MODEL FOREIGN CONSULTANT COMPLIANCE PROGRAM FOR FOREIGN CORRUPT PRACTICES ACT

John A. Detzner
Neville Peterson LLP
Washington, D.C.

*     *     *

I.     INTRODUCTION

     U.S. companies often are required to retain the services of a foreign marketing consultant in order to market their products overseas. The term "consultant" as used herein refers to both contingent and commission fee agents and flat fee retainer marketing representatives. A company can best ensure Foreign Corrupt Practices Act ("FCPA") compliance by its consultant, and protect itself from any unanticipated FCPA violation by the consultant, by implementing a compliance program consisting of seven basic elements:

1. Consultant investigation by marketing and legal department personnel;
   
   
2. Documented consultant approval process;
   
   
3. Consultant agreement provisions to maximize the company's protection;
   
   
4. Internal controls on payment;
   
   
5. Compliance with U.S. and foreign law disclosure requirements;
   
   
6. Education of U.S. company personnel and the consultant; and
   
   
7. Internal audit review.
   
   

     Each consultant agreement should be entered in accordance with this compliance program. All company personnel should be aware that effective FCPA compliance depends not only on a formal program, but also on constant vigilance for FCPA "red flags" and the immediate resolution of such issues when they arise.

II.     CONSULTANT INVESTIGATION

     Marketing personnel should investigate each new foreign consultant proposed for use by the company. Marketing personnel should utilize their business and in-country contacts to assess the qualifications and reputation of a proposed consultant. They also should contact both U.S. and foreign government agencies to obtain any official views on the proposed consultant's qualifications and reputation for ethical business practices. The company's legal department should confirm that the consultant's services and payments are permissible under the laws of the foreign country.

     The investigation should address the following:

1. The detailed terms of the agreement as proposed by the consultant, and how those terms compare to consultant agreements used by others in the same country or other countries;
   
   
2. The consultant's reputation in local business and financial circles;
   
   
3. The consultant's past and present clients (if possible, written comments regarding the consultant by those clients should be obtained);
   
   
4. The consultant's business organization and operations, including:
   
   
   1. any affiliated businesses;
   2. the consultant's office and size of employed staff; and
   3. a list of sales contracts on which the consultant previously worked;
   
   
5. Whether any principal or employee of the consultant also holds either a full or part-time position with the foreign government, a political party, or any state-owned company, and, if so, the title and job description for the position;
   
   
6. Any past experience with the consultant by the company or company affiliates;
   
   
7. Whether local laws, regulations or policies in the consultant's country prohibit, restrict, or otherwise affect (e.g., registration or notification requirements) the terms and conditions that will be included in the consultant's agreement; and
   
   
8. The marketing personnel's own assessment of the consultant based on face-to-face meetings.
   
   

     There are a number of possible sources for governmental information concerning consultants. Even if these governmental sources are unable to provide specific information (good or bad) concerning the proposed consultant, the U.S. company's documented inquiry provides a record of the company's due diligence efforts. Such governmental sources include the following:

1. World Traders Data Report on the consultant, which can obtained from the U.S. Commerce Department's U.S. and Foreign Commercial Service. A World Traders Data Report provides information on the consultant's trading and credit references, and any available information on the consultant's business reputation. It also may include commentary from in-country foreign commercial service personnel on the consultant's background and suitability;
   
   
2. U.S. embassy in the foreign country, which may be able to provide information concerning the potential consultant's operations and reputation, as well as local requirements concerning the use, payment, and reporting of consultants in that country;
   
   
3. U.S. State Department and Commerce Department desk officers for the country in which the consultant will work (although they may not have information concerning a specific consultant, they can provide information concerning local requirements for the use, payment, and reporting of consultants in that country);
   
   
4. Foreign government's embassy in Washington, which may be able to provide information concerning the potential consultant's operations and reputation, as well as local requirements concerning the use, payment, and reporting of consultants in that country.
   
   

     Use of these governmental sources as part of a due diligence review of the consultant should be fully documented (e.g., memorandum to the file, copy of any World Traders Data Report, etc.).

III.     CONSULTANT INFORMATION PACKAGE AND APPROVAL PROCESS

     The company should document its due diligence review of the consultant by preparing a consultant information package. This package should be presented to company management for review and approval prior to negotiating an agreement with the consultant, and should include the following:

1. Summary of the consultant investigation conducted by marketing and legal department personnel;
   
   
2. Complete description of the services to be required from the consultant, and justification for retaining consultant for these services;
   
   
3. Clear and concise statement of proposed financial terms, including place and form of payment;
   
   
4. Legal department review of proposed agreement, and statement of any U.S. or foreign legal issues raised and resolved during that review;
   
   
5. Period of performance; and
   
   
6. Whether the consulting arrangement and tasks will require access by consultant to technical data requiring export license approval from the Commerce or State Departments.
   
   

     For proposed renewals of existing consultant agreements, the following information should be added to the consultant's information package:

1. How long the consultant has been retained by the company;
   
   
2. Evaluation of consultant's performance record;
   
   
3. Whether the consultant performs work for other company divisions or affiliates;
   
   
4. Payment history for the consultant; and
   
   
5. Copy of all consultant agreements and renewals.
   
   

     Company management should document its review of the consultant information package as the basis of its approval to retain the consultant.

