A Brief History of Corporate Bribery

Joel Anderson  |

The recent revelations that Wal-Mart (WMT) executives in Mexico had been engaging in widespread and wholesale bribery of officials in order to accelerate the construction of new stores rocked the retail giant last week. The scandal could reach the highest levels at Wal-Mart, with even CEO Michael Duke potentially being implicated in the cover-up, and the alleged violations of the Foreign Corrupt Practices Act (FCPA) of 1977, which makes bribery of foreign officials illegal for American companies, could mean a costly mistake on the part of the Arkansas-based company.

While the facts behind this case are still drawn entirely from the New York Times article that exposed the corruption, it certainly appears as though this will ultimately be revealed to be one of the biggest examples of corporate bribery in history. Or does it? Here's a look back at some of the biggest moments in the history of corporate bribery.

The Teapot Dome Scandal

Until Watergate rocked the nation in the early 1970s, the Teapot Dome Scandal of the early 1920s was widely regarded as the biggest political scandal in American history. When the United States Navy made the shift from coal-powered ships to oil-powered, President Howard Taft desingated several areas as Naval Oil Reserves. However, by 1921, President Warren G. Harding opted to transfer the Teapot Dome Oil Field in Wyoming and two oil fields in California from the Navy to the department of the interior. In 1922, Secretary of the Interior Albert B. Fall leased the oil rights of the Teapot Dome Field to Sinclair Oil and the Elk Hill Reserve to Edward Doheny's Pan-American Petroleum.

However, after a lengthy investigation by Thomas Walsh, a Democrat from Montana who was the senior minority member of the Senate, Fall was exposed for being as corrupt an official as has ever existed in the United States. Fall was revealed to have received a no-interest loan of $100,000 from Doheny (the equivalent of some $1.3 million today) as well as $404,000 in gifts ($5.26 million today). When the dust cleared, Fall would ultimately become the first ever member of the United States Cabinet official to end up in prison. Sinclair Oil still operates today, headquartered in Salt Lake City, UT, and it's the 38th largest privately held company in the nation. Pan American Petroleum, meanwhile, was purchased by John D. Rockefeller's Standard Oil in 1925, which, in turn, would go on to become Amoco, which was purchased by BP (BP) in 1998.

Lockheed and Bananagate

The passage of the FCPA in 1977 can largely be traced to two bribery scandals involving two of the more prominent American corporations in history. The first was Lockheed Martin (LMT), though it was just the Lockheed Corporation at the time, prior to the 1995 merger with Martin Marietta, and the second was Chiquita Brands International (CQB).

Lockheed was exposed for a series of bribes in the mid-1970s. In the midst of the Cold War, Lockheed was a defense contractor deemed important enough by the United States government that it had bailed the company out in 1971 with the guaranteed repayment of $195 million in bank loans. However, the increased oversight that resulted from this bailout ultimately exposed a pattern of corruption that included large payments to government officials in Germany, Japan, the Netherlands, and Saudi Arabia to favor Lockheed in their contracts. The Chairman and Vice Chairman of the board would ultimately be forced to resign as a result.

Chiquita, meanwhile, had a story that was even more sordid. In 1974, Honduras passed laws that doubled the export tax on a 40 lbs box of bananas from $0.25 to $0.50. Then, in 1975, Eli Black, the Chairman and President of United Brands Company, which Chiquita was known as at the time, jumped to his death from the 44th floor of the Pan Am Building in New York City. The resulting investigation unveiled a $1.25 million bribe paid to Honduran President Oswaldo López Arellano with a second $1.25 million payment the next year. The payments were meant to secure a reduction in export taxes back to $0.25 a box, an act that would save United Brands $7.5 million a year.

In the end, the ultimate passage of the FCPA in 1977 was most likely a result of the exposure of these two scandals.

Post-FCPA Scandals

The FCPA created clear and legally defined consequences for attempting to bribe foreign officials, but some companies didn't let that stop them from trying to use illegal payments to secure advantageous business circumstances.

Compass Group (CPG.LON) was awarded $237 million in contracts to provide food for UN peacekeepers in Liberia through subsidiary Eurest Support Services. However, whatever small victory Compass Group may have tried to take from the contract was ultimately nullified when it was revealed that Alexander Yakovlev, UN Procurement Officer,  and Vladimir Kuznetsov, head of the UN Committee for Administrative and Budgetary Issues, had accepted over $1 million in bribes from Compass for awarding them the contract.

In 2008, Siemens AG (SI) was accused of bribery in deals made with Greek Government involving the 2004 Olympic Games. The claims involved over 100 million euros being paid to secure state contracts, but no conclusive evidence has been provided to confirm these allegations. They did, however, result in significant changes in the attitudes of the Greek public. Imagine, the Greek government failing to act in a prudent and responsible fashion. Perish the thought.

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