Aurelia Medical: An Agent's Commission, a Tender and a Family Link
Aurelia Medical is a UK-incorporated distributor of diagnostic equipment. A $32 million hospital-group tender in a neighbouring country would represent 18% of its annual revenue, and the sales director has already flown out twice. The local agent, Consulmed, has proposed a 12% success fee - roughly four times the 3% Aurelia pays elsewhere - of which $1.5 million would be subcontracted to a 'market consultancy' in a third country for advisory work that nobody can describe. Consulmed wants its invoice issued by Aurelia's low-tax subsidiary, and the tender is worth $3.8 million in commission. The agent is owned by a cousin of the hospital group's procurement director, a fact disclosed only after the finance team ran a registry search. The sales director says the family link is irrelevant and that 'a $400,000 facilitation payment' will be needed to get the tender documents released before the deadline. He has asked the CFO to code the whole commission to 'business development' so the deal closes before the year-end bonus cut-off.
1. Identify Aurelia's legal exposure and the specific red flags. Explain why a contractual anti-bribery clause does not discharge the board's obligations.
Read the worked answer
Exposure. The risk is not the agent's conduct; it is Aurelia's. Under section 7 of the UK Bribery Act 2010, a commercial organisation commits an offence if a person associated with it bribes another person to obtain or retain business or an advantage in the conduct of business. The agent is an associated person. The offence is one of strict liability - no director needs to know about the payment. The only defence is that the organisation had adequate procedures designed to prevent bribery. Because Aurelia is UK-incorporated, the offence reaches conduct anywhere in the world; a US subsidiary or listing would add FCPA books-and-records and third-party exposure.
Red flags, each individually sufficient to stop the process:
- Commission at 12% against a market norm of 3%, with $1.5m routed to an undisclosed third-country 'consultancy' for unidentifiable services - a classic slush-fund structure and a books-and-records exposure.
- Invoicing through a low-tax subsidiary with no commercial substance, designed to distance Aurelia from the payer.
- A concealed family relationship between the agent's owner and the procurement decision-maker, discovered only through an external registry search.
- Success-fee-only structure, which defers the bribe until it has worked.
Why the clause is not enough. The Ministry of Justice guidance sets six principles for adequate procedures: proportionate procedures, top-level commitment, risk assessment, due diligence, communication and training, and monitoring and review. A warranty is one element of a proportionate procedure; it is worthless without risk-based due diligence, which would have surfaced the family link before the first flight. An agent demanding four times the market rate is itself evidence that Aurelia's procedures were not adequate - the defence is about what the organisation did, not what the contract says.
2. The sales director proposes a $400,000 'facilitation payment' to release the tender documents. Analyse whether this is defensible under UK law and under the commercial case being made for it.
Read the worked answer
There is no facilitation-payment exception under the UK Bribery Act 2010. Unlike the FCPA's narrow exception for routine governmental action, the Bribery Act covers any financial or other advantage intended to induce the improper performance of a function or activity. Ministry of Justice guidance states plainly that facilitation payments are bribes. A payment to release tender documents before a deadline is not routine administrative action; it seeks an advantage in obtaining business and targets a person performing a public function. It engages sections 1 and 2, and because the payment would be made on Aurelia's behalf, section 7 follows.
The commercial case is also weak on its own terms. A payment demanded before documents are even issued signals that the tender is not genuinely competitive. The $32m contract would be unauditable, and every subsequent invoice would carry the same implicit threat - the payment is not a one-off, it is a price list. The expected value is not $32m of revenue; it is $32m of revenue with an unquantified fine, debarment from public contracts, and directors' disqualification attached.
Correct handling. Refuse, and record the refusal contemporaneously. Report the demand through the whistleblowing channel to the audit committee. Re-tender through a transparent process or withdraw. If the counterparty insists, consider notifying the relevant authorities and plan an orderly exit from that market segment.
The 18% revenue dependency is a commercial fact, not a legal defence. A board that treats revenue concentration as a reason to relax its controls has confused the size of the prize with the strength of its position.
3. The CFO is instructed to code the $3.84m commission to 'business development' before the bonus cut-off. Apply the IMA Statement of Ethical Professional Practice and set out the CFO's required course of action.
Read the worked answer
The instruction is an accounting misstatement and a concealment, and it exposes both the CFO and the controller.
Applying the IMA Statement:
- Integrity. Mitigate actual conflicts of interest and refuse to engage in or support activity that would discredit the profession. Signing a journal entry that disguises the nature of a payment is precisely that support.
- Credibility. Communicate information fairly and objectively and disclose all relevant information, including delays and deficiencies. A generic 'business development' caption conceals the red flags from the board and the auditors.
- Competence. The CFO has a duty to know the legal framework well enough to obtain specialist legal advice before the payment, not to defend it afterwards.
- Confidentiality. It restricts disclosure outside the organisation; it never permits withholding information from the audit committee.
Required course of action.
- Refuse to authorise or record the payment, and say so in writing.
- Escalate in writing to the audit committee (to the board if the CEO is implicated), attaching the registry search, the commission benchmark and the agent's request for payment routing.
- Obtain external counsel's opinion and document every step and date.
- Recommend the controls the case has exposed: tiered approval for any agent commission above 5%, mandatory beneficial-ownership screening of all intermediaries, and a no-discretion rule on payment routing.
If the board proceeds, the CFO must consider disassociation - resignation with a written statement to the audit committee - because silence after escalation makes the CFO complicit. The bonus cut-off is not a mitigating factor; it is exactly the pressure the standard exists to withstand.