A Gabonese national who was allegedly paid $3.5 million for facilitation services in Africa by hedge fund Och-Ziff was arrested this week as part of an FCPA investigation.
Unaoil described itself as an organization which “integrates western technology with global capability.” but this seems to have been a euphemism for paying bribes to secure energy contracts in high risk petrostates.
The OECD 2014 Foreign Bribery Report found that intermediaries — agents, distributors, brokers, subsidiaries, shell companies — were involved in three out of four of successful bribery prosecutions.
What are the implications of this for companies?
The high bribery risk attached to agents and intermediary organizations is hardly news. Since the flagship Panalpina case, regulators have understood that intermediaries can be entry points for investigations that can generate a domino effect throughout entire sectors. But the force multiplier effect of targeting intermediaries is now understood by transparency activists and hackers too, as Unaoil and the Panama Papers demonstrate.
There has been much smart discussion about the limits of standard due diligence processes, the importance of identifying beneficial owners, and the need to evaluate your third parties according to the risk they present.
However, there is another possible response to this challenge — stop using fixers for the purpose of winning business. In the context of data leaks and regulatory attention, the rewards are no longer commensurate with the risks incurred.
Yes, commercial intermediaries can be used for legitimate purposes. It is argued they’re necessary for access, influence and information. They can help companies navigate difficult and uncertain waters in high risk markets. They can enhance understanding of complex, opaque contract award processes. They can provide access to influential people in countries where business success depends on personal relationships. They can provide valuable market intelligence that goes beyond research. They can help with market entry, before a company is established and able to hire its own local employees.
All of these arguments for using intermediaries may be true in theory, which is why regulators have not yet made them entirely off limits. However, it is demonstrably extremely difficult to draw the line between market intelligence and violations of competition law, or of facilitating access to influential government officials without an expectation that that access will need to be rewarded.
Companies will need to continue to use lawyers, accountants and travel agents, although these players have also frequently featured in bribery investigations. But it is difficult to argue for maintaining relationships with fixers whose only service is information, access or intelligence in high risk environments.
If the limits of due diligence are not enough of a deterrent, there is another — political risk. Corruption is emerging as a source of public concern and political instability in an enormous range of countries — a partial list might include South Africa, Turkey, Ukraine, China, Russia, Brazil, Italy, Malaysia, Indonesia, Nigeria, India, Mexico, Russia, the United States and Guatemala.
Anger over corruption and state capture can lead to popular protest, political instability, and regime change — or to crackdowns and cover ups. In either scenario, individuals who have made a living providing access to people and information are highly vulnerable. They can lose their influence in an instant, or become convenient scapegoats for the government.
Relying on them to navigate these difficult waters no longer looks like effective risk management but an attempt to outsource the key determinants of corporate success in a global market — relationship management, integrity and transparency.
If you need a fixer to make your deal succeed, it may simply be a sign that this deal is too risky for your organization.