by Myfanwy Wallwork, Executive Director Regulatory Compliance, LexisNexis

It recently emerged that Airbus has been the subject of investigations in five countries, including Australia. These investigations are in relation to allegations of fraud, bribery, corruption and other offences, such as falsely inflating prices during transactions.

This comes amid a review by Airbus into its dealings with third-party consultants, prompted by investigations into the organisation’s relationship with an Indonesian middleman who was contracted to win aircraft sales on Airbus’s behalf. The man in question is now the focus of British investigators and Indonesia’s Corruption Eradication Commission.

This case highlights the need for organisations to carry out thorough due diligence when entering new markets and that this process is fraught with risks.

In order to mitigate the risks, it is essential to carry out properly documented due diligence. This should occur whenever an organisation appoints or renews an agreement with a third-party agent, or whenever the organisation suspects that it has been exposed to bribery or corruption. The goal of this process is to ensure that the third party can be trusted to represent the organisation while acting on its behalf.

Key steps that organisations should take include:

1. Gathering information on the prospective agent or intermediary, such as their background, qualifications, reputation and whether they stand to benefit from any related transactions
2. Responding to any red flags. For example, if the organisation finds out that the prospective agent or intermediary has a personal, family or business relationship with a public official, it should conduct further reviews or choose not to engage that agent
3. Engaging independent investigators, such as external counsel or providers of specialist due diligence services, if the organisation faces significant third-party risk
4. Confirming that the roles and activities to be carried out by the agent or intermediary are legal under all applicable laws

When entering new markets, organisations may face a greater risk as they lack their normal capacity to oversee activities and may have no contact with the end user, creating a dependence on agents and intermediaries. It is therefore paramount to actively look out for indicators that agents or intermediaries may be engaged in bribery or corruption.

Indicators may include:

• Excessive fees in the form of commissions, discounts to distributors, or ‘consulting agreements’ for vaguely described services
• Payments to consultants for work in areas in which they have not been engaged to provide services
• Third parties who are related to, closely associated with, or have become involved with the transaction at the express request of, a foreign official
• The third party is merely a shell company incorporated in an offshore jurisdiction
• Third-party requests for payments to offshore bank accounts

When dealing with third parties, the organisation’s anti-bribery and corruption policy must be communicated to the individual through the terms of engagement, which must also clearly state how the agent will be remunerated. The organisation should also keep records of payments to agents and middlemen, alongside evidence of services engaged, to protect the organisation from risk.

As with the case of Airbus, organisations that fail to act upon bribery and corruption risks may be exposed to criminal liability and may face sanctions such as fines and imprisonment. Organisations may also suffer reputational damage and a loss of shareholder value.

By implementing and carrying out thorough due diligence, the risks associated with entering new markets can be mitigated and future operations and reputation safeguarded.

Read further on how individuals and businesses can be liable for non-compliance in employment and workplace health and safety law in this whitepaper.