 (2012).

7See United States v. Kristel, 762 F. Supp. 1100, 1101 (S.D.N.Y. 1991) (describing commercial

bribery as a “regretfully common practice”).

8See Franklin A. Gevurtz, Commercial Bribery and the Sherman Act: The Case for Per Se Illegality,

42 U. MIAMI L. REV. 365, 365 n.1 (1987) (collecting sources); Note, Bribery in Commercial

Relationships,45H

ARV.L.REV. 1248, 1251 (1932) [hereinafter Bribery in Commercial Relation-

ships] (describing the prevalence of commercial bribery); Philip M. Nichols, Regulating Trans-

national Bribery in Times of Globalization and Fragmentation,24Y

ALE J. INT’LL. 257, 272 (1999)

120 Vol. 51 / American Business Law Journal

Commercial bribery thrives in the contemporary marketplace.

Diverse industry players, from organized criminal groups9to industry

vendors,10 use commercial bribes as a tool to garner business. The practice

is widespread enough to make it a “marketplace mainstay . . . [that is]

tolerated everywhere, e.g., in payments made to secure business in

the construction industry, . . . the insurance field, . . . the advertising

business ....”

11

Business insiders commonly frame the bribery payment as a simple

form of company hospitality. The payment, they argue, facilitates goodwill

and functions as a harmless business gift.12 Many market participants

believe that such payments grease the wheels of commerce,13 and they

argue that the absence of any government official participating in the

kickback arrangements minimizes or eliminates any harm to the public.14

However, numerous businesses and government bodies oppose the

practice as deceptive commercial conduct. Companies disadvantaged and

defrauded by the practice argue that the practice creates tangible eco-

nomic harm.15 This view has judicial support; various circuit courts of

(explaining that quantitative analysis of bribery rates is essentially impossible); see generally

Gideon Mark, Private FCPA Enforcement,49A

M.BUS. L.J. 419, 422–23 (2012) (“Measuring

bribery and other forms of corruption is notoriously difficult, in large part because corruption

typically leaves no paper trail.”).

9Perrin v.United States, 444 U.S. 37, 48 (1979) (“[B]ribery of private persons [is] widely used

in highly organized criminal effortsto infiltrate and gain control of legitimate businesses . . .”).

10See Robert Tie, Preventing Kickback Schemes,FRAUD MAG., June 2010, available at http://

www.fraud-magazine.com/article.aspx?id=4294967730 (describing commercial bribery

schemes involving industry vendors).

11Joel Cohen, Commercial Kickbacks: A Crime for the Recession, N.Y.L.J., Aug. 17, 1992, at 4.

12Toyoji Saito, Japan,in PRIVATE COMMERCIAL BRIBERY:ACOMPARISON OF NATIONAL AND SUPRANA-

TIONAL LEGAL STRUCTURES 191, 205 (Gunter Heine et al. eds., 2003).

13See Peter Williams, The Only Way Is Ethics,THE TREASURER, Oct. 2011, at 37, available at

http://www.treasurers.org/system/files/Oct11TTethics36-38.pdf (describing the viewpoint that

bribery is “an integral part of doing business in many parts of the world.”).

14See Karl-Ludwig Kunz et al., Switzerland,in PRIVATE COMMERCIAL BRIBERY:ACOMPARISON OF

NATIONAL AND SUPRANATIONAL LEGAL STRUCTURES 435, 471 (Gunter Heine et al. eds., 2003)

(noting the perspective that commercial bribery “is not a danger to everyone, but only to

major companies, which can defend themselves . . . .”).

15See Proposed RICO Reform Legislation: Hearings on S. 1523 Before the Commission on the Judiciary,

100th Cong., 390–91 (1987) [hereinafter Proposed RICO Reform Legislation] (discussing harm

to oil company defrauded by commercial bribery).

2014 / L ax Treatment of Commercial Bribery in the United States 121