The Great Temptation

Some of the most charming and charismatic people in this world are agents – the middlemen who help foreign companies navigate local waters in return for a slice of revenues, typically around 5%. That may sound like small money, but 5% of $100 million – a little deal for telecommunications, military hardware or energy projects, for example – is $5 million. These days, in lots of industries, $1 billion deals aren’t uncommon, and a 5% slice of that pie is a tidy $50 million. Paychecks that size attract very talented people.

The best agents are gifted with the tools of their trade — old-world manners, great annecdotes (in which they usually cast themselves as heroes), reassuring confidence and up-to-the-minute market intelligence. They salt their conversation with the names of world leaders they golf with, and cabinet members, judges, atheletes and Hollywood stars they host on their boats or in their ski lodges.

But despite their savvy, or because of it, agents are the cause of most FCPA problems. All too often they allocate some of their fees to bribe potential public customers, with their principals either not knowing or not caring about the illegal conduct. In the most confusing and opaque economies, agents bring the most value — and the greatest FCPA compliance risks. Countries that come to mind include the newly independent states, as well as Mexico, India, Egypt, Burma, Indonesia and others.

Despite their potential for mischief, the FCPA never declares agents off limits per se. Anyone can retain an agent whenever they want to – at their own risk. The Justice Department warns about the use of agents and dishes out practical advice how to recognize the compliance dangers. For example, in the Lay Person’s Guide to FCPA, the DOJ says this:

“The FCPA prohibits corrupt payments through intermediaries. It is unlawful to make a payment to a third party, while knowing that all or a portion of the payment will go directly or indirectly to a foreign official. The term ‘knowing’ includes conscious disregard and deliberate ignorance. The elements of an offense are essentially the same . . ., except that in this case the ‘recipient’ is the intermediary who is making the payment to the requisite ‘foreign official.’

“Intermediaries may include joint venture partners or agents. To avoid being held liable for corrupt third party payments, U.S. companies are encouraged to exercise due diligence and to take all necessary precautions to ensure that they have formed a business relationship with reputable and qualified partners and representatives. . . .In addition, in negotiating a business relationship, the U.S. firm should be aware of so-called ‘red flags,’ i.e., unusual payment patterns or financial arrangements, a history of corruption in the country, a refusal by the foreign joint venture partner or representative to provide a certification that it will not take any action in furtherance of an unlawful offer, promise, or payment to a foreign public official and not take any act that would cause the U.S. firm to be in violation of the FCPA, unusually high commissions, lack of transparency in expenses and accounting records, apparent lack of qualifications or resources on the part of the joint venture partner or representative to perform the services offered, and whether the joint venture partner or representative has been recommended by an official of the potential governmental customer.” (emphasis in original)

In new or hard-to-reach markets, agents can be an important and even essential ingredient for commercial success. They can help identify real opportunities, keep foreign companies clear of local political quicksand, and teach important lessons about the home town culture. But when agents guarantee successful results, open doors in high places a little too easily, and wink when asked about their business methods – then they’re too good to be true. Those agents might make great dinner companions, but they shouldn’t make it past an effective compliance program.