RELEVANT PROVISIONS OF THE ICC RULES AND THE OECD AND UN CONVENTION

There are three references to the use of agents or other intermediaries in ICC Rules. The principal provisions can be found in Article 2, which is devoted exclusively to the use of agents. It reads:

“Enterprises should make their anti-corruption policy known to all agents and other intermediaries and make it clear that they expect all activities carried out on their behalf to be compliant with their policy. More particularly, enterprises should take measures within their power to ensure:

  1. That any payment made to any agent represents no more than an appropriate remuneration for legitimate services rendered by such agent;
  2. That no part of any such payment is passed on by the agent as a bribe or otherwise in contravention of these Rules of Conduct;

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  1. Those agents agree explicitly not to pay bribes. Enterprises should include in their contracts provisions to terminate agreements with agents if a bribe is paid, except for agreements with agents performing routine administrative or clerical tasks.
  2. That they maintain a record of the names, terms of employment and payments to all agents who are retained by them in connection with transactions with public bodies, state or private enterprises. This record should be available for inspection by auditors and by appropriate, duly authorized governmental authorities under conditions of confidentiality.

The foregoing provisions should be applied to all agents or other intermediaries used by the enterprise to obtain orders and permits, including sales representatives, Customs agents, lawyers and consultants.”

Another provision is found in Article 1, which states that

“Enterprises should prohibit bribery and extortion at all times and in any form, whether direct or indirect, including through agents and other intermediaries.” Further, Article 1 c) states:

“Enterprises should not …. (ii) Utilize intermediaries such as agents, subcontractors, consultants or other third parties, to channel payments to government officials, or to employees of the other contracting party, their relatives, friends or business associates.”

The OECD Convention, which is concerned with the use of agents to bribe foreign public officials, employs much the same language and also prohibits indirect as well as direct offers of bribes. Under the Convention’s Article 1.1, all signatories have agreed to enact laws as may be required to establish “that it is a criminal offence for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business” [emphasis added].

The parties to the OECD Convention further agreed, in Article 1.2, to establish “that complicity in, including incitement, aiding and abetting or authorization of an act of bribery of a foreign public official, shall be a criminal offence”.

The UN Convention (UNCAC), in Articles 15, 16 and 21, criminalizes all forms of corrupt practices (national or foreign, active or passive, public or private) when committed directly or indirectly.

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If, therefore, a company employee knows of proposed illegitimate activities by the company’s sales agent (or deliberately ignores indications thereof), the employee may be considered to have implicitly authorized the subsequent payment of a bribe and, in those countries where criminal responsibility of legal persons exists, the company may be held criminally liable in its own country. A “head in the sand” approach to managing the sales agent is not acceptable.

However, if the company can demonstrate that it did not authorize or approve the payment, that it had conducted adequate due diligence to satisfy itself that its agent would not pay a bribe and aggressively investigated and resolved any “red flags” relating to the sales agent, the risk of the company’s being held criminally responsible for the transgression of its representative will be significantly reduced.

There is an increasingly recognized affirmative obligation on a company to supervise its agents. In fact, a number of major companies, including Siemens and BAE, have, in recent years, announced a substantial reduction in the number of agents employed.

The issues

The agent’s role

Independent sales agents or sales representatives (the term “agent” being used in this chapter to include agents and other intermediaries) often constitute a key element in a company’s international marketing and sales structure. They promote the sale of products and may be instrumental in establishing a favourable image of the company in world markets. These agents are generally independent organizations or individuals engaged to help the company solicit business for specific products and services. Moreover, the use of independent local agents may be required by certain host-country laws.

The agent provides services to promote orders for products and services and to facilitate the company’s performance of its obligations under resulting orders. Orders are, however, normally placed by the customer directly with the company as supplier (although occasionally the agent may be granted authority to contract on behalf of, and in the name of, the company). The agent is commonly compensated by either a fee or a commission, which is usually determined by a percentage of the sales price of the products or services sold with his assistance.

When company sales personnel are not stationed full time in a sales territory, the agent provides an important local liaison with customers and continuous sales service, both before and after the submission of bids, during negotiation of contracts and throughout the performance of the company’s obligations. The agent usually lives in the country where the customer resides, speaks the local language and is familiar with local laws, regulations and customs. Generally, he is an asset to a [Page52:] company in securing and fulfilling business contracts in the foreign country. That said, the use of international sales representatives can create unique problems, so much so that many multinational companies now locate their own employees in the country either permanently or on a temporary part-time basis whenever possible, in order to avoid the risks involved in retaining a local sales representative.

