In this recent post, Richard Cassin (Founder and Editor at Large of the FCPA Blog) asks “are agents ever ‘legal’ under the FCPA?” He writes:
“My serious purpose in asking if agents are legal under the FCPA is about compliance with the accounting standards. […] Concerning the FCPA internal controls provisions, my question is: Can issuers meet the requirement if they use intermediaries? Or, is the use of an agent, which necessarily involves some loss of control, always non-compliant with management’s legal duty to provide reasonable assurance that transactions are accurately recorded, lawful, and in accordance with management’s authorization?”
These are absurd questions.
Congress was well aware in passing the FCPA that agents were a dominate feature of the international business landscape. Indeed, Congress held a specific hearing in 1975 that focused on the role of agents in foreign military sales. In another hearing during the FCPA legislative process, SEC Commissioner Philip Loomis stated: “It is normal and understandable that American corporations seeking to do business abroad will employ or retain sales agents, business consultants and others who are on the scene and familiar with local ways of doing business. Payments made to such intermediaries are often entirely proper …”. During its legislative process, Congress placed much reliance on the “Report of the SEC on Questionable and Illegal Corporate Payments and Practices.” The SEC Report states: “The Commission recognizes that corporations doing business abroad often engage the services of non-official nationals possessing specialized information with regard to business opportunities or relationships which are of assistance in securing or maintaining business.”
Treasury Secretary William Simon stated during a Senate hearing :
“You know that trying to define exactly what bribery is is a real problem. You and I would have no trouble saying what is a bribe and what isn’t. However, having said that, it’s very difficult to put it down on paper in statutory language that would not be damaging to some legitimate things that happen on the periphery, such as payments of commissions. […] Outright payment to secure a particular contract to an official of a foreign government, fine, we have no trouble with defining that as a bribe. Payment of commissions to agents, which is an accepted practice throughout the world, is another matter.”
In short, Congress was well aware in passing the FCPA that agents were a dominate feature of the international business landscape and if Congress wanted to prohibit agents, it could have done so then and still could do so now. If Congress believed that agents posed problems under the books and records and internal controls provisions, it could have addressed the issue in enacting these provisions and still could do so now.
Against this backdrop, it is absurd to ask “are agents ever ‘legal’ under the FCPA?”
Even the DOJ and SEC recognize in the FCPA Guidance that “foreign agents may provide entirely legitimate advice regarding local customs and procedures and may help facilitate business transactions …”.
Indeed, according to survey data approximately 80% of U.S. companies partner with a third-party when doing business abroad and survey respondents (senior compliance executives from a variety of industry sectors) reported:
- 37 percent said they work with between 100 and 1,000 different third parties;
- 27 percent said they work with between 1,000 and 10,000 different third parties;
- 17 percent said they work with between 10,000 and 100,000 different third parties; and a small number said they worked with more than 100,000 different third parties.
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