Potential Liability for Actions of Consultants, Contractors, Agents and Joint Venture Participants


The previous section covered several important FCPA issues. Other FCPA issues which frequently arise and which deserve particular attention by LXGlobal employee concern potential liability for acts of others. Those issues are explained and addressed in this section.

Understanding the Legal Risks

LXGlobal and individual officers or employees may be liable for payments made by a third party – such as a consultant, contractor, agent, or joint venture participant – of anything of value to any non-U.S. official, even if the person making the payment is not subject to the FCPA and even if the LXGlobal officer or employee did not actually know the payment would be made. For example, in the case of an LXGlobal employee making or authorizing a payment to a third party, the FCPA may impose liability on LXGlobal and the employee merely based on the employee's awareness of facts that indicate a substantial certainty or even high probability that the third party will pass through all or part of the payment to a non-U.S. official for an improper purpose. Also, enforcement authorities may interpret the FCPA in some cases to cover payments made to third parties that are intended to reimburse them for past, improper payments to non-U.S. officials.

Red Flags

The circumstances that, in the view of the U.S. Department of Justice, may suggest a reason to know of an illegal payment by an intermediary (and therefore a potential FCPA violation), are commonly referred to as "red flags." Red flags in a transaction suggest a need for greater scrutiny and implementation of specific safeguards against a potential violation. An I-don't-want-to-know attitude can be the basis of liability for the Company and for the individual concerned.

Red flags that warrant further investigation when selecting or working with a third party are varied and numerous. The following are examples of red flags:

  • The transaction involves a country known for corrupt payments;
  • A reference check reveals the third party's flawed background or reputation;
  • The third party is suggested or recommended by a non-U.S. official, particularly one with discretionary authority over the business at issue;
  • The third party objects to FCPA representations and warranties in agreements with the Company;
  • The third party has a close personal or family relationship, or a business relationship, with a non-U.S. official or relative of an official;
  • The third party requests unusual contract terms or payment arrangements, such as payment in cash, payment in another country's currency, or payment in a third country;
  • Due diligence reveals that the third party is a shell company or has some other unorthodox corporate structure;
  • The only qualification the third party brings to the venture is real or apparent influence over non-U.S. officials;
  • The third party requires that his or her identity or, if the third party is a company, the identity of the company's owners, principals, or employees, not be disclosed; or
  • The third party's commission or fee exceeds the going rate

Due Diligence

The most important steps that can be taken to reduce risk of improper payments by others are to choose carefully when selecting business associates, including agents, consultants, and promoters, and to identify in advance any potential FCPA issues that a proposed relationship may raise. Therefore, LXGlobal has due diligence practices designed to evaluate and screen proposed business relationships with intermediaries who will have dealings with non-U.S. officials on LXGlobal's behalf, especially when those intermediaries are not well known to LXGlobal. Due diligence provides management with a basis for proceeding with the transaction in the good-faith belief that the intermediary will not make any improper payments while conducting LXGlobal business.

To that end, the country and the intermediary can be investigated and any issues raised can be addressed to the satisfaction of LXGlobal management prior to entering the relationship. The amount of time and effort required for due diligence will depend on the number and complexity of the issues raised during the due diligence investigation.

FCPA Representations and Warranties

Requiring consultants, contractors, agents, and joint ventures to make strong FCPA compliance representations and warranties in contracts can be an effective measure to ensure that they are aware of LXGlobal's requirements and have affirmatively agreed to comply. Other FCPA tools and safeguards, such as annual compliance certifications, are available for consideration as well. The Law Department is prepared to advise on appropriate provisions in contracts with prospective business associates and other FCPA safeguards.

Monitoring Consultants, Contractors, Agents, and Joint Ventures

Once LXGlobal has retained a consultant, contractor, or agent, failure to monitor the consultant's, contractor's, or agent's activities and expenses for continued compliance with the FCPA can give rise to further FCPA risk. If the consultant, contractor, or agent makes an improper payment or gift to a non-U.S. official, LXGlobal may in some cases be held liable under the FCPA even if an LXGlobal employee did not expressly authorize the payment. One or more of the following may help to guard against this risk:

  • Requiring documentation or justification before paying unusual or excessive expenses; and
  • Refusing to pay an agent where there is a suspicion that the agent has made or will make illicit or questionable payments or gifts.
  • Similarly, once a joint venture is established, LXGlobal can reduce any FCPA risk by monitoring venture activities and the activities of its venture participants in connection with the venture for continuing compliance with applicable laws and the joint venture agreement.

Where LXGlobal has a majority interest, LXGlobal is required by law to cause the venture to comply with the FCPA accounting and recordkeeping requirements. Where LXGlobal has a minority interest, LXGlobal is required by law to make a good-faith effort to cause the venture to comply with FCPA accounting and record keeping requirements.

Some warning signs in a joint venture may be:

  • Excessive, false, or inadequately described payment requests;
  • Unusual or overly generous subcontracts;
  • Unusual or incomplete documentation; and
  • Other unusual arrangements.

Multilateral Conventions Against Corruption

The FCPA is not the only transnational anti-corruption statute. Since 1996, more than 100 countries have signed one or more of a series of multilateral conventions under the auspices of the Organisation for Economic Co-operation and Development (OECD), the Organization of American States (OAS), the Council of Europe (COE) and, more recently, the United Nations, and the African Union.

Those conventions require signatory countries to criminalize a wide range of offenses, including bribery, diversion of property by public officials, trading in influence, illicit enrichment, money laundering, and concealment of property. They also seek to establish accounting standards for private companies, to provide for recovery of stolen assets, and to eliminate the tax deductibility of bribes. They also establish and require mutual legal assistance, including extradition, among signatory countries in the investigation and prosecution of corruption offenses, which has led to numerous case referrals and has greatly facilitated the prosecution of corruption cases in many jurisdictions. Implementation and adherence to the conventions by countries are encouraged through monitoring by intergovernmental task forces established for this purpose.

As a result, in addition to pre-existing domestic bribery laws, dozens of countries throughout the world now have laws similar to the FCPA criminalizing transnational official bribery. Those transnational standards are equalizing the terms of competition among competitors from countries with historically different legal standards and business traditions.

LXGlobal Company and its affiliates expect their employees to be familiar with and to comply with the FCPA and with LXGlobal policies and guidelines. This compliance should generally result in compliance with other anti-corruption laws around the world. However, employees doing business in unfamiliar jurisdictions should consult the Law Department with respect to local laws, customs and practices.