The FCPA Files: Goodyear International Corp. (1989)
The 1970s was a rough decade for American tire manufacturers. Consumer preference was moving away from smooth-riding and flexible bias-ply tires in favor of the more durable and fuel-efficient radials European companies had developed. Adapting to this demand would require significant investment in new machinery, with no guarantee that carmakers would go along with the trend. Of the five leading American firms, four were unable to pivot effectively, leaving them weak and open to foreign acquisition. The exception was Akron-based Goodyear, which bit the bullet, made the adjustment, and largely held onto its impressive global market share—though it faced increasing competition from France’s Michelin and Japan’s Bridgestone.
In early 1978, Goodyear’s newly-appointed export manager for the Middle East, David Janasik, traveled to Baghdad to meet with officials from the Iraqi Trading Company, the agency responsible for importing all tires, batteries, and home appliances under the country’s socialist economy, which at the time was the second-largest in the Arab world. The formal discussion branched out into a private meeting with one of the officials, held in the fittingly seedy location of a nearby company storage room. Janasik initially rebuffed the suggestion that certain “commission” payments would help Goodyear’s sales prospects. But after returning home to Greece and relaying the conversation to his higher-ups, he was instructed to do whatever it took to secure the business.
The scheme’s execution was complicated by what appears to have been heightened surveillance and domestic peril following Saddam Hussein’s savage purge and assumption of total power in July 1979. There were no more trips or even phone calls to Iraq, arrangements instead being made through in-person visits in Athens or London. Over a five-year span, close to a million dollars in commission payments was drummed up using sham marketing studies and fictitious ad campaigns. Eventually these caught the attention of the company’s auditors, who were already busy interviewing Janasik by the time the money was actually delivered to the Iraqis (in a Geneva hotel room, by Janasik’s wife) in late 1984.
Janasik would plead guilty to tax evasion in 1988—he had failed to report his own $75,000 allotment of bribe money—and Goodyear would follow suit the next year. By then, Iraq’s once-thriving economy was in tatters after eight years of war with Iran. Things didn’t get much better from there.
This post is part of "The FCPA Files" series, examining key enforcement cases under the Foreign Corrupt Practices Act and the lessons they offer for modern compliance. |