The risks

One reason why international sales agents can create problems is that they do not necessarily share the same ethical standards as the company and may not be trained in its code of conduct. They are usually nationals of the country where the proposed contract is to be performed and, in some of these countries; it may not be uncommon for bribes to be paid. Therefore, to secure business, agents are more likely to be susceptible than company employees to the temptation to pay a bribe.

In addition, the commission payable to a sales representative on the award of a major project is often so large that it may not only present the temptation, but also an opportunity for him to pay a significant bribe to obtain the contract, and still be left with a large sum of money in his own pocket.

Consequently, there is a serious risk that, if not carefully selected and trained and appropriately monitored, a sales representative, through his illicit activity, may not only tarnish the reputation of the company he represents, but may also cause the company, its management and its employees to be subject to criminal prosecution in their own country under the laws prohibiting foreign bribery that have been passed to implement the OECD Convention. Today a company is regarded as failing in its obligations if it fails to train its agents and, even if trained, an agent may not necessarily comply, since an agent, compared to a company employee, is much less likely to believe that the old-fashioned way of paying a bribe to secure a contract is no longer acceptable.

Remedial actions: the code of conduct

What measures, then, should a company take to ensure that its agent will refrain from paying bribes in connection with the company’s business and will abide by the provisions of the company’s code of conduct prohibiting payment of bribes?

First, a company should provide, as a directive to its own personnel, that in utilizing sales representatives the company will employ only reputable, qualified individuals or firms. Second, it should be made clear that such third parties will be bound by the anti-bribery provisions of the company’s code of conduct and that they must represent the company in a manner consistent with its commitment to integrity. Third, the company should ensure that compensation arrangements for agents are reasonable in relation to the services performed.

In sum, a company should establish specific criteria and procedures regarding agents’ selection, compensation and engagement, and the criteria and procedures should be provided for in the company’s code of conduct.

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Agents: Three Company Codes

WellCare Healthcare Plans, Inc.

“To ensure compliance with all marketing guidelines and the Code of Conduct, all Sales Agents should understand that WellCare undertakes the following initiatives:

  • Completion of mandatory training and testing for all sales agents
  • Revocation of selling privileges for sales agents who do not complete this training and score 100% on the required testing
  • Mandatory new member call-backs to 100% of new enrolees to confirm that their sales experience was positive and that they understand their benefits
  • Follow-up calls to all beneficiaries enrolled by any terminated sales agent to confirm their enrolment decision or facilitate disenrollment
  • Monitors sales data for potential issues and to educate or even terminate agents based on our findings, with emphasis on proactive resolution of issues
  • Monitors a confidential compliance Hot Line where members, associates and government regulators can report concerns about potential marketing misconduct.”

Fruit of the Loom

“To assist Fruit in assuring compliance with this Code of Conduct, Contractor agrees to:

  1. Require all of its officers and employees who will be responsible for or involved with the implementation of procedures designed to ensure compliance with this Code of Conduct to review and familiarize themselves with this Code of Conduct;

  1. Require all of Contractor’s suppliers, subcontractors and agents to execute and deliver to Fruit a Code of Conduct on or before execution of an applicable agreement or purchase order with Fruit;

  1. Provide Fruit with access to its and any Fruit authorized Contractor supplier, subcontractor or agent production facilities to conduct inspections;

  1. Provide, upon request, Fruit with proof of production, including without limitation, shipping documents, cutting and sewing reports and similar documentation;[Page54:]
  2. Provide, upon request, Fruit with proof of compliance by Contractor and its suppliers, or agents with applicable labour laws and including, without limitation, proof that all employees meet minimum legal working age and pay requirements and the right to, interview such employees regarding the same. Fruit intends to make every available effort to assure the veracity of all documents it receives and reviews and the authenticity of Contractor's sources of supply.”

Honeywell International

“ When it is necessary to engage the services of an individual or firm to consult for or otherwise represent the Company, special consideration must be given to avoid any situation that may create, or appear to create, a conflict of interest between Honeywell and the person or firm employed ”.

