After two and a half years, the U.S. Department of Justice culminated a major bribery investigation by arresting 22 individuals in the small arms industry, charging them with violation of the Federal Corrupt Practices Act (FCPA.) The FCPA prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business. In sting operations that involved a bogus African Defense Minister and a Sales Agent, FBI agents recorded each of the accused paying bribes to these “foreign officials.” The sting has been billed as the largest single investigation and prosecution against individuals in the history of the enforcement of this Act. Arrests were made in January 2010 at the time of the premier trade exposition for Shooting, Hunting, and Outdoor Trades (S.H.O.T.). These arrests sent a clear message to everyone in the small arms industry. The key individual in each of these FBI operations was a sales agent who played a major role in the sting operation. If a company is to do business worldwide, sales agents are a necessity. Who are they, what do they do, and what should we know about them?
Who Are These People?
Most small arms manufacturers cannot afford to keep a full time sales staff in each country. Every friendly country is a potential customer and sales to them can represent a significant portion of any company’s yearly revenue. The solution that makes the most sense is to hire a sales agent who operates in the target country. Familiar with all aspects of military and government procurement, these agents can be effective in leading the charge to find business opportunities. A good agent can be the life blood of an organization while a bad one is your competitor and maybe even your lawyer’s best friend. A careful selection of these agents must be made for a vast number of reasons.
The first is connections. Most agents have prior military experience, generally at a high level, and are well-connected in the current government. They have access to the military decision makers and buying commands for all branches of the military and law enforcement. They visit the customer frequently, gathering intel and pushing your product.
Many agents are true professionals with substantial technical expertise. Agents with technical acumen take the company’s armorers and other product maintenance courses. They often keep a set of special maintenance or armorer’s tools handy. This offers a huge advantage to the small arms manufacturer since the agent gets a close up, hands on experience that is invaluable when he is in the field troubleshooting problems. Addressing minor problems on a rapid basis is a boon to the customer and can eliminate unnecessary travel outside the U.S. In cases where the problem is beyond their capability, the agent can act as the first responder and intermediary who can get you a clear concise definition of the problem. This keeps the company in good standing with the customer while preventing costly and time-consuming travel.
It is not unusual to find sales agents attending trade expositions such as the S.H.O.T. show or the annual meeting of the Association of the United States Army (AUSA.) They have a presence in your booth, ready to talk anyone from their sales territory who may show up.
Traits of a Good Agent
A good agent will be willing to prepare a monthly business report. This report lets you know where things stand and what’s been done that month to promote your product. It alerts you to any problems with your fielded product and advises you of meetings, tenders, funded research studies, and other opportunities upcoming which may be of interest. A good agent will give you this information in time to prepare a good response. The most honest of the sales agents will let you know if they have taken on any new clients, and who they are. They keep up with current activities of your potential customers and are fully aware of what your competitors have accomplished in that country.
It can’t be that hard to write 12 reports a year. If nothing gets reported for a couple of months, maybe you need to start looking for a new agent. This is particularly true when you suddenly get offers from new sources to be your agent while yours remains oddly silent. It’s probably time to put them on notice for termination.
A good agent is familiar with your complete product line and visits your company regularly to stay abreast of new developments. When this occurs, companies need to keep in mind that divulging too much information is in violation of the International Traffic in Arms Regulations (ITAR), so only cleared information may be passed to these agents. In their home country, agents will keep a good stock of your product literature, available for strategic placement at a moment’s notice.
Considering current events at S.H.O.T., agents must be willing to become fully familiar with the Federal Corrupt Practices Act (FCPA) and know how to get the documents required for arms transactions in their country. Import certificates are absolutely essential and good agents will secure them for you without question.
Many agents will represent large numbers of companies. These agents won’t always put a high priority on selling your products. Rather, they spend time working on projects that will give them the best or quickest payback. Some agents even represent two gun companies with competing products, yet claim they can stay objective. This always ends in disaster.
