Lucent Technologies Inc. fired four executives at its Chinese operations, including the president and chief operating officer (COO), for violations of the U.S. Foreign Corrupt Practices Act (FCPA), the company said in a filing Tuesday with the U.S. Securities and Exchange Commission (SEC).
The FCPA passed into law in 1977 after SEC investigations during the mid-1970s revealed that more than 400 companies had paid questionable or illegal payments totalling more than US$300 million to foreign government officials and politicians, according to the U.S. Department of Justice. Under the law, executives can go to jail and U.S. companies can be fined and barred from government procurement contracts if they are found to have bribed a foreign government official, it said.
Lucent, in Murray Hill, New Jersey, fired its president, COO, a marketing executive and a finance manager at its China operations for FCPA violations. The company’s Chinese operations will report to Robert Warstler, the company’s president of global sales, until a new president is named, the company said. It did not name the four executives dismissed.
Lucent’s announcement follows a January decision by IBM Corp. to dismiss three employees at its South Korean operation following their indictments by public prosecutors investigating the use of bribery to secure government contracts.
Lucent unearthed the FCPA violations at its Chinese operations through an investigation of its operations in 23 countries. That investigation grew out of an unrelated bribery scandal involving the company’s operations in Saudi Arabia.
Lucent said the FCPA violations in China are not believed to have a material impact on the company’s results but it is not able to determine the future impact on its business in China. The company did not disclose details of the FCPA violations uncovered in China.
The stakes are high for Lucent. Chinese customers accounted for around 11 per cent— approximately $950 million — of Lucent’s revenue during the company’s 2003 fiscal year, which ended on Sept. 30, 2003, the company said in an SEC filing dated Dec. 9, 2003.
Corruption and bribery is a major headache for China’s leaders. In recent years, the country has waged a high profile battle against corruption that has yielded mixed results.
During the first eleven months of 2003, China’s Supreme People’s Procuratorate investigated 823 cases of corruption and bribery involving 33,666 suspects, the official China Daily newspaper reported in January. That figure represents a drop of 2.2 per cent compared to the same period in 2002, it said.
Despite the general existence of corruption, it is not a widespread practice among foreign companies operating in China, said Robert Broadfoot, the managing director of Political & Economic Risk Consultancy Ltd. (PERC) in Hong Kong. “It’s not common at all,” he said.
“If you’re an investor in the country you just don’t do it. It’s something you avoid. If you’re seen as someone who pays bribes you’re going to be taken to the cleaners,” Broadfoot said.
Most of the corruption in China tends to involve petty corruption, although kickbacks may sometimes be demanded in return for awarding a contract to a particular company, Broadfoot said, noting that the problem of kickbacks exists in every country.
During the first 11 months of 2003, the Chinese government punished 12 provincial-level and ministerial-level officials for corruption, China Daily said.
The list of officials includes Cheng Weigao, the former Communist Party secretary of Hebei province; Liu Fangren, the former party secretary of Guizhou province; Li Jiating, the former governor of Yunnan province; Tian Fenghsan, the former minister of land and natural resources; Wang Xuebing, the former president of China Construction Bank; Wang Huaizhong, the vice-governor of Anhui province and Tian Fengqi, president of the Liaoning Provincial Higher People’s Court, it said.
The China Daily report did not specify what punishments had been meted out to these officials.
