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.