Lessons in Third-Party Compliance From Trouble at Airbus
Airbus disclosed Tuesday that it may have violated U.S. law on the fees and commissions it paid to sales agents—raising the specter of a U.S. bribery probe to go along with French and U.K. investigations already underway.
November 01, 2017 at 05:14 PM
11 minute read
Airbus plane. Free handout.
Airbus, the French aircraft maker, disclosed Tuesday that it may have violated U.S. law on the fees and commissions it paid to sales agents—raising the specter of a U.S. bribery probe to go along with French and U.K. investigations already underway.
Airbus, the Boeing Co.'s top rival, discussed all three investigations in a third-quarter financial statement, reporting it “has discovered and subsequently informed relevant U.S. authorities of its findings concerning certain inaccuracies in filings made with the U.S. Department of State.” The company said it is cooperating with all three investigations.
The Airbus problem seems to center on the use of third-party sales agents, who can serve as middlemen to convey bribes. Legal experts consider third-party agents one of the trickiest areas of anti-bribery law, including under the U.S. Foreign Corrupt Practices Act.
Alexandra Wrage, president and founder of TRACE International, a nonprofit membership association that helps companies combat corporate bribery, said, “The selection, vetting and monitoring of third-party agents is judgment laden.”
And there are no guarantees. No matter how much due diligence a company does, Wrage warned, “the future conduct of agents is not knowable.”
She stressed that due diligence of third-party agents is a process, not an event. “It requires a level of ongoing attention that matches your best assessment of the risk,” she said.
Jessica Tillipman, who is assistant dean at George Washington University Law School where she teaches an anti-corruption and compliance seminar, agreed that third-party management is one of the biggest compliance risks that companies can face.
Tillipman, a senior editor of the popular FCPA blog, said third-party compliance requires a multilayered system that begins with the question of whether the company really needs a third party. “If the answer is 'yes,'” she said, “then you conduct a fairly sophisticated and substantial due diligence,” commensurate with the risk.
To protect the company, Tillipman explained, a general counsel should use third-party contracts that allow for ongoing oversight, such as audits of all receipts. The company could also require compliance training for the agents, she said.
Neil Smith, a partner in the investigations, enforcement and white-collar practice group at K&L Gates in Boston, called third-party agents “a very tricky area.” Smith previously served as senior counsel in the Enforcement Division of the U.S. Securities and Exchange Commission for six years, where he was a member of the FCPA unit.
Smith acknowledged that there can be value to a company operating in a foreign country in hiring an agent “with local expertise, who knows the market and the buyers.”
On the other hand, he added, “You really have to be careful that you are doing it in a way that is above-board and protects you from an investigation down the road.”
He recommended a number of steps, including:
• Examine the agent, determining who he is and why he is especially qualified for the job. Look for any hint of impropriety in his past, or any connection to a government official.
• Have him sign a contract that includes warranties that he won't violate bribery laws. Make sure that the amount being paid is commensurate with the work being done. “Sometimes making a high payment for an introduction can be troublesome,” Smith warned.
• Know what the agent is doing to market the product, document it, and monitor it.
• Make sure company legal and compliance folks have signed off on the sales agent. And don't let the agent hire other sales reps without proper vetting.
The bottom line, Smith said, is that if a company is operating in a country at high risk for bribery, “You better be sure you have done everything possible to make sure that agent is legit.”
Airbus plane. Free handout.
Airbus, the French aircraft maker, disclosed Tuesday that it may have violated U.S. law on the fees and commissions it paid to sales agents—raising the specter of a U.S. bribery probe to go along with French and U.K. investigations already underway.
Airbus, the
The Airbus problem seems to center on the use of third-party sales agents, who can serve as middlemen to convey bribes. Legal experts consider third-party agents one of the trickiest areas of anti-bribery law, including under the U.S. Foreign Corrupt Practices Act.
Alexandra Wrage, president and founder of TRACE International, a nonprofit membership association that helps companies combat corporate bribery, said, “The selection, vetting and monitoring of third-party agents is judgment laden.”
And there are no guarantees. No matter how much due diligence a company does, Wrage warned, “the future conduct of agents is not knowable.”
She stressed that due diligence of third-party agents is a process, not an event. “It requires a level of ongoing attention that matches your best assessment of the risk,” she said.
Jessica Tillipman, who is assistant dean at
Tillipman, a senior editor of the popular FCPA blog, said third-party compliance requires a multilayered system that begins with the question of whether the company really needs a third party. “If the answer is 'yes,'” she said, “then you conduct a fairly sophisticated and substantial due diligence,” commensurate with the risk.
To protect the company, Tillipman explained, a general counsel should use third-party contracts that allow for ongoing oversight, such as audits of all receipts. The company could also require compliance training for the agents, she said.
Neil Smith, a partner in the investigations, enforcement and white-collar practice group at
Smith acknowledged that there can be value to a company operating in a foreign country in hiring an agent “with local expertise, who knows the market and the buyers.”
On the other hand, he added, “You really have to be careful that you are doing it in a way that is above-board and protects you from an investigation down the road.”
He recommended a number of steps, including:
• Examine the agent, determining who he is and why he is especially qualified for the job. Look for any hint of impropriety in his past, or any connection to a government official.
• Have him sign a contract that includes warranties that he won't violate bribery laws. Make sure that the amount being paid is commensurate with the work being done. “Sometimes making a high payment for an introduction can be troublesome,” Smith warned.
• Know what the agent is doing to market the product, document it, and monitor it.
• Make sure company legal and compliance folks have signed off on the sales agent. And don't let the agent hire other sales reps without proper vetting.
The bottom line, Smith said, is that if a company is operating in a country at high risk for bribery, “You better be sure you have done everything possible to make sure that agent is legit.”
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