  • The Company will enter into representation or supplier agreements only with companies believed to have a record of and commitment to integrity. Efforts will be taken by Honeywell to ensure that suppliers, agents, consultants, independent contractors and representatives are aware of this Code.
  • The Company will seek to inform our suppliers, agents, con- sultants,independent contractors, and representatives of their responsibility to act on behalf of Honeywell consistent with the Code, other Honeywell policies and any applicable law or regulation.”

The selection process

In selecting agents, it will normally be the responsibility of the sales manager for a particular geographical area, or for a particular business component of the company, to determine whether there is a need to appoint an independent agent for a given market, product or service. The manager should also determine the agent’s required qualifications to accomplish planned sales results and recommend candidates for the job. Increasingly, however, because of the severity of the risks involved, responsibility for the decision to retain a sales agent is taken at a higher level of management.

As part of the selection process, the sales manager should carry out a thorough documented due diligence background check of each candidate. Detailed information should be obtained so that the company can evaluate, not only the candidate’s financial standing, but also his commercial and technical competence to discharge the required services and his reputation for business integrity. The latter can be demonstrated by:

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  • A good standing in the business community;
  • Sound business-practice standards;
  • The absence of conflicts of interest;
  • Good relationships with potential customers;
  • Good government relations;
  • Favourable embassy and other appraisals.

Considerable information may be obtained by having the prospective candidate complete a written application form for appointment as an international sales representative. This document should elicit information concerning:

  • The nature and history of the applicant’s business;
  • Details of the ownership and principal officers and managers of his firm;
  • Information about his representation of other companies (with a principal contact for each);
  • Office facilities and staff;
  • Technical, financial and educational background;
  • Knowledge of the company’s products and environment;
  • Affiliated companies;
  • Business or personal relationships with the proposed customer;
  • Principal product lines currently handled for other enterprises; and
  • Any litigation involving the applicant’s activities.

The completed application form should also include pertinent market information, financial statements, financial references (including banks and principal suppliers) and general references (such as other companies that the applicant has represented). It should be accompanied by an authorization for the release of information from the references the candidate has provided.

The sales manager should be satisfied that the applicant understands the company’s “no bribery” policy. He should also obtain the applicant’s written acknowledgement of the policy and an undertaking to comply.

In many companies, there has been a recent shift to much greater management responsibility and involvement in the decision-making process relating to the selection and appointment of agents. Sales managers alone should definitely not be allowed to make the final decision on the appointment of a sales representative.

Having selected a suitable candidate, the sales manager should be required to submit a written recommendation to senior management of the company (usually[Page56:]the business manager, finance manager and company counsel) for their approval. This field recommendation form should clearly establish the business need for employing an agent and set forth the sales manager’s comments, not only on the commercial and technical competence of the applicant, but also on his reputation for business integrity (including a summary of comments received from the local embassy, customers and other enterprises represented).

This document should set out the proposed compensation and the justification thereof and should include a copy of the application. The field recommendation form should also contain a certification by the sales manager that in his opinion the candidate firm is reputable, qualified and suitable for appointment and consistent with the company’s standards of business integrity. It should also stipulate that the agent is fully aware of, and will comply with, the company’s code of conduct and with the anti-bribery laws enacted under the OECD and UN Conventions and that his compensation arrangements are reasonable in relation to the services to be performed.

Agents: sample best practices

A survey of 15 multinational companies revealed some of the following best practices for hiring and dealing with agents:

  • One company conducts a formal review process not only of its prospective agents, but also of its business partners’ agents. This ensures that agents who may be acting indirectly on the company’s behalf also go through a formal review process and that the company does not rely on their business partners’ review;
  • One company requires a face-to-face meeting between principals before approving a third-party agent. The company’s executive vice-president (or other senior official) meets with the proposed new foreign business representative when the contract is “significant”;
  • When assessing the legality of a questionable contract, one company requires its own legal staff to investigate the host country ’s laws and to solicit an official opinion instead of relying solely upon the legal verification of their prospective agent;
  • One company compensates its agents in a lump-sum payment and refuses to reimburse costs not included in contractual compensation arrangements. The rationale for this practice is to prevent agents from adding unnecessary or illegal payments or expenses to secure the contract;
  • One company refuses to pay commissions to its agents until the contract is complete. While these agents may still be able to make illegal payments to secure the contract, it provides another disincentive for doing so and can provide the company with additional time to assess the a g e n t s ’

