Vigilance Over Consulting Fees and Commissions
Question: Why does our company need to be particularly careful about consulting fees and commissions paid to third parties?
Answer: Bribes and corrupt payments are often concealed in companies’ books and records as legitimate payments, such as consulting fees, commissions, or marketing expenses. As with the anti-bribery provisions, there is no materiality threshold under the FCPA books and records provision. Enforcement scenarios cover both misreporting of significant corrupt payments or inaccurate recording of numerous smaller payments made as part of a systematic pattern of bribery. In September 2024, a federal jury convicted a former oil and gas trader for his role in bribery and money laundering scheme involving officials of Brazil’s state-owned oil and gas company. The bribes that were paid to the company’s officials were made through payments to a third-party intermediary that were characterized as “consulting fees and commissions.” Such payments were made in exchange for confidential information that provided unfair advantage in obtaining and retaining favorable oil contracts.
When paying commissions or consulting fees to a third party, you need to (a) establish and document the business rationale for needing the third party in the transaction, (b)understand the risks posed by third-party partners, including their reputations and relationships, if any, with foreign officials, and (c) conclude that the compensation is commensurate with the work being provided in the relevant industry and geographical region. In case third parties are receiving commissions, what is the average amount of commissions? Are there extreme deviations from the average? Numerous third parties seemingly fulfilling the same function as well as unusually high commission constitute a red flag with respect to potentially corrupt payments.
*The contents of this message, current at the date of publication, are for reference and general informational purposes only and do not constitute legal advice. You should contact your attorney to obtain advice with respect to any particular legal matter. You should not act or refrain from acting on the basis of information in this publication without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.
Question: Why does our company need to be particularly careful about consulting fees and commissions paid to third parties?
Answer: Bribes and corrupt payments are often concealed in companies’ books and records as legitimate payments, such as consulting fees, commissions, or marketing expenses. As with the anti-bribery provisions, there is no materiality threshold under the FCPA books and records provision. Enforcement scenarios cover both misreporting of significant corrupt payments or inaccurate recording of numerous smaller payments made as part of a systematic pattern of bribery. In September 2024, a federal jury convicted a former oil and gas trader for his role in bribery and money laundering scheme involving officials of Brazil’s state-owned oil and gas company. The bribes that were paid to the company’s officials were made through payments to a third-party intermediary that were characterized as “consulting fees and commissions.” Such payments were made in exchange for confidential information that provided unfair advantage in obtaining and retaining favorable oil contracts.
When paying commissions or consulting fees to a third party, you need to (a) establish and document the business rationale for needing the third party in the transaction, (b)understand the risks posed by third-party partners, including their reputations and relationships, if any, with foreign officials, and (c) conclude that the compensation is commensurate with the work being provided in the relevant industry and geographical region. In case third parties are receiving commissions, what is the average amount of commissions? Are there extreme deviations from the average? Numerous third parties seemingly fulfilling the same function as well as unusually high commission constitute a red flag with respect to potentially corrupt payments.
*The contents of this message, current at the date of publication, are for reference and general informational purposes only and do not constitute legal advice. You should contact your attorney to obtain advice with respect to any particular legal matter. You should not act or refrain from acting on the basis of information in this publication without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.
