The Agent's Customary Facilitation
Kestrel Medical Systems, a U.S. device maker, is bidding a $14 million hospital equipment tender in a country where it has no subsidiary. A local agent recommended by the deputy health minister's office proposes a 12% success fee - $1.68 million - payable only if Kestrel wins. The agent is the minister's cousin and says 3% of the fee is "customary facilitation" for the hospital technical committee that scores the bids. Kestrel's code of conduct prohibits bribery but permits "minor facilitation payments to low-level officials to expedite routine actions" with CFO pre-approval. Local law criminalizes bribery of public officials but is rarely enforced; the U.S. FCPA applies. The tender closes in 30 days, and the region genuinely needs the equipment. The country director argues that refusing the arrangement is cultural imperialism and will hand the deal to a German competitor.
1. Does the 3% payment fall within the FCPA's facilitating-payment exception? Work through the elements.
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The FCPA's facilitating-payment exception is narrow, and this payment fails it on multiple elements.
Elements of the exception: a payment to a foreign official to expedite or secure the performance of a routine governmental action - an action ordinarily and commonly performed by the official - that is non-discretionary, and the payment must be small.
Application:
- Routine, non-discretionary? No. Scoring bids and awarding a $14 million tender is the exercise of substantial discretion and is a core governmental decision, not a ministerial act like processing a visa or providing police protection. The exception explicitly does not cover decisions to award new business or continue business with a particular party.
- Small? 3% of $1.68 million is roughly $50,000. That is not a facilitating sum.
- Who is paid? The money runs through an agent to a committee connected to a minister. Even if the company does not make the payment itself, the FCPA reaches payments made by third parties while the company knows or has reason to know the payment will be made. A minister's cousin as agent, a success-fee structure, and a stated percentage for 'facilitation' are textbook red flags.
- Books and records. The 12% success fee would be recorded as a commission; mischaracterizing a slush component violates the accounting provisions regardless of whether the anti-bribery provision is triggered.
Conclusion: the payment is a bribe of a public official, not a facilitating payment. Kestrel's internal code is also defective - its exception is broader than the law and lacks the 'routine' and 'small' limits.
2. What due diligence and contractual controls should Kestrel apply to the agent before any agreement, and what is the go/no-go recommendation?
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Due diligence, before signature:
- Beneficial-ownership and relationship mapping - confirm the cousin relationship, any government role, and any ownership interest held by officials or their families.
- Reputation and integrity checks: prior agency relationships (which tenders did they win, for whom?), litigation, debarment, press, and reference calls to former principals.
- Capability assessment: does the agent actually provide marketing, logistics, and service support worth 12%? A fee payable only on award, with no defined deliverables, is a red flag on its face.
- Country risk assessment and a written risk memo reviewed by counsel.
Contract controls:
- Fee benchmarked to services actually rendered; consider a flat retainer plus modest success fee, not a pure contingency.
- No payment to sub-agents or third parties without written approval; no cash; payment only to a verified account in the agent's name in the country of performance.
- Anti-corruption representations, audit rights, and termination for breach; annual certification.
- Explicit prohibition on payments to officials and on 'facilitation' components; require certification of no such payments.
Recommendation: if the agent will not accept these terms and cannot explain the 3% in writing, do not proceed. Kestrel can bid directly, partner with a different agent, or no-bid. A lost tender is a commercial cost; an FCPA resolution is a corporate-ending one for a company this size.
3. How should Kestrel's leadership answer the country director's cultural-relativism argument? Build the response on both ethical and practical grounds.
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Ethical response. Cultural relativism holds that right and wrong are defined by the local culture. But the argument proves too much: it would equally license the abuses the country director would doubtless condemn, and it treats 'local culture' as monolithic when the country's own statute criminalizes bribery - the local rule is not permissive, only underenforced. A more defensible position is pluralism: respect local customs about hospitality, gift-giving, and relationship-building while holding to limits on payments that distort official decisions. A $50,000 payment to a committee that scores the bid is not a greeting ritual; it purchases a decision. Under Kantian reasoning, it uses the committee, competitors, and patients who need the equipment as means; under virtue reasoning, it habituates the organization to a corrupt practice it will find harder to exit each year.
Practical response. The country director's prediction may be right - Kestrel may lose to a competitor willing to pay. But the relevant comparison is not 'win versus lose'; it is 'lose this tender versus lose access to U.S. procurement, face DOJ/SEC exposure, and lose the ability to raise capital.' German and other competitors are also bound by their own anti-bribery laws and by the same multilateral conventions; assuming otherwise is often wrong. Kestrel should redirect the country director's energy: build a compliant route to the tender (direct bid, transparent local partner, ministry-level meetings on the merits), and document that decision so the loss is attributable to price, not to a refusal to bribe.