Concealing Corruption

(1) Use of intermediaries

The payment of a bribe may be made direct by the payer to the ultimate recipient who is to carry out the dishonest act.  However, it is common for a bribe to be paid through intermediaries. This is done so as to make it more difficult to detect that a bribe has been paid, and more difficult to prove that the bribe and corrupt act were linked.

The following are some common methods of concealing a bribe by the use of intermediaries:

• Agents.
  • An agent is probably the most common form of intermediary. A company bidding for a contract which wishes to hide the payment of a bribe may appoint an agent who has contacts with a representative of the project owner or with a public official of the country concerned. The company will enter into an agency agreement with the agent which purports to be an agreement for legitimate services. However, the scope of those services will often be false or exaggerated and the size of the payment due under the agreement will often be significantly in excess of the value of the legitimate services specified in the agreement. The payment may sometimes be expressed as a percentage of the contract price.
  • The agent will normally receive the payment when the company is awarded the contract. The agent may then pass the whole or part of the payment to the representative of the project owner or the public official who has dishonestly ensured that the company would win the contract. The payment is often made into an offshore bank account.
• Joint ventures.
  • An international joint venture, comprising joint venture partners from several countries, may arrange for an agency agreement (which conceals a bribe arrangement as described in “agents” above) to be entered into by the joint venture partner which is resident in the country which is least likely to discover or punish the bribery.
  • Alternatively, a joint venture partner may be owned by a relative of a representative of the project owner, or by a public official. In this case, the bribe may be paid by allocating to that joint venture partner a bigger share of the profit than that partner should legitimately have received.
• Subsidiaries or other group companies.
  • Where a company is part of a multinational group, arrangements may be made by the group for a corrupt agency agreement to be entered into, or for a corrupt payment to be made, by a subsidiary or other group company which is located in a country where the bribe is less likely to be detected or punished.
  • The subsidiary or other group company will then be repaid by the company through inter-company charges for false services, or services of inflated value.
• Sub-contractors:
  • A company may channel a bribe through a corrupt sub-contract arrangement. For example, a sub-contract may falsely provide that certain services are to be provided to the company by the sub-contractor in return for a certain payment.
  • In reality, the sub-contractor will not provide these services, or will provide services of a much lower value than the price agreed. The balance of the payment will then be passed on by the sub-contractor to the relevant party as a bribe.

In each of the above cases, the bribe may have been deliberately paid with full knowledge of all relevant parties.  Alternatively, a bribe may be paid in situations where a related party is unaware of the bribe. For example:

• A company appointing an agent may be unaware that an agent intends to use part of the agency fee to pay a bribe.
• A joint venture partner may be unaware that a fellow joint venture partner has paid a bribe in order for the joint venture to win the contract.
• A company may be unaware that a subsidiary in another country is paying bribes to win a contract.
• A company may be unaware that a sub-contractor paid a bribe to a representative of the project owner to ensure that the company won the tender.

In situations such as the above, a party may be genuinely unaware that these practices are occurring. However, in some cases, the party may have been wilfully blind to the circumstances. In other words, it may have suspected that there was a likelihood of corruption but refrained from making enquiries or taking preventive action. Such wilful blindness would be treated as culpable in most jurisdictions.

The reason why the above arrangements are used for corrupt transactions is that, in most cases, agents, joint ventures, subsidiary companies and suppliers undertake legitimate services and do not act corruptly.  Therefore, the appointment of such organisations does not normally in itself raise suspicions.  In consequence, corrupt organisations can utilise the above arrangements to disguise corrupt transactions.  Corruption using these arrangements can be particularly difficult to detect if the intermediary is partially carrying out legitimate services, and partially undertaking corrupt services.