Be careful - Chinese (guanxi) and Brazil (jeito) concepts of favors could mean trouble

Editor’s note: “International Business Corner” is a weekly column written by Joan Keston that provides information for people involved in or considering international operations. Keston is an international business consultant. Over the next several months she will be writing about important issues that international businesses face as they compete in the 21st century global business environment.

This article is the fifth in afive- part series addressing business relationships in the global business environment. This article talks about Guanxi and similar business concepts, and the Foreign Corrupt Practices Act.

RALEIGH, N.C. - Often the exchanges of favors that are part of the basis of relationships in countries are not considered bribery or corruption under any standard. However, frequently such exchanges while legal and intrinsic in the business culture of the foreign country violate the US Foreign Corrupt Practices Act of 1977 (FCPA).

FCPA

The FCPA makes it unlawful:

• To offer, pay, promise to pay or authorize the payment of money or anything of value

• To a public official (or to any person knowing that any part of the payment will go to a public official)

• To induce the public official to use his/her influence

• To obtain or retain business, or to secure an improper (competitive) advantage.

This act is applied to US persons and entities doing business in foreign countries.

Do Chinese Guanxi and Brazilian Jeito Violate the FCPA?

Clearly the FCPA is directly in conflict with business cultures where the exchange of favors and the bending of rules is part of the normal business process involving government officials or politicians. In countries such as China and Brazil, where “Guanxi” and “Jeito” are necessary in order to survive there is a range from the most minimum to the more extreme exchange of favors or payment to facilitate the conduct of business. Some of the more extreme payments are considered to be corruption even in these countries. However, the economics of the entire business system and compensation structure is based on Guanxi and Jeito. There is no alternative.

The FCPA was written based on our contract-based method of accomplishing business dealings; not on the relationship-based style that is prevalent in developing countries. It supports a system where business is professional and functions on the success of the embodied business terms and conditions, and not dependent on personal relationships developed through the exchange of favors or payments.

The general attitude in countries such as China and Brazil is to voluntarily and freely assist other business people to the extent possible and whenever possible. It is a system of exchanges that results in relationships, and a continuing cycle, and is intrinsic to the business environment. Although the two extremes of either bribery or token favors or gifts are clearly illegal or legal under the FCPA, the middle area is hazy and subject to doubt. The results often are exposure to liability under the FCPA or the inability to do business or be competitive in those environments.

About the Author: Joan Keston is the Managing Principal of Keston & Associates, Ltd., an international business consulting firm located in Raleigh, NC, and a Partner at Paladin and Associates, Inc. She has 25 twenty-five years of experience with mature as well as entrepreneurial companies, domestically and internationally, coupled with an executive managerial and legal background. Her firm facilitates international business transactions, and assists companies establish, grow and integrate their international operations. She can be reached at (919) 881-7764 and jkeston@kestonassociates.com.