Your Questions: Answered - Written by on Thursday, March 1, 2012 14:46 - 1 Comment

Are my procedures ‘Adequate’ part II? Your questions answered. By Peter Lloyd CEO Mabey Group

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Dear Peter,

Thank you for your reply. I am using proposing to use agents in a business to business relationship. The ultimate customer is often a large company in China, including a local manufacturers. These are commercial businesses. However, I understand that the Chinese government may own a stake in them. You mention that if I am not selling to retail or small businesses my procedures may not be ‘adequate’?. However, I am not sure what more I can do?

Peter’s answer:

From your question I would interpret that you are intending to pay commission to these agents for helping you to develop your business with these Chinese companies. Where commission payments are being made there is always a risk of corrupt activity, with some of the commission being paid used to reward a senior employee of the local business or a local public official with influence in order to obtain the business. The closer the link to public funds then the bigger the risk of corruption.

The only way to manage this risk is to have robust procedures for the selection of agents and payment of any commissions. Rigorous due diligence on the agent is essential, using one of the international agencies to investigate the proposed agent as the ethics of these individuals is critical to ensuring that the business is clean.

The agent should sign up to a formal contract that includes specific anti-corruption measures such as agreeing to specific audits of their accounts as well as confirming that all business will be obtained ethically.

Every order needs specific consideration to ensure that the business makes ‘sense’, such that the customer can be seen to be obtaining reasonable value and have an identifiable need for the products. A basic risk assessment may be appropriate for each new customer or market and if necessary special measures can be introduced to manage the specific risks, for example interviews with the individuals concerned in the deal.

The Bribery Act test is very much one of hindsight, with the court deciding whether the procedures were adequate, so if at any stage the deal does not ‘smell’ right, then it is always best to walk away.

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