Sectors - Written by on Tuesday, July 8, 2014 4:47 - 0 Comments

Distributors. A warning shot from the DOJ & why you should care.

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Livraison du courrierSpeaking at the C5 8th Annual conference in London Jeff Knox the Fraud Chief of the US DoJ flagged the risk posed by Distributors as a third party.

He explained that some argue or have taken the position ‘I have passed title so not my problem’.  His no nonsense reply: if employees are working with the distributor – they’ll be a co-conspirator…

Likewise, we are often asked the question, are Distributors equivalent to ‘Associated Persons’ under the Bribery Act.  Put another way, are companies on the hook for the conduct of their Distributors under the Bribery Act.

To cut a long story short it is our view (not always hugely popular), that the answer to this question is more likely than not, yes, a Distributor is likely to be an Associated Person under the Bribery Act.

Having reviewed many Distribution Agreements and seen these relationships operate in practice, in many cases the Distributor will be offering services to its supplier.

Take for example the providers of so-called 3PL defined by the Council of Supply Chain Management Professionals, as “a firm that provides multiple logistics services for use by customers. Preferably, these services are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding.”

Presto.  An Associated Person.

Bingo. Potential Liability.


So why all the fuss?

Speaking at the C5 Conference the Fraud Chief of the US DoJ highlighted that they are seeing more and more cases involving distributors and channel partners.  The FCPA guide, published jointly by the DoJ and SEC notes that “a common mechanism to create additional margin for bribe payments is through excessive discounts or rebates to distributors”.


The FCPA guide includes guidance on how to deal with Distributors, and notes that “transaction-specific due diligence—including an analysis of payment terms to confirm that the payment is commensurate with the work being performed—can be critical even in circumstances where due diligence of the distributor or other third party raises no initial red flags.”

This is not rocket science.

On the other hand, if you have taken the view that problems go away when title passes, you’re not even looking.

Are you happy with your Distributors?









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