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Payment of “Consulting Fees” to Foreign Agent to Secure Contracts

Although the case presented this month is hypothetical, the situation described is one that many U.S. firms seeking to compete in foreign markets may very well encounter.  

Situation

A U.S. engineering firm learns that a South American country is seeking proposals for a multimillion-dollar public works project. The firm has never bid on a project in that country, so the firm’s president—a professional engineer and a member of ASCE—hires a local agent to assist in the process. The agent explains that while the firm could itself submit its proposal to the decision-making body, the standard practice in his country is to retain a private consultant for the job, someone who can ensure that the bid comes to the attention of the appropriate parties. The agent offers the name of one such consultant, an individual who has had great success on such matters in the past.

While the firm’s president does not fully understand the type of service the consultant will provide, there is no doubt about the consultant’s connections; indeed, he is the eldest son of a senior member of the decision-making body. Still, the president is concerned about the ethical implications of hiring someone with such close ties to an official involved in the award process. The agent explains that, in contrast to norms in the United States, the appearance of nepotism in his country is not necessarily a drawback or something that creates suspicion, and he assures the ASCE member that nothing about the proposed deal violates the country’s laws or ethical norms.

The services of the consultant do not come cheap, but the agent cautions that if the U.S. firm does not move swiftly to engage the person’s services, one of the two European firms competing for the project will do so. Recognizing that the consulting fee—however steep—is still a drop in the bucket compared with the expected profit on the contract as a whole, the president authorizes the agent to hire the consultant.

Question

Did the president’s decision to hire the consultant, despite his concerns about the nature of the services rendered and the potentially improper influence on a government decision, violate ASCE’s Code of Ethics?

Discussion

While the transaction was presented as a legitimate fee-for-service agreement, several elements of the arrangement—the consultant’s close connection to a decision maker, the exorbitant consulting fee, and the lack of transparency regarding the type of work being done in exchange for the payment—are all red flags that should have warned the firm’s president that this was not a legitimate transaction but rather a thinly veiled bribe.

Canon 6 of ASCE’s Code of Ethics states that engineers “shall act in such a manner as to uphold and enhance the honor, integrity, and dignity of the engineering profession and shall act with zero tolerance for bribery, fraud, and corruption.” This obligation exists regardless of whether the behavior is an accepted practice in the country where the act occurs; as category (d) in the guidelines to practice for canon 6 notes: “Engineers should be especially vigilant to maintain appropriate ethical behavior where payments of gratuities or bribes are institutionalized practices.”

The outcome of an ethics investigation of this case would most likely depend upon the state of mind of the parties involved. If the Committee on Professional Conduct (CPC) found that the consulting fee was in fact an illicit payment and the firm’s president could not convince the CPC that his decision was a genuine mistake, the CPC would undoubtedly find that the member had violated canon 6 of the Code of Ethics.

It is interesting to note that, had this case been brought before the cpc in the early 1970s, it might well have received a different outcome. In October 1963 ASCE’s Board of Direction approved a footnote to the Code of Ethics carving out an exception for engineers competing for foreign contracts. Referred to as the when-in-Rome clause, the footnote read as follows: “On foreign engineering work, for which only United States engineering firms are to be considered, a member shall order his practice in accordance with the ASCE Code of Ethics. On other engineering works in a foreign country, he may adapt his conduct according to the professional standards and customs of that country, but shall adhere as closely as practicable to the principles of this Code.”

The when-in-Rome clause was a controversial provision from the very start. Its proponents argued that U.S. firms lost untold millions in unrealized profits when contracts were won by foreign competitors whose practices were not governed by codes of ethics, whereas its critics believed that ethical standards should be adhered to regardless of whether or not a particular nation had enacted laws to enforce the standards. But the 1970s witnessed growing concern on the part of the U.S. government over the operations of American businesses abroad and the effect of corrupt practices on U.S. foreign relations.

In October 1976 the Board of Direction voted to remove the when-in-Rome clause. Soon afterward, in December 1977, Congress passed the Foreign Corrupt Practices Act, which today imposes harsh civil and criminal penalties on U.S. citizens found to have offered improper payments to foreign officials or related parties in order to obtain or retain contracts.

Cases such as this are currently under study as part of the Global Anti-corruption Education and Training Program, an initiative that ASCE is spearheading and that in 2009 will be releasing a training package for use free of charge by firms and engineering colleges worldwide.

Members who have an ethics question or would like to file a complaint with the Committee on Professional Conduct may call ASCE’s hotline at (703) 295-6061 or (800) 548-ASCE (2723), extension 6061. The attorneys staffing this line can provide advice on how to handle an ethics issue or file a complaint. Please note that individual facts and circumstances vary from case to case and that the general summary information contained in these case studies is not to be construed as a precedent binding upon the Society. 

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