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INTERNATIONAL ANTI-CORRUPTION CONFERENCE (IACC)
Programme Papers from the 9th IACC
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The 9th International Anti-Corruption Conference

The Papers


APPLICATION OF CORORATE COMPLIANCE PROGRAMS TO SALES REPRESENTATIVES

Michael N. Davies, Q.C.
Chairman, Transparency Committee Pacific Basin Economic Council (PBEC)


I. Relevant Provisions of ICC Rules and OECD Convention
II. Risks When Using an Agent
III. The Remedy
IV. Selection Process
V. Compensation
VI. Engagement
VII. Red Flags
VIII. Summary

I. RELEVANT PROVISIONS OF ICC RULES AND OECD CONVENTION

ICC Rules

  • No enterprise may directly or indirectly offer or give a bribe (Art. 2a); and

  • Enterprises should take reasonable measures to ensure that no part of an agent's commission is passed on by the agent as a bribe (Art.3)

OECD Convention (payment of bribes to foreign public officials)

  • bribes paid directly or through intermediaries to a foreign public official in order that official act or refrain from acting re performance of official duties to obtain or retain business or other improper advantage
    • a criminal offense

  • "Head-in-the-sand" approach no longer acceptable

  • If supplier knows of proposed illegal activities of agent (or deliberately ignores indications)
    • may have indirectly authorized
      • possible criminal prosecution
  • However, if supplier can demonstrate:
    • did not authorize or approve the payment
    • conducted due diligence to be satisfied agent would not pay a briber, and
    • investigated and resolved "red flags" relating to the agent
      • risk of criminal liability significantly reduced

II. RISKS WHEN USING AN AGENT

  • The risks when using an agent:-
    • usually nationals of foreign country
    • bribery may be common
    • different ethical standards
    • not trained in supplier's code of conduct
    • where commission large, provides temptation and opportunity
    • may not only tarnish company's reputation, but may also
      • criminal prosecution

  • So why use an agent?
    • often a key element in international marketing and sales structure
    • helps to establish favourable image of company in world markets
    • usually lives in same country as customer
    • speaks language and familiar with laws and regulations
    • promotes sale and facilitates performance of obligation
    • provides important local liaison with customers and ongoing sales service
    • may be required by local law

III. THE REMEDY

  • The Remedy:-
    • company policy only to hire reputable firms
    • compensation limited to what is reasonable related to services performed
    • agent bound by company's no-bribery policy

  • How to Achieve Compliance:-
    Need to establish specific criteria and procedures re:
    • selection
    • compensation, and
    • engagement

IV. SELECTION PROCESS

  • Thorough background check - reputation for business integrity as demonstrated by:
    • good standing in the business community
    • sound business practice standards
    • absence of conflicts of interest
    • good relationship with potential customers
    • favourable embassy and other appraisals

  • Written application - eliciting information regarding:
    • nature and history of applicant's business
    • details of ownership and principal officers and managers
    • information about representation of other companies (with a principal contact for each)
    • office facilities and staff
    • affiliated companies
    • business or personal relationships with proposed customer
    • principal product lines presently handled for other enterprises
    • any litigation involving sales rep's activities

  • Personal interview and explanation of company's "no bribery" policy
    • written acknowledgement of agent

  • Field Recommendation Form
    • establishing business need for local sales representation
    • justifying proposed compensation
    • certifying satisfaction that agent will comply with "no-bribery" policy

  • Senior Management Approval

V. COMPENSATION

Usually a percentage of contract price, and conditional on award of contract. If in excess of reasonable compensation for legitimate services

  • temptation and opportunity to pay a bribe

  • Establish specific compensation guidelines
    • sliding scale (commission percentage ¯ as contract value ­)

  • Sales manager to outline reasons for proposed compensation

  • Company guidelines re method, currency and place of payment
    • cheque only, no cash

  • Periodic payments in sync with payments under contract

  • Keep accurate detailed written records

VI. ENGAGEMENT

  • Written agreement

  • Fixed term or life of project

  • Undertaking to comply with law and company's "no-bribery" policy

  • Immediate termination for breach

  • Audit rights and periodic compliance review

VII. RED FLAGS

(advance warnings of potential illegal activities)

If a proposed sales rep:

  • does not reside in same country as customer or project
  • does not have any significant business presence within the country
  • represents other companies with a questionable reputation
  • requests commission be paid in a third country or numbered bank acct. or third person
  • requires payment of the commission, (or significant portion) immediately upon award by customer of the contract to the company
  • claims that he can help secure the contract because he knows all the right people
  • has a family or other relationship that could improperly influence customer's decision
  • arrives on scene just before contract is about to be awarded

Other signs of questionable activity:

  • a customer who suggest that a bid be made through a specific sales agent
  • a commission that seems unusually large in relation to the services provided
  • a request for an increase in the agreed commission in order to "take care" of some people

Need to be thoroughly investigated and satisfactorily resolved

VIII. SUMMARY

  • write into code of conduct provisions requiring responsible company personnel to hire only qualified and reputable agents;

  • make it clear that all agents bound by the code's anti-bribery provisions

  • before hiring an agent conduct a detailed background check on professional competence and personal integrity;

  • require prospective agents to fill out a detailed application form listing their business details, product lines and references;

  • discuss the company's "no bribery" policy with the proposed agent and be satisfied that they will comply;

  • establish specific compensation guidelines to ensure that an agent's compensation is not excessive in relation to the services to be rendered;

  • require senior management approval of all sales representative appointments;

  • pay all agents' commissions by cheque and not in cash;

  • require agents to sign a written agreement containing, among other items, a commitment not to pay bribes; and

  • be alert to "red flags" which can signal an agent's questionable integrity

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