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har greater nifuence" can be applied to all personnel in the governmentai decision-making chain.
Cutenes is not always elated tirely to 1 ash gratuity. It can include he rent free use of a vila in Pance or a far in London along with car and servants. Sometimes the government officials a silent partner in the agency or other musiness completely fivorced from 18 ormai activities from which he receives a inancial benefit.
THE AGENT' FEE
The points" ir percentage of a sale received by an agent vary depending upon the sentation, and effectiveness of the agent. C... contractors selling najor erstens 18ually imir heir andart fee to an agent of nerveen four and sx Jervent. ness expensive equipment the percentage can exceet 25% of he seling price. There are clown 'ases, however, where he agent las siste pon an autir.onal fur to ire permentage points to insure the sietessili completion of the sale ecause if some "musna." added expenses. The French and British industites are masters in tealing through agents and generally have 10 compuneson to agreeing “a excessive fees, 12. ln the ina ana e le is consummared an in-going degotation in the Middle East, me tarpena urrait contractor had a sty 20 porats for the local agent. On the basis of tus £200 mildion santract, tie agent iad millions to use for afrence and will remain a aspectanie praft far as effort, Karensi è deguration iť Als zurzact by de sunny over an agar-amara period inally resulted in a reinetion of 3 percentage points zad alt.mately sa snmpiere dimination of any agent's fee in the grace of the Ja another ME suntry an agent for a French frm was reported u have netted * million in a murzaet det at £206-300 million.
The Armed Service Pronnement Bertation (ASPR permits payment of reasonable agents fees as part of "cost of sales on Foreign Villary Sales FMS) and contains general pudelibes on how travaileness” is to be determined. There are exceptions, however, sut as in the case of Iran. The Iranian Government has categorically stated that der no circumstances will they permit a fee for an agent in the price of any U.S. equipment purchased under FMS. This has resulted in the issance of Defense Procurement Circalar 117 dated 23 November 1973, and dictated the inclusion of the following paragraph on all USG Letters of Offer to Iran.
"Notwithstanding any other provision of this contract, any direct or indirect costs of agent's fees/commissions for contractor sales agents involved in FMS to the Government of Iran shall be considered as an unallowable item of cost under this contract.”
While this is only one example of a country that has already taken concrete steps to remove the agent's fee from Defense procurement activities, it is fully expected that other countries in the Middle East will soon follow suit. Therefore, C.S. contractors who are already doing business thru agents in these areas, or
those, that are contemplating making agency arrangements should be aware of this trend in the Middle East and be guided accordingly.
As stated in the onset of this paper, the more aggressive agents earlier switches from a purchasing function to one of a selling function. It will be most interesting to see how and in what form they adapt to this latest trend. One thing for sure, this lucrative function, developed over the past two thousand years will not evaporate easily.
Fort Washington, Pa., September 16, 1975.
Re Proposed amendments to the International Traffic in Arms Regulations concerning Contingent Fees as covered in Newsletter No. 13.
OFFICE OF MUNITIONS CONTROL,
BUREAU OF POLITICO-MILITARY AFFAIRS,
GENTLEMEN: Aydin Corporation designs, manufactures and sells microwave and digital data comunications equipment and conducts a great deal of business with foreign companies and governments located in Europe, the Middle East and Asia as well as in the United States. As a normal practice in such business, we enter into agreements with independent sales representatives whereby we pay them a percent commission on the sales they make on our behalf.
We propose that no reporting should be required on amounts up to 7% of $100,000 for commission or fees for the following reasons:
1. Requiring a report of any commission or fee might cause the local sales representative to be concerned over the possibility that he will be accused of profiteering. As a result, he may choose not to deal with American manufacturers and prefer to deal with European firms. A lot of honest sales reps. in Middle Eastern and Asian countries have been accused of excess profits from time to time. 2. The amount of commission changes as the scope of the work, spare parts and add-ons are revised from time to time. Therefore, reporting will be too cumbersome and prohibitive.
Putting a sales representative on the defense is no way to help us export more goods to foreign countries. There are many European countries which are very anxious to sell. We do not condone illegal bribery payments; however, it will be against the interests of the U.S. to publicize normal commissions payable to sales reps.
Commissions up to 7% are normal for sales representatives selling in the U.S. therefore, commissions up to this amount should not be suspect and need not be reported.
Very truly yours,
INTERNATIONAL DISTRIBUTORS, INC.,
Re Newsletter No. 13, September 1975.
GENTLEMEN: We are in receipt of the proposed rule changes concerning com missions paid to foreign agents and certainly have no objections to the proposed rule change.
However, we do note one area of vagueness and that is, if there is a payment made we are to offer a statement to the effect that the payment will be made and in what amount and "has advised the Government of as to the identity
of the recipient. . .". The question is, exactly who and what branch of a government involved do we notify? As an example, if we had a contract to supply the Government of Chile with a contract sufficient to be covered by the proposed rule and a commission sufficient to be covered by this proposed rule change, could we simply notify by mail the Chilean Consul in Miami that we were paying a certain individual a commission on the sale?
EDWARD G. DAVIES,
Re Contingent Fees Proposed Rules.
Director, Office of Munitions Control,
Wexford, Pa., September 16, 1975.
DEAR MR. ROBINSON: Pursuant to your invitation to submit our comments on above Proposed Changes in Rules, we respectfully submit:
(1) The U.S. Government has no right to try to enforce business morality on foreign nations and should avoid meddling in same or otherwise it will get its tits in the wringer as we did in Vietnam. We cannot police the morality of our own states, municipalities, let alone the world.
(2) As domestic based exporters we deal with commissioned agents who sell their governments our USA-made products much as a USA domestic distributor pays its retail agents to get business. We feel that this information is proprietary information and should not be made a condition of your issuance of any export license.
