The use of third parties can make a valuable contribution for any organisation. But agents pose a unique corruption threat as they may be authorised to act on behalf of the company, often with a high level of discretion and minimal oversight.
Agents and Intermediaries
Does the company have a clear policy on the use of agents?
thyssenkrupp Group Companies in different ways engage external companies and individuals to be represented or supported in relation to commercial counterparties and public authorities.
Internationally high standards are reflected in the Group Regulation Corruption Prevention (section 3.9) with respect to the use of consultants and intermediaries. The Group Regulation Compliance in Dealing with Business Partners further concretizes these standards for the Business Partners in scope, which explicitly applies to sales intermediaries (sales agents) and offset service providers.
The aim of the Group Regulations Corruption Prevention as well as Compliance in Dealings with Business Partners is moreover, by laying out the aforementioned rules, to avoid as far as possible an indication (appearance of wrongdoing) regarding corruption through the use of business partners.
Already since the introduction of the thyssenkrupp Compliance programme, dealings with sales agents play a key role in our Compliance advice, risk assessment and other elements of our programme. On the one hand, the business model in itself is legally permissible and customary in many areas. On the other hand, numerous Compliance risks are connected with the engagement of sales agents, which was exemplified over the last years by a series of significant industry-wide cases.
The intrinsic problem of engaging sales agents is that even though accusations are directed towards the sales agent and therewith towards a person outside of the company, the accusations fall back on thyssenkrupp, as the sales agent is perceived as part of our sales organization.
Therefore, it is obligatory to conduct an identity and Compliance check of Business Partners, including a corresponding due diligence check, by means of the Business Partner Compliance Tool (BPCT). The BPCT streamlines and improves already-existing processes with respect to integrity checks of Business Partners by a workflow based IT application.
Does the company conduct risk-based anti-bribery and corruption due diligence when engaging or re-engaging its agents or intermediaries?
The use of business partners, also in sales-related areas, can in specific constellations be in the legitimate business interest of the particular Group Company when complying with the respective legal requirements. We are aware that such a business model may include abstract Compliance risks in some occasions, especially in the field of corruption. In particular, the risk exists that a business partner may pass on a part of the compensation to decision makers.
Therefore, according to our Group Regulation Compliance in Dealings with Business Partners, in each case the business wants to engage a business partner, it has to be verified in a pre-defined process. Before a binding agreement is concluded and before the business partner begins to work for thyssenkrupp, the competent department, e.g. sales, must establish that the use of the business partner, the intended contractual form and the planned concrete handling of the transaction are in each case permissible under the applicable German and local laws and thyssenkrupp binding documents, in particular the rules on combating corruption. In case of doubt, the competent Compliance Department must be consulted.
For an identity and Compliance check of each business partner, including an extensive Due Diligence check, the use of the IT based Business Partner Compliance Tool (BPCT) is obligatory. BPCT is a web-based tool, which is used Group wide within thyssenkrupp. Via BPCT, an identity and Compliance check, including a corresponding due diligence is performed. This includes the mandatory request for exclusive background information form the potential business partner as well as the use of external Compliance databases.
In case of transactions with special risks and specifically on the defence sector further due diligence measures may need to be taken in alignment with CPL, e.g. a conversation with the Business Partner or obtaining additional external information, e.g. form external law firms, accounting firms etc.
Does the company aim to establish the ultimate beneficial ownership of its agents and intermediaries?
The engagement of business partners in high-risk areas is only permissible as described above. This will only occur after undertaking the described thorough due diligence process involving the respective Compliance Officer who may well recommend in his Compliance statement some adequate mitigating measures and procedures.
Within the scope of our due diligence assessment, in particular, the following topics are examined:
- possible family connections to a government advisor or public official involved,
- possible historical organizational or personal involvement in dishonest practice,
- (unclear) beneficial ownership.
If the Due Diligence indicates irregularities and red flags we take all reasonable measures to clarify the ultimate beneficial ownership.
If we are not convinced that such measures can adequately reduce the risk of working with the business partners or the ownership still raises concerns, we do not engage him.
The business is constantly reminded of the Board’s Compliance Commitment.
Important related documents and links:
Does the company’s anti-bribery and corruption policy apply to agents and intermediaries acting for or on behalf of the company, and does it require anti-bribery and corruption clauses in its contracts with these parties?
Yes, the basic principles laid out in our Group Regulation on Competition Prevention are applicable vis-à-vis all sales agents and sales intermediaries.
