Agent

Anti-corruption legislation prohibits business entities from engaging in misconduct such as paying bribes to foreign officials, but what happens when an organization attempts to circumvent these laws by enlisting the help of a third party? 

In fact, data on enforcement actions related to the United States Foreign Corrupt Practices Act (FCPA) indicates that the majority of bribery schemes that take place each year are facilitated through a third-party intermediary—usually a consultant, a contractor, or an agent.

What is an Agent?

An agent can be defined as any third-party individual or organization (the “agent”) who has been legally authorized to represent a company (the “principal”) and enter into legal agreements on its behalf. In the United States, agency law regulates the legal relationship between a company and the agents it authorizes to act on its behalf, and establishes liability for acts performed by the agency. 

The way we conduct business would look very different without the legal framework that allows agents to represent businesses. Corporations are themselves legal entities and have no inherent capacity to represent themselves—thus, every person who acts as an employee of a business to complete a negotiation or settle a transaction is acting as an agent. 

In general, the relationship between the agent and the principal has three essential characteristics:

1. The principal and agent consent to the relationship of agency between them and enter into the relationship through a written, verbal, or even an implicit agency agreement.
2. The agent is given the authority to take actions that impact the principal’s legal position, such as entering into contracts that result in the principal acquiring new rights and obligations, as if they themselves had signed the agreement.
3. The principal exercises some control over the actions of the agent to ensure that they act competently and with integrity on the principal’s behalf.

What are the Classifications of Agents?

Agents may be legally classified in different ways depending on the scope of their authority to act on behalf of the principal. Consider the following five classifications of agents:

1. Universal Agent – An agent with sweeping authority to act on behalf of their principal, including by representing them in legal proceedings or initiating financial transactions on their behalf. Assigning the power of attorney to a friend or relative gives that person the capacity to act as your universal agent if you become incapacitated.
2. General Agent – An agent with the authority to represent the principal in certain types of transactions or during a specified time period. A talent agent for a musical act or professional athlete would meet the description of a general agent.
3. Special Agent – An agent who has been enlisted and given limited authority to provide assistance with a single transaction or a short series of transactions that occur in a short time period. A real estate agent or traffic court lawyer would typically meet the definition of an appointed special agent.
4. Subagent – To meet the needs of their principal, agents may need to appoint their own agents known as subagents. The subagent acts as a representative of both the agent who appointed them and the principal.
5. Employee – While other types of agents (general and special agents in particular) would be considered independent contractors, employees of a company are also considered a type of agent. The defining characteristic of employees as agents here is that the principal is entitled to control the physical conduct of the employee, for example by requiring them to report to work at a specific time and place.

Are Agents a Corruption Risk?

Under the FCPA, organizations may be held liable for the corrupt conduct of their agents in two cases:

1. The principal authorizes the agent to make bribes to foreign officials, thus contravening the FPCA on its behalf.
2. The principal pays money to the agent with the knowledge that some or all of that money will eventually be used to bribe foreign officials.

In general, the principal will only be held liable for the corrupt actions of the agent if they had knowledge or directly authorized the corrupt behavior.

Congress has also made it clear that willful or deliberate ignorance is not an acceptable means of avoiding responsibility for corruption. Organizations must do their due diligence to ensure that agents act with integrity when representing them in their affairs.