IV.     PREPARATION OF CONSULTANT AGREEMENT

     The company should draft each consultant agreement to provide maximum FCPA compliance protection for the company including clauses that provide the following:

1. The consultant's representation that he or she will comply fully with the FCPA;
   
   
2. The consultant's representation that he or she will comply fully with the foreign country's laws, regulations and policies;
   
   
3. The consultant's representation that he or she presently is not, and during the life of the agreement will not become, an official or employee of the foreign government or foreign political party;
   
   
4. The parties' agreement that payment of a commission will be disclosed as required to both the U.S. Government and the foreign government;
   
   
5. The parties' agreement on payment procedures: payments will be made only to the consultant's usual place of business, with an identified currency and form of payment ( e.g., company check, or through a wire transfer to an account in a bank at the consultant's usual place of business);
   
   
6. The consultant's agreement to certify upon payment of any commission (or annually, if paid under a flat fee retainer agreement) that his or her compliance with the FCPA has been and will be maintained; and
   
   
7. An integration clause.
   
   

     If the legal department is uncertain as to the requirements of local laws, regulations and policies concerning the consultant's agreement, the opinion of local counsel should be obtained.

V.     INTERNAL PAYMENT CONTROLS

     Finance and accounting personnel responsible for the administration of consultant payments must be able to identify and examine closely any "red flags" that may raise FCPA issues. Such "red flags" include the following:

1. Requests for payments out of proportion to or otherwise inconsistent with the terms of the consultant agreement;
   
   
2. Requests for payments for expenses or purposes inconsistent with the terms of the consultant agreement;
   
   
3. Requests for payments to third parties;
   
   
4. Requests for payments in a form or to a bank or business location inconsistent with the terms of the consultant agreement;
   
   
5. Payments drawn from incorrect accounts; and
   
   
6. Lack of documentation supporting a payment request.
   
   

     Finance and accounting personnel should periodically examine consultant payment histories. Often irregularities in the payment of consultants are not detectable on a day-to-day basis. All payments should be made in accordance with the terms and conditions of the consultant agreement. Any identified irregularities should be referred to the legal department for resolution.

     The company should also maintain reasonably detailed books and records, as well as a system of internal accounting controls, in order to reflect these transactions accurately, in accordance with the FCPA's accounting and recordkeeping provisions. The accounting provisions of the FCPA require a publicly traded company to maintain books and records containing the "level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs." There is no standard of "materiality" under these provisions of the FCPA, and therefore the company should ensure that all transactions related to the consultant are recorded accordingly. Again, any identified irregularities should be referred to the legal department for resolution.

     The consultant should also be required to certify upon payment of any commission (or annually, if paid under a flat fee retainer agreement) that his or her compliance with the FCPA has been and will be maintained.

VI.     COMPLIANCE WITH U.S. AND FOREIGN DISCLOSURE REQUIREMENTS

     In addition to FCPA prohibitions, the use of consultants must comply with other restrictions, reporting requirements, and certifications under U.S. and foreign law.

     Some foreign countries prohibit even the use of a consultant (whether called consultant, agent, marketing representative, or by another designation) in order to obtain certain government contracts, while others require the consultant to register pursuant to local laws. Many countries prohibit the inclusion of commission fees in the contract price. Countries with such restrictions and prohibitions generally require a related certification, or a clause in the contract, to ensure compliance by the U.S. company.

     Such restrictions, certifications, and reporting requirements may also be imposed under U.S. law, including the required disclosure of the use of consultants, the payment of commission fees, or the inclusion of such fees (either as commissions or as foreign content) in the contract price. The Export-Import Bank of the United States ("Ex-Im Bank"), for example, requires such disclosure or certification as a requirement for participation in various Ex-Im Bank financing programs for commercial sales and projects. Disclosure and related certification requirements for defense sales are imposed under the U.S. Traffic in Arms Regulations ("ITAR"), the Defense FAR Supplement ("DFARS"), and the Defense Security Assistance Agency ("DSAA") Guidelines. Multilateral lending institutions likewise are now implementing similar certification requirements.

     The company's legal department must be consulted before:

1. entering any consultant agreement involving a country for which the related legal requirements are not known;
   
   
2. preparing any contract price or cost build-up that may include consultant fees as a direct or indirect cost; or
   
   
3. preparing any related certification required under U.S. or foreign law.
   
   

VII.     EDUCATION

     Marketing and management personnel, as well as finance and accounting personnel, should receive periodic FCPA compliance training from the legal department. This education program should include instruction on FCPA prohibitions, guidance in recognizing "red flags," review of the FCPA's recordkeeping and accounting requirements, and other areas of FCPA compliance. The program should also reinforce each participant's understanding of proper procedures for immediately reporting and resolving FCPA issues that may arise during the consultant's performance of duties under the agreement.

     The consultant also should receive periodic FCPA compliance training, and the company should document the dates and content of that training.

VIII.     INTERNAL AUDIT REVIEW

     The company's internal auditors should conduct periodic reviews of consultants. The company's accounting and recordkeeping system should also incorporate an internal auditing program to review related expenses and identify any related irregularities. A copy of pertinent parts of the written report should be placed in the consultant's file.

Back To Hot Topics Page

     

Home I Overview I Areas of Practice Our Attorneys I Firm Highlights I NP Trade Resource Library Hot Topics I Reading Room I Links I Contact Us

---

The material on this site is protected under the copyright laws of the United States of America and international conventions, and is the exclusive property of Neville Peterson LLP or any licensee. All rights reserved. © Neville Peterson LLP 2002.

Site by Webline Designs.