Questioning Competitors' Conduct

Questioning Competitors' Conduct

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January 22, 2009

Many companies are reluctant to act when they suspect bribery by a competitor because the allegation is so serious and, short of actually observing the pay-off, the company can't be certain of the facts. Often, the most a company will have is a widely-experienced, but not exactly evidentiary, "creepy feeling". This doesn't mean that the company is helpless. There are strategies that companies have used with success.

Bruce Horowitz, of Paz Horowitz -- TRACE’s partner firm in Ecuador -- collects bribery stories from business and legal sources around the world. He verifies credibility to the greatest extent possible. He recounts this encouraging scenario paraphrased from one such interview involving post-bid problems.

* * *

“We had won the bidding process for a government energy contract in South America. The next step in the contracting process was to negotiate relatively minor logistical and internal timing terms. Initially, the contract negotiations went smoothly. But after a few days the government's negotiators began to demand additional, unrealistic contract conditions.

They made it clear that, if we did not agree to these new conditions, they would grant the contract to the next highest ranked bidder. We had already made it clear that our company did not pay bribes, but we understood these negotiating roadblocks might be a way to pressure the company to pay an as-yet unstated bribe demand. On the other hand, it could mean that our main competitor had offered a bribe to elbow us out. Our suspicions grew when, during our post-bid contract negotiations, we saw the competitor's agents speaking closely and jovially with the government negotiators -- both inside and outside of the government office.

Our major competitor was from an OECD country that had started to take its anti-bribery obligations seriously. With this in mind, we wrote to management at the competitor's headquarters, copying their general counsel. We described, simply and directly – without elaboration or accusation -- the change we had sensed during the contract negotiations and the familiarity we had observed between the competitor's agents and the government negotiators. We told them we were concerned by the potential appearance of impropriety, and suggested that they check on the activities of their agents in this case.

Whether by coincidence or because our letter prompted an investigation, the competitor responded within two weeks that they would not challenge our bid and withdrew from the competition. At the same time, the government negotiators dropped their most illogical demands. Although the remaining contract negotiations were still difficult, our company signed and performed on the contract with minor difficulties, which did not hinder the general success of the project.

* * *

Bruce's story confirms the impression that a bit of tactful, but firm ‘push back’ can be highly effective in discouraging corrupt transactions. Both parties to a bribe-tainted transaction often feel they are on shaky ground as they offer or demand bribes. They prefer to act in obscurity and may use ambiguity as a way to leave a back door open for a quick retreat. A little gentle resistance may cause them to scuttle out through that door.

(Bruce adds this caveat: the preparation of the letter to the competitor must be carefully crafted in order to avoid potential actions for libel, defamation or some other legal claim under the laws of the host or the home state. The letter must be clear, specific and based on supportable observation, and yet be non-accusatory. Legal counsel in both the home state and the host state should prepare or review the letter before it is sent, in order to minimize legal exposure in both jurisdictions.)


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