Just in passing, perhaps you may consider alleviating the present stringent requirements in the issuance of export licenses which are required for as little as one brass case or one barrel accompanied with an import permit or DSP 83. Do you not feel that a reasonable dollar limit could be set on countries which are not in sensitive areas of the world and possible waive export license requirements? In as much in today's high price world of arms, it would take about $100,000.00 of anything to be anywhere significant. Other countries issue "open import licenses" to their experienced importers. Most countries that we ship to have very tight import requirements on arms anyhow.
Very truly yours,
JOHN S. LEVENDOS,
MACHINERY AND ALLIED PRODUCTS INSTITUTE,
Mr. WILLIAM B. ROBINSON,
Director, Office of Munitions Control,
U.S. Department of State, Washington, D.C.
DEAR MR. ROBINSON: This letter concerns the notice of proposed amendments dealing with "contingent fees" to the International Traffic in Arms Regulations which appeared in the August 25 Federal Register, p. 37043. I should make it clear at the outset that these comments do not represent a formal Institute policy statement approved by its Executive Committee. What we attempt to do in this communication is to place certain questions or issues before Department of State officials working in this policy area. Thus, this is an Institute staff document as distinguished from a formal policy statement.
While we recognize the public and foreign policy implications of the proposed amendments to the regulations, the changes raise a number of very important and complex questions that require the most careful examination by the Department of State before possible adoption in final form. Among the questions which, in our view, deserve most careful attention are the following:
The August 25 Federal Register notice states that "Undisclosed contingent fees can damage the foreign policy interests of the United States." Is there another side to this proposition; might not the proposed changes conceivably intrude upon the prerogatives of foreign governments involved? For example, if information is to be sought concerning activities of foreign nationals acting as agents (or in some similar capacity) for U.S. companies, should any inquiry as to the conduct and business activities of these foreign nationals emanate from the foreign government rather than from regulations imposed upon U.S. companies by the United States Government? In view of the issues implicit in this question, is it fair to ask if a government-to-government exchange of ideas on the types of transactions involved in the proposed regulations should precede any unilateral requirements by the United States which, although imposed directly on U.S. companies, cover transactions involving foreign governments and nationals subject to their jurisdiction and reporting by U.S. companies to foreign governments?
It is our understanding that a significant number of U.S. companies operating abroad, including the Middle East, retain on an ongoing contractual basis qualified foreign nationals as agents or representatives. The arrangements with these sales representatives call, in the typical case, for the payment of fees (commissions) contingent upon sales being realized in the representative's assigned territory. (It should be noted that such agents may be involved in furthering commercial sales as well as military items.) Has sufficient consideration been given to the fact that U.S. companies consider agent fee structures as highly confidential or proprietary information which should not be divulged to customers (including foreign government customers) and/or competitors, U.S. or foreign?
Further it is our understanding that the overseas sales representatives described above publicly hold themselves out to be, and in fact are, bona fide agents or representatives of a U.S. company and, therefore, their identity and their relationship with the U.S. company is already known to the foreign government. Indeed, typically negotiations with respect to particular sales take place between representatives and the foreign government. Under these circumstances, should not regulations—if they are to be issued in final form—include an exception to the requirement of a certification as to the amount of the commission or similar payment? Isn't this appropriate in view of the great sensitivity of company agent fee schedules and in the light of the fact that the foreign government can-and, if it is in its judgment necessary and appropriate, shouldobtain any information it wishes direct from the agent or U.S. corporate representative who is a national of that country? In posing this question with respect to a particular (but general) arrangement, we do not mean to suggest that exceptions should not be considered for other arrangements where fee disclosure could have adverse effects-government or private more than offsetting any advantages gained by such disclosure.
In view of the history and purpose of U.S. controls on exports of arms, are the statutes under which these controls have been exercised the proper vehicle for dealing with the contingent fee question? More specifically, do the underlying statutes permit such regulation as is proposed?
Although we understand that the Department of Defense is furnishing information on the identity and compensation of foreign agents or representatives involved in U.S. company sales of military goods to foreign countries, does this necessarily represent a precedent for the proposed requirements in Department of State regulations relating to sales which are handled strictly in commercial channels as distinguished from having actual DOD participation in the transactions?
We want to make one final observation which is a procedural matter. Since these regulations were issued in proposed form in the Federal Register on August 25, they reached interested U.S. companies and other interested parties during the vacation period. Moreover, in order to respond constructively, some companies may have believed it necessary to engage in international communications which, of course, take time. Finally, the subject matter is, as we have noted, important and sensitive. Under the circumstances, we trust that comments which are received within a reasonable period after the announced deadline of September 24 will be considered filed in a timely manner and thus given full consideration. While we have been advised informally that this will be the case, the point is referred to here for purposes of emphasis and confirmation.
PRESS RELEASE ISSUED BY DEPARTMENT OF STATE ON BRIBERY OF FOREIGN OFFICIALS BY U.S. COMPANIES
MAY 15, 1975.
The Department believes it would be advisable at this time to amplify recent policy statements regarding illegal activities by United States enterprises abroad.
As indicated in those statements, the United States Government does not condone illegal activities by American business and industrial firms abroad. The United States condemns such actions by U.S. corporations in the strongest terms. Moreover, any American firm or individual making unlawful payments to officials of foreign governments cannot look to the Department of State for protection from legitimate law enforcement actions by the responsible authorities of either the foreign country in question or the United States.
At the same time, the U.S. Government believes it would be helpful if host governments would clarify the rules for foreign firms in their countries regarding political contributions and other payments. We assume that the investigation and prosecution of offenses by foreign authorities will be non-discriminatory; that the penalties will be proportionate to the offense; and that persons or firms found guilty of improper conduct will be treated fairly and in accordance with international law.