Monday, June 07, 2010

Fitch considers bribery for credit ratings - now consider tax

From the Task Force blog:

"Last week, we saw some very heartening news from Fitch Ratings. The powerful credit-rating agency announced on Tuesday that it would consider violations of the Foreign Corrupt Practices Act (FCPA) a credit liability for corporations.

According to Reuters:

“Companies that violate FCPA or other anti-bribery conventions have committed a criminal act that makes them potentially subject to indictment,” Fitch said. “Criminal indictment can be hazardous to the financial health and existence of corporations.”

Indictment alone can trigger onerous reporting requirements, civil lawsuits, business losses and reputational risks, Fitch said. Violations of the act can also become a sticking point in acquisitions or dispositions of businesses, Fitch added.

It only makes sense, then, that a violation of the act would lead to a potential credit downgrading.

Good progress, as far as it goes. Now how about including tax payments as a signal about whether corporations are adding genuine long-term value - through such old-fashioned notions as providing better or cheaper goods and services - or whether their managements are focussing instead on artificial short-term tricks to boost shareholder value and executive compensation?

Read more here.

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