An excellent example of the best agent I ever worked with was an agent covering military sales in Canada. He had a special knack for uncovering valuable information about the market, customers, clients, and potential business partners. Before you would enter any meeting with them he would insist on scheduling a private session with you for a briefing. He would give you a complete rundown on the personalities, the business climate, and the motivations of all the players. When you walked into the meeting the next day, you were well prepared and with great confidence you knew exactly how and when to state your message.
The Tricky, Slippery and Dangerous Side of Being an Agent
One of the challenges facing agents in countries with unstable governments is the regime change. Your agent may be the king’s first cousin but when the king is deposed, your agent is likely to be out of favor, incarcerated, or worse. Association with the ousted government may be dangerous, even for sales managers of your company. In countries with stable governments it’s a pretty straight forward bet – your agent either is well connected or is not.
Successful agents must learn to adapt to the wishes of their potential customers. This can become dangerous in countries with internal problems and particularly when dealing with aggressive military commanders. It has happened that when an agent shows up with a new product to demonstrate, the “test” might include participating in an operation against the local rebels. The agent is usually expected to go along, indicating if nothing else, confidence in the product.
Having an agent that truly understands local customs can guide you when interfacing with potential customers and locals. No matter how cosmopolitan you or your marketing department may think they are, there is no way they or you can understand every important custom in every country. Take for example, an agent I knew who represented Thailand. The agent was not a native Thai but was married to a Thai woman who managed a hotel in Bangkok. When delegations from our company visited Thailand, everyone found it convenient to stay at his wife’s hotel so she could look out for them. On their first day of arrival the agent recommended that our group rest from the plane trip for a few hours during the afternoon. His wife had the day off and he’d be spending some time with her at home. He would return later that evening to meet them for dinner at the hotel restaurant. Arriving at the restaurant, he found his colleagues standing in the hallway in front of a sign that announced the restaurant was closed. The agent called his wife who investigated and called back with the explanation. It seems the restaurant had run out of chicken, and rather than lose face by admitting they had run out, the staff found it more logical to close the restaurant.
Enduring the long dry spells between paychecks is another obstacle to be faced by agents. Unless the agent represents a lot of companies with active transactions through the year, the agent may pursue what are called “parallel business” ventures. This business is usually outside the law and involves supplying weapons to a rival political group or to local criminals. Such parallel business was explained as the probable motive for the demise of a fellow sales manager at another company. One Monday morning as he drove in to work, he was murdered, execution style. I had taken the same route from Brussels only one day earlier. Investigation into his murder uncovered some shady ventures, but the mystery of his murder has never been solved.
Agent Agreements – Write the Exit Plan First
For any small arms manufacturer it is wise to investigate every company thoroughly before signing up with them. Far too many agents have a legitimate looking business front that is backed by underworld or undesirable characters. The U.S. Treasury can be a help with your due diligence for agents. Their website allows you to check what they term as “Specially Designated Nationals and Blocked Persons” and it is essential your agent’s name does not appear on this list.
You need to find out what other companies these agents represent. If they are in the military business, and the best ones usually are, it’s important to find out if the companies they represent have any products that conflict with yours. Before you write the agent’s agreement, you are smart to write the terms of termination first. There are several reasons for this: The first is that many agents are only interested in their sales commission. They talk a good talk, yet do nothing to earn their pay. Just about the time you think they’ve gone subterranean for good, you do all the work to orchestrate a sale within their territory, and up they pop like a prairie dog – looking for their commission. Other reasons might include: regime changes, conflicts of interest, and the most important – an unwillingness to work within the FCPA guidelines.
What works best for most companies, and even the agent, is a short term (e.g. 30-60 day) no-questions-asked notice of termination.
Bribery and the Federal Corrupt Practices Act
As we all learned from the message conveyed at the S.H.O.T show, your agent must be familiar with the FCPA and needs to know what is allowed and what is not allowed. They are not to be passing out bribes under any circumstances. They should be aware of other important U.S. laws such as the ITAR regulations and mail and wire fraud statutes. Finding an honest, informed agent can be crucial to your business; but knowing what to look for in an agent is half the battle.
