The Ethical Aspects of Promotional Expenses
Among the technical sessions being organized for ASCE’s 142nd Annual Civil Engineering Conference, which will be held in Montreal October 18–20, is a panel discussion with the theme “Ethics in Project Procurement and Competition.” The objective of this session is to explore the ethical issues that arise in global infrastructure development and to describe practices that have proved effective in preserving high ethical standards in these areas. The hypothetical situation presented here illustrates the types of issues that will be discussed by the panel.
An ASCE member is a principal of a large water treatment engineering firm. Although the firm has an enviable reputation in the domestic market, the member believes that the company’s greatest opportunity for growth lies abroad. He focuses his attention on a South American country that has shown interest in carrying out a substantial upgrade of its water treatment infrastructure, and he seeks the services of a local consulting agency for assistance in navigating the country’s contract procurement process.
The consulting agency’s cost proposal includes a sizable meeting budget, and the agency explains that the funds will be used to coordinate a large promotional event during which members of the engineering firm can promote their firm’s services to government officials overseeing the country’s procurement process. The consultants stress the importance of making a favorable impression on the country’s decision makers and explain that this will require the firm to spare no expense in hosting the event. They recommend holding the event at a popular U.S. resort destination and offering first-class travel and five-star hotel accommodations to the government invitees as well as to their spouses and guests. The business meetings and marketing presentations in this weeklong event will be supplemented by lavish meals and parties, yacht outings, golf games, and other types of entertainment. Each attendee will also receive a small luxury gift, for example, a bottle of cognac, to commemorate the event.
The member agrees to the agency’s proposal, and the promotional event proves to be an enormous success. Soon
thereafter the member’s firm receives a lucrative contract to design and build water treatment facilities for the South American country.
Did the member’s activities in sponsoring a lavish travel and entertainment event for public officials in connection with the awarding of an engineering contract violate ASCE’s Code of Ethics?
Canon 5 of the Code of Ethics reads as follows: “Engineers shall build their professional reputation on the merit of their services and shall not compete unfairly with others.” Moreover, category (a) in the guideline to practice for canon 5 has this to say: “Engineers shall not give, solicit, or receive, either directly or indirectly, any political contribution, gratuity, or unlawful consideration in order to secure work.”
Fundamental to any discussion of the ASCE member’s ethical obligations under canon 5 is the issue of purpose.
While the meeting was ostensibly for the purpose of demonstrating the “merit” of the products and services the member’s firm could offer, it included a number of extravagant expenditures that were extraneous to that purpose, including expenses for luxury travel to a resort location, entertainment at the resort, and gifts. If this were an actual ethics case brought before ASCE’s Committee on Professional Conduct (CPC), it is likely that the committee would view these additional expenditures as constituting an unlawful gratuity proffered to secure an unfair advantage over competitors. Also relevant here are canon 6 of the Code of Ethics, which requires engineers to “uphold and enhance the honor, integrity, and dignity of the engineering profession,” and category (c) in the guidelines to practice for this canon, which states that engineers “shall act with zero tolerance for bribery, fraud, and corruption in all engineering or construction activities in which they are engaged.” Consistent with ASCE’s policy of “zero tolerance,” it is likely that the CPC would be extremely suspicious of anything that conferred a significant personal benefit on officials with decision-making authority in determining the recipient of a lucrative contract.
In view of these considerations, it is probable that the CPC would regard the member’s decision to sponsor the promotional meeting as violations of canons 5 and 6 of the Code of Ethics. However, it is also important to note that the engineer’s actions in this case have not only ethical but also legal ramifications.
U.S.-based engineers or companies seeking work in other countries must exercise care to understand the various laws governing contract procurement activities. Perhaps the most significant of these laws is the Foreign Corrupt Practices Act (FCPA). Adopted in 1977, this federal law prohibits any U.S. person or entity from making any “offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value” to any foreign official for the purpose of receiving or maintaining work. Similar provisions in the FCPA govern the conduct of any company, foreign or domestic, with public securities registered in the United States.
Passed in response to what was perceived as a widespread pattern of corporate abuse, the FCPA contains several provisions designed to cover a broad range of procurement practices. First, while the classic scenario of an unlawful payment is a simple transfer of money, the phrase “anything of value” encompasses not only cash but also gifts or other benefits conferred to influence an official, including luxury travel and other perquisites unrelated to a legitimate business purpose. (While the FCPA exempts expenditures for promoting a product or service, such expenses must be “reasonable and bona fide.”) Second, the phrase “foreign official” does not specify rank or position and can be interpreted to apply not only to employees at the contracting agency but also to legislators, members of a ruling family, or any other agent of a state-owned entity. Third, the prohibition covers not only payments made by the U.S. corporation itself but also payments by employees, agents, stockholders, or any other entity over which the corporation has authority, including agents or subsidiaries residing outside of the United States. The FCPA also applies to payments made by any U.S. person to any third party if they are made with the knowledge that the third party will directly or indirectly (via family members, political parties, or other conduits) transfer some part of the payment to a public official.
The FCPA outlines a host of different criminal and civil sanctions for persons or companies found to have violated its bribery provisions, and the past several years have seen a dramatic increase in the number of FCPA enforcement actions brought against individuals and corporations by the U.S. Department of Justice and the Securities and Exchange Commission. Given these circumstances, it is quite possible that either the ASCE member in this hypothetical case or his firm would have to answer a charge that the promotional event was an unlawful payment under the FCPA.
Moreover, the FCPA is not the only federal law in this area. The Racketeer Influenced and Corrupt Organizations Act (RICO), while designed to combat organized crime, imposes criminal and civil penalties on any person or entity found to have engaged in two or more instances of “racketeering activity,” which is defined to include acts of bribery. RICO also permits a private right of action for persons who have been injured by another party’s act of “racketeering.” For example, a company that felt it had lost the South American contract because of the ASCE member’s unlawful payments could sue the member and his company for damages.
It must also be observed that the United States is not alone in passing legislation to combat corruption in the global marketplace. In 2010 the United Kingdom passed the comprehensive Bribery Act, which, in some cases, goes further than the FCPA. For example, it prohibits attempts to bribe private persons (that is, not involving public entities). And numerous other countries have adopted or are in the process of adopting similar anticorruption legislation.
ASCE is committed to addressing the problem of corruption. Its Committee on Global Principles for Professional Conduct has sponsored numerous initiatives to underline the importance of combating corruption around the world. ASCE’s Policy 510 (“Combating Corruption”) affirms the Society’s resolve to address illegal procurement practices through education, raising awareness, and enforcing standards of professional conduct. ASCE also promotes its Engineer’s Charter, which gives engineering companies and their leaders an opportunity to express their intent to adhere to the highest ethical standards in dealing with private and public entities. The Society is also part of the Global Anti- Corruption Education and Training Initiative, which promotes training in this area through such materials as the video Ethicana. For additional information about the Foreign Corrupt Practices Act, visit the U.S. Department of Justice website, www.justice.gov.
Members who have an ethics question or would like to file a complaint with the Committee on Professional Conduct may call ASCE’s hotline at (703) 295-6061 or (800) 548-ASCE (2723), extension 6061. The attorneys staffing this line can provide advice on how to handle an ethics issue or file a complaint. Please note that individual facts and circumstances vary from case to case, that some details may have been altered for purposes of illustration or confidentiality, and that the general summary information contained in these case studies is not to be construed as a precedent binding upon the Society.
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