Due to large global supply chains, international trade demands, and intense competitive pressure, the automotive sector – as other sectors – has faced its share of compliance issues in the past. As enforcement authorities’ focus on the industry has recently ramped up, it’s important to familiarize oneself with certain risks that can frequently arise in this specific industry.
The systematic prevention of bribery and corruption has reached a high level in the automotive industry. Yet potential bribery and corruption offenses are still the subject of investigations by the authorities. One topic that has gained growing attention is so-called quick savings.
Quick savings – also known as nomination fees, or upfront payments – are by no means new to the automotive industry. In fact, it’s become a common phenomenon.
Types of quick savings
Quick savings exist in many forms. Typically, an original equipment manufacturer (OEM) demands a one-off payment from a supplier. In return, the supplier is awarded a contract or qualified to tender or bid for a contract (so-called pay-to-play payment). There are also constellations in which the OEM demands so-called savings on current account from the supplier during a contract, to qualify for further contracts or biddings.
Depending on the case and set-up, these payments could bear a potential corruption risk. This may lead to a potential (criminal) liability – for both the person acting for the company and the company itself.
Points to remember
Due to the lack of reliable case law in certain jurisdictions, it is important to keep the following basics in mind when dealing with quick savings:
- Their connection to a (potential) contract should be properly disclosed in all relevant documentation.
- They should be properly documented.
- They should be based on an internal legal basis – e.g., policies and processes.
- They should be transparent (both internally and externally).
- The amount of quick saving payments should never be unusual in the market or disproportional.
Complying with the above, however, may only minimize a potential corruption risk. It’s therefore crucial to take into account the specifics of each case.