Avoiding Trouble with Third-Party Intermediaries

Third-party intermediaries—agents, consultants, distributors, resellers, freight forwarders, and service providers—are often used to facilitate business overseas. In fact, almost every multinational company does some amount of work with intermediaries, and a great deal of international business would grind to a halt if they stopped.

They navigate the local bureaucracy and speak the local language. They have their finger on the political pulse of the markets in which they operate. They know who really makes procurement decisions and who just sits in a big office because a powerful family member pulled some strings. They understand their government’s budget cycle, advise on local sensitivities, and help companies avoid cultural blunders.

But third-party intermediaries also pay bribes.

They know the right person to pay. They use their knowledge of the local market to disguise payments as charitable contributions or fictitious subcontracts. They pay kickbacks to employees of the companies they work with to ensure their lucrative commission-based contracts will continue. They employ individuals listed on international watch lists. They operate in countries saddled with international sanctions and conceal the fact. They sign whatever compliance certifications companies put in front of them, and then operate with cynicism and contempt for concepts of transparency and good governance. Almost every Foreign Corrupt Practices Act enforcement action involves a bribe-paying middleman.

Most intermediaries fall into one category or the other. Some straddle the line between legal and illegal assistance. Because most multinational companies need to work through intermediaries—and nearly all compliance counsel lose sleep over these relationships—companies need to consider a few important points when navigating this potential legal minefield.

Rationalize Your List of Third Parties

Whatever the number, your company is working with too many third-party intermediaries. Inertia and busy schedules have resulted in old intermediaries being renewed and new intermediaries being added without sufficient consideration. Require your businesspeople to provide written justification for both current and new third parties, and ensure each addition is tied to real opportunities.

Be Consistent