Posted by Radhika Kapadia.
The real cost of bribery is a question that often lacks a definitive answer. It seems that Och-Ziff Capital Management, a hedge fund headquartered in New York City, is learning a hard lesson for allegedly engaging in bribery in Africa. The firm is set to pay a hefty price of $412 million dollars, but the SEC has added the implicit cost of hindering fundraising by insisting that the firm clear any potential deals with investors with state regulators, adding considerably lengthy minutes and cumbersome dollars to the fundraising process.
Because of the massive bribery allegations, the firm was unable to obtain a waiver for the penalties corporations subject to civil law enforcement sanctions or criminal charges, such as bribery, typically face. As a result, the company will be faced with the tremendous cost of an increased fundraising process and the more-than-ever watchful eye of the SEC over future investment transactions. In the burgeoning era of bribery cases, the question of whether dollar penalties are truly enough to deter corporations from engaging in illegal acts is often difficult to assess. However, the SEC is beginning to believe that financial consequences, coupled with other implicit penalization costs will truly begin to reduce bribery within the corporate world.
The allegations against Och-Ziff are primarily as a result of their dealings with Dan Gertler, an Israeli diamond-trade millionaire. According to the Wall Street Journal, Gertler was known to use political connections in Africa to defeat competitors. The Wall Street Journal noted that approximately “$250 million of Och-Ziff dollars were used to bribe the current president of the Democratic Republic of Congo in exchange for diamond mining rights.” Despite blatant warnings and advisement from their lawyers, Och-Ziff executives, such as chief executive Daniel Och, chose to deliberately ignore corruption allegations against Gertler. Subsequently, the African subsidiary of Och-Ziff pleaded guilty to conspiracy to commit bribery, resulting in one of the largest settlements under the Foreign Corrupt Practices Act. It seems that Och-Ziff is slowly learning that the true cost of bribery is pervasive, and that ignorance truly is not bliss.
Radhika is a graduate student with a concentration in Forensic Accounting at the Feliciano School of Business, Montclair State University, Class of 2017.
The President signed into law a bill passed by Congress banning U.S. imports of “fish caught by slaves in Southeast Asia, gold mined by children in Africa, and garments sewn by abused women in Bangladesh.” The law closes a loophole in an 85-year-old tariff law which allowed these products to be sold.
Due to high demand of certain products, the previous law allowed these goods to be sold in the U.S. regardless if they were produced by slave labor. Sen. Sherrod Brown has pressed U.S. Customs to make sure the law is enforced. He said, “It’s embarrassing that for 85 years, the United States let products made with forced labor into this country, and closing this loophole gives the U.S. an important tool to fight global slavery.”