Schlumberger, the Wall Street Journal reported last week, hired Zonic Invest Ltd., a consulting firm run by the nephew of Yemeni President Ali Abdullah Salehto, and agreed to pay a $500,000 signing bonus, plus other compensation.
Coincidentally, a reader asked us a couple of days before the WSJ report appeared if signing bonuses for agents and consultants are illegal under the FCPA.
Like other unusual payment arrangements, they’re not banned outright. But they’re a compliance red flag — a clear signal that an FPCA violation might be about to happen.
Sales agents and other intermediaries cause most FCPA offenses. 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.
But knowing enough to believe a violation might occur satisfies the FCPA’s “knowledge” requirement. And the principal’s willful blindness or deliberate ignorance won’t protect it against FCPA liability. See 15 U.S.C. §§ 78dd-1(f)(2), 78dd-2(h)(3), 78dd-3(f)(3).
The DOJ warns about “unusual payment patterns or financial arrangements” with intermediaries. And a white paper from Michael Volkov, a partner at Mayer Brown, and World Compliance, one of our sponsors, lists some of the weird payment patterns and financial arrangements that are red flags and should always trigger more due diligence.
- Paying a commission substantially above the going rate for agency work in a particular country. An excessive commission might suggest that a portion of the funds is going to a foreign official. Then again, your agent might just be greedy.
- Payments through convoluted means. If your agent asks for payment to a numbered account in the Bahamas, the DOJ or SEC could consider a failure to investigate this as culpable conduct under the FCPA.
- Over-invoicing (i.e., the intermediary asks you to cut a check for more than the actual amount of expenses).
- Requests that checks be made out to “cash” or “bearer,” that payments be made in cash, or that bills be paid in some other anonymous form.
- Requests that payments be made to a third party.
- Payment in a third country, which suggests a plan to divide the commission in the third country away from government scrutiny.
- Requests for unusual bonuses, one-time success fees, or extraordinary payments.
Agents and other intermediaries bring the most value — and the greatest FCPA compliance risks — in the most confusing and opaque economies. When high commissions, diverted payments, and signing bonuses are also involved, red flags abound.