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It is recommended that guidelines and procedures be established relating to the method, currency and place of payment of sales-agent commissions. All payments should be by bank transfer or cheque payable to the agent and should be made in strict conformity with the written agreement. Also, save for exceptional circumstances, payments should be made in the country where the agent is active or registered. No cash payments should be made under any circumstances, and the company’s financial managers should ensure that accurate records are kept, showing details of all commission payments. It is also advisable that a company conduct annual reviews of all payments made to sales representatives.

Engagement

Each foreign sales agent arrangement should be covered by a written agreement signed by an authorized representative of the company. The agreement should be for a fixed term, preferably of limited duration and should provide for periodic review. It should contain an undertaking on the part of the agent to comply at all times with all relevant laws and with the company’s policy prohibiting the payment of bribes (the relevant parts of which might be incorporated into the agreement or attached as a schedule). It should also allow for a right of immediate termination by the company in the event of a breach of this provision. A provision for audit rights, verification programmes and periodic compliance reviews should also be included.

The agreement should specify the amount of compensation, and no payment should be made unless it conforms to the written agreement. Moreover, the agent should not start work for the company until all required company approvals have been obtained and the written agreement executed. The agent should report to the company regularly and on a continuous basis on the accomplishment of the assigned tasks.

It is recommended that the company establish a standard form of international sales representative agreement and that no modifications to the standard form be permitted without the approval of appropriate senior management or the legal department.

“Red flags”

When evaluating a prospective agent, it is very important to watch for “red flags” which could serve as advance warnings of potential illegal activities or violations of company policy. Specifically, the company should be on guard if a proposed sales representative:

  • Does not reside in the same country where the customer or the project is located;
  • Does not have any significant business presence within the country;[Page58:]
  • Represents any companies with a questionable reputation;
  • Requests that commissions be paid in a third country or to a numbered bank account or to some other person;
  • Requires payment of the commission, or a significant portion thereof, before or immediately upon award of the contract by the customer to the company;
  • Claims that he can help secure the contract because he knows all the right people;
  • Has a familial or other relationship that could improperly influence the customer’s decision; or
  • Arrives on the scene just before the contract is to be awarded. Other signs of questionable activity can be:
  • A customer who suggests that a bid be made through a specific sales agent;
  • A commission that seems unusually high in relation to the services provided;
  • A request for an increase in the agreed commission in order for the agent to “take care” of some people.

If these or any other red flags are identified, the company should thoroughly investigate and satisfactorily resolve them before proceeding with the appointment of the sales representative. Any red flags that arise following appointment of the agent should be similarly investigated, reviewed and either be appropriately resolved or result in termination of the agent’s contract.

Summary of the ICC Recommendations on agents and sales representatives

Foreign sales agents or representatives can be an important component of a company’s successful sales performance, and there is no suggestion, either in ICC Rules or in the OECD Convention, that these individuals’ services should be dispensed with. There is recognition in both documents, however, that much care must be taken in the selection of a sales representative and that the role of sales agents must be carefully supervised. If these measures are not taken – and the company becomes involved in illegal activities because of an agent’s actions – the company may be held liable for the consequences.

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Therefore companies should:

  • Write into their codes of conduct provisions requiring responsible company personnel to hire only qualified and reputable agents;
  • Make clear in the code that all agents are bound by its anti-bribery provisions and by those of the OECD Convention;
  • Before hiring an agent, conduct a detailed background check on his 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 he will comply;
  • Establish specific compensation guidelines to ensure that an agent’s compensation is not excessive in relation to the services he renders;
  • Require senior management’s approval of all sales representative appointment s ;
  • Pay all agents’ commissions by cheque and not in cash;
  • Require agents to sign a written agreement containing, among other provisions, a commitment not to pay bribes;
  • Be alert to red flags which can signal questionable integrity on the part of an agent;
  • Avoid, wherever possible, appointing agents in high-risk countries were bribery is prevalent.

Michael Davies is a member of the ICC Commission on Anti-Corruption. He is also the author of Chapter 7 in this handbook.