Dilemma 6: Local agent - Answer

There is nothing wrong in itself with appointing an agent.  The use of agents is a recognised business model.  If a company needs someone in a local country to represent it, and does not want to bear the cost of opening a local office (which could be considerable if the company wants the opportunity to sell in many countries), then it may choose to appoint a local agent.  However, for some time now, agents have been used both by corrupt companies and by corrupt officials as the conduit through which bribes are paid.  This risk is now well-known, and there has been a big international clamp down on this type of corruption.  Some of the best known proven cases of corruption involve bribes paid through agents.  However, many agents are legitimate, and do not pay bribes, so it is still possible to appoint agents.

 

There is nothing wrong in itself with paying a success fee.  A success fee is regarded as an incentive for someone to work hard in order to achieve the fee.  It also reduces the cost risk of the company paying the fee, as it is only paid in the event of a successful outcome (e.g. a contract award).  However, success fees are renowned for encouraging corruption.  If an agent knows that his payment is dependent on the success of a tender, then this is strong temptation for him to use corrupt methods to ensure that the tender is won by the company.  The motivation for the agent to be corrupt increases according to factors such as the size of the fee and the extent of corruption in the country and sector.   

 

Consequently, the appointment of agents on success fees is a very high risk business model.  If you were to agree to this arrangement, and if it was subsequently found that the agent had paid a bribe in order to help win your contract, both you and your company may be considered either to have intended the corruption, or to have been aware of the risk of corruption but to have turned a blind eye to it.  In both cases, this can result in criminal liability for both you personally and your company.

 

It is preferable therefore to avoid using agents on success fees.  For example, contracts can be obtained without using agents, or local representatives can be appointed on a salary, or on a reasonable day rate basis.  If, however, there is really no alternative but to use an agent on a success fee, then the company should do all that is reasonably possible to avoid the agent paying a bribe in relation to obtaining the contract for the company.  For example:

• Undertake due diligence on the agent to find out whether he is a high corruption risk (e.g. internet searches, using a due diligence company etc.)
• Discuss the importance of corruption prevention with the agent, and obtain the oral assurance of the agent that there will be no corruption in relation to the contract.
• Make the agent sign a no-bribery commitment in the agency agreement.
• Ensure that the services which the agent is to perform are legitimate, and are correctly reflected in the agency agreement.
• Choose an agent who has the ability to help your bid in a legitimate manner (e.g. a professional agent who knows your product and can provide legitimate support services, not an agent whose sole purpose is to “open doors”).
• Pay the agent a fee which reasonably reflects the legitimate services which he is to provide (e.g. estimate the amount of days of work which the agent will undertake, calculate a reasonable day rate, and calculate legitimate office overheads and expenses, so as to come to an estimated lump sum.  Then add a reasonable mark up to take account of the possibility that the contract may not be won.)  Document the way the fee is calculated so that you have a record of the attempt to calculate a reasonable fee.  There is no such thing as an “acceptable percentage” - it is the actual amount paid which is relevant.
• Pay the agent in the country in which the project takes place - not off-shore.
  
  
  

However, it should be borne in mind that even if all the above steps are followed, the agent may still, against your wishes, be corrupt.  If you have genuinely taken the above steps, you and your company are unlikely to be criminally liable, but your company could still bear the civil liability and reputational damage which could follow from the fact that the contract was obtained corruptly.  

 

If you are working with a local joint venture partner or major sub-contractor, you should take similar steps to the ones referred to above in relation to the joint venture partner and sub-contractor, as they also could be used as conduits for bribes.