As described in 6.3 and 6.4, all agents need to sign the Supplier Code of Conduct and the contract requires a specific anti-bribery and corruption clause.
On top of that, with respect to certain business partners (for which also signing of the Supplier Code of Conduct remains an obligation), we insist on the inclusion of mandatory anti-corruption clauses also within the main body of the contract:
Group Regulation “Compliance in dealings with Business Partners”
“The Business Partner shall note and shall procure that in connection to this agreement neither the Business Partner itself, nor its employees or agents shall offer, give or agree to give to any person or accept or agree to accept from any person (whether for itself or on behalf of another person and either directly or indirectly) any gift or payment, consideration or benefit of any kind, which constitutes an illegal or corrupt practice under the laws involved, including so-called facilitation payments to public officials (“AntiCorruption Obligation”). The Business Partner shall disclose in writing to thyssenkrupp the details of any breach of the AntiCorruption Obligation. This shall be an ongoing obligation. The Business Partner shall
a) at all times maintain strict Compliance with the AntiCorruption Obligation;
b) monitor its employees and agents to ensure their Compliance with the AntiCorruption Obligation;
c) make clear, in all its dealings on behalf of thyssenkrupp that it is acting in accordance with the AntiCorruption Obligation.”
The Group Regulation on Business Partners furthermore clearly demands that an audit clause is included in sales agents’ agreements:
Audit-Clause (no conditions)
- “The Business Partner shall at any time upon request by thyssenkrupp provide to a person occupationally sworn to secrecy (legal / tax advisor, auditor) to be designated by thyssenkrupp all information regarding his provision of services to thyssenkrupp and shall in particular grant access to all documents and records which thyssenkrupp may require in relation to such services.
- The person to be designated by thyssenkrupp shall be entitled to disclose any and all documents and information to thyssenkrupp which in the sole discretion of thyssenkrupp might be relevant with respect to the auditing of the operations of the Business Partner.”
Audit-Clause (with conditions)
- “If the business/transaction/project should at any time be subject to any official investigation or pre-investigation (including, but not limited to, tax, criminal or administrative investigations), the Business Partner shall provide or shall upon request by thyssenkrupp provide to a person occupationally sworn to secrecy (legal / tax advisor, auditor) to be designated by thyssenkrupp all relevant information and shall in particular grant access to all documents and records which thyssenkrupp may require in relation to such investigation.
- The person to be designated by thyssenkrupp shall be entitled to disclose any and all documents and information to thyssenkrupp which in the sole discretion of thyssenkrupp might be relevant in the official investigation or pre-investigation.”
Does the company ensure that its incentive schemes for agents are designed in such a way that they promote ethical behaviour and discourage corrupt practices?
Our incentive schemes for agents are designed in such a way that they promote behaviour that is aligned with our anti-bribery and corruption policy. The Group Regulation Corruption Prevention states that “when concluding commission agreements, it must be ensured that commissions are only paid for legally permissible activities and are not used for illicit payments. Com-missions and compensations paid to a consultant, intermediary or any other person engaged by or on behalf of thyssenkrupp must be proportionate and reasonable in relation to the activities carried out.”
The Group Regulation Compliance in dealings with Business Partners states clearly, how the remuneration for sales agents is to be designed to make sure that the remuneration is appropriate:
Our Group Regulation Compliance in dealings with Business Partners states that the compensation paid to the business partner must not be inappropriately high. In agreeing the compensation, the following criteria must be observed:
- fixed compensation for services not directly in connection with the award of an order (e.g. for distribution intermediaries market and competition analyses, office, travel and staff organization, etc.) and to this extent not compensated with the commission; depending on the individual case the fixed compensation may also be agreed in the form of compensation on the basis of an hourly or daily rate and/or as a retainer from the total compensation;
- in case the compensation includes a performance-related component, this is possible only for services in connection with the award of an order (e.g. order winning and arrangement activities, participation in or support with contract negotiations and in executing the order, etc.), where applicable taking into account the fixed compensation;
- agreement of an absolute top limit for the commission claim, in particular in respect of high-value orders.
Criteria for the appropriateness of compensation are cumulative, whether the compensation is customary in the particular market; appropriate relationship between the efforts required of the business partner and the compensation amount. Any additional services performed by the business partner (e.g. with respect to sales intermediaries) with regard to executing the order, i.e. project management, claims and warranty management, change order management, building site coordination, etc.) may be taken into consideration as far as they are actually called for and performed; appropriate relationship between the commission amount and the net order value. It must be borne in mind here that as the order value increases the appropriate commission amount normally decreases in percentage terms. Subsequent changes of the main contract and change orders, which influence the net order value, have to be represented accordingly and appropriate relation between commission rate and thyssenkrupp margin.
