Risk Areas
4.3 Subcontractors, agents and intermediaries
Explanation of risk area
The fragmentation of the supply chain to include significant numbers of subcontractors, agents and intermediaries has been identified as key a contributor to corruption risk. In 2015, the World Bank noted that agents and intermediaries played a significant part in 6 out of 9 substantiated cases of fraud and corruption in its supply chain: payments were made to undisclosed agents who would then transfer funds to government officials as bribes. In 2013, more than 90 per cent of reported US Foreign Corrupt Practices Act (FCPA) cases were found to have involved third party intermediaries.
Indicators & Warnings
Refusal to divulge the identity of beneficial owners and or/company officers, i.e. those who draw benefits from companies and those who direct companies’ actions
Shareholders, owners or company officers who are, or have recently been, public officials
Poor reputation for business and social conduct
Subcontractors, agents and intermediaries providing gifts and hospitality to officials
Signs that agents, intermediaries or subcontractors could be shell companies (no premises, no staff, recent incorporation and little or no verifiable performance record)
Unusually high payments to agents, intermediaries or subcontractors
Main contractors directing payments through an agent or intermediary
Pressure for payments to be made urgently or ahead of schedule
Large-scale subcontracting with limited visibility of who is doing the actual work
Lack of transparency on who the subcontractors are and what their remit is
Subcontractors or intermediaries appearing after the contract is negotiated and the bidder selected
Engagement of subcontractors or intermediaries whose work appears to be different than required, or whose staff size or profile does not correspond to contract needs
Very little or no verifiable information about the subcontractor; predominantly anecdotal evidence of performance and work history
No compliance or anti-corruption programmes for agents, intermediaries, contractors or subcontractors
Submission of false invoices, often lacking necessary detail and/or photocopied
Significantly higher or lower use of materiel than estimated
Excessive stocks of products, either because it sits unused or because wrong quantities have been delivered
Product substitution: products of lower quality than foreseen are delivered
Poor product quality and/or product failure