As a learning from the allegations in Israel, we have adapted our practice as our responsible Member of the Board for Compliance, Dr. Donatus Kaufmann, stated out in an interview with German “Rheinische Post”:
“And we've adapted our practice: If we come to the conclusion that an external representative is necessary for a transaction, he or she is screened. If he does not have a clean record, he is out right now. In addition, contracts have become much more precise and reporting obligations are stricter. And we cut our commissions. We are now paying at the lower end of what is customary in the market. Only if there is the slightest suspicion that something might be going wrong do we start an investigation.”
According to the Group Regulation Compliance in dealings with Business Partners
- it is not permited to make cash payments to sales agents;
- it is not permitted to make payments to sales agents into anonymous accounts which do not allow identification of the holder are impermissible;
- to make payments into accounts in countries in which the Business Partner is not resident should be avoided and in any case need a written justification by the Business Partner. Such payments are permissible only in justified exceptional cases if the Business Partner presents a written declaration from the bank at which the account is held confirming beyond doubt that the Business Partner is the holder of and has the power to draw from the specified account.
- payments to be made into an account in an off-shore-country in which the Business Partner is not resident, are impermissible. In case of doubt whether a country is to be regarded an off-shore-country, CPL has to be contacted.
Does the company publish details of all agents contracted to act with and on behalf of the company?
With regard to contractual details, we expect our business partners to exercise the discretion that is customary in the market, especially when it comes to sensitive technical or economic data.
In the same way, we respect the need for discretion of our business partners and therefore publish the existence of business relationships only in mutual agreement.
Does the company publish high-level results from incident investigations and sanctions applied?
If there are signs of infringements by third parties such as sales agents, we investigate every single case thoroughly. In case of proven violations of our policies or even legal violations, action is taken to remedy the violation immediately, such as individual reaction against suppliers (e.g. termination of contract, reorganization, increased Compliance efforts, phase out), request for damage compensation or filing a complaint to public authorities.
Please find selected official investigations in our Annual Report 2017/2018:
Since November 2016 the Israeli state attorney has been carrying out investigations in connection with Israeli naval projects of thyssenkrupp Marine Systems, also into its local sales agent. According to current knowledge there are no investigations into thyssenkrupp companies or employees. We immediately launched an in-house investigation. We have passed on the results of the preliminary investigation report to the authorities and will continue to cooperate with the authorities. Further measures will be taken as necessary.
Does the company conduct risk-based anti-bribery and corruption due diligence when entering into and operating in joint ventures?
thyssenkrupp has a formal procedure to conduct risk-based anti-bribery and corruption due diligence when entering into and operating in joint ventures. We have conducted a Group wide joint venture analysis with the goal of establishing a process for reviewing the joint ventures thyssenkrupp participates in for Compliance risks. The analysis is updated periodically. The analysis has the purpose to provide an assessment of specific anticorruption and antitrust risks for thyssenkrupp participations in joint ventures caused by the fact that the respective businesses are operated in this specific form. The Compliance assessment covers questions like Compliance programme, organization, antitrust and anticorruption rules, Compliance trainings and auditing within the joint venture as well as ownership structure and background checks of our partners. According to our internal approval procedure, Compliance has to be involved at an early stage, if new joint ventures are to be concluded in order to mitigate potential risks from the start.
Does the company commit to incorporating anti-bribery and corruption policies and procedures in all of its joint venture relationships, and does it require anti-bribery and corruption clauses in its contract with joint venture partners?
With our mission statement, we are clearly committed to values and to the fact that Compliance is a must. These values naturally also apply to partnerships of any kind with third parties.
With the mandatory involvement of Compliance at a very early stage in the process of setting up a joint venture, we make sure that anti-bribery and corruption policies and procedures are implemented in the respective joint venture. This includes clear clauses in the respective agreements but even more a continuous monitoring of the joint venture activities as a shareholder.
Does the company commit to take an active role in preventing bribery and corruption in all of its joint ventures?
If thyssenkrupp becomes a shareholder of a joint venture, thyssenkrupp takes a very active role as a shareholder and will always insist on the implementation of an effective Compliance programme including clear rules on the prevention of bribery and corruption. thyssenkrupp will further work with the joint venture partners in the interest of establishing a good Compliance culture within the joint venture.