7.1 Agents and Intermediaries
7.1.1 Does the company have a clear policy on the use of agents?
HII engages very few “agents” as that term is typically used in the international business context. In particular, we do not allow any third parties we engage to operate without significant oversight. We engage a very limited number of third parties to assist with business development activities. We engage “agents” or commercial consultants compensated on a commission-basis only in exceptional circumstances.
HII’s business strategy does require collaboration with a wide array of individuals and external companies in other capacities, from technical consultants, to lobbyists, to customs clearance and freight-forwarders. We consider these third-party business partners to be “Representatives,” because they represent HII with respect to external parties. We understand that we could be held legally responsible for actions that Representatives take on our behalf.
We have implemented comprehensive procedures for the proper vetting of Representatives. Both the Foreign Corrupt Practices and Anti-Bribery Procedure and the Agreements with Third Party Representatives Procedure set forth international best practices to identify, manage, and mitigate corruption risks associated with our use of Representatives. Prior to engaging any Representative, we conduct risk-based due diligence on the Representative, so that we know who is acting on our behalf, and ensure that a legitimate business justification exists for engaging the Representative. It is HII policy to verify ownership of our Representatives, obtain certifications of compliance with anti-corruption laws, and require proofs of service prior to payment.
The aforementioned procedures apply to HII’s Corporate office, Divisions, subsidiaries, controlled joint venture companies, and other entities effectively controlled by HII.
7.1.2 Does the company conduct risk-based anti-bribery and corruption due diligence when engaging or re-engaging its agents and intermediaries?
HII employs a robust risk-based due diligence process designed to identify and appropriately mitigate risks, including with respect to all Representatives.
Pursuant to HII’s Agreements with Third Party Representatives Procedure, prior to entering into a business relationship with any Representative, we conduct risk-based due diligence to verify the identity of the party and detect potential risks. We utilize a risk categorization metric to determine the risk category for a particular Representative and the related level of due diligence that will be required, with all medium and high-risk agents and intermediaries subject to enhanced due diligence.
Following their approval to do work, Representatives undergo risk-based oversight throughout the course of their engagement with HII. The aim of risk-based oversight is to verify that Representatives conduct business in a manner that is consistent with HII’s values, procedures, and applicable anti-bribery and corruption laws.
Representatives are also subject to annual certification requirements to ensure that HII is aware of any changes to their risk profiles. Updated due diligence is required at least every two years or whenever a substantive modification to the Representative agreement (in scope or compensation) is proposed.
7.1.3 Does the company aim to establish the ultimate beneficial ownership of its agents and intermediaries?
HII employees must establish the beneficial ownership of all Representatives prior to engagement. The Agreements with Third Party Representatives Procedure sets forth a risk-based beneficial ownership verification process whereby searches are performed to identify and screen all beneficial owners of each Representative. HII employs questionnaires, as well as public record searches, to verify beneficial ownership. For medium and high-risk Representatives, the Corporate Compliance Manager is responsible for independently verifying the results of the beneficial ownership search.
HII will not engage a Representative if the beneficial ownership is unclear or raises concern.
7.1.4 Does the company’s anti-bribery and corruption policy apply to all agents and intermediaries acting for or on behalf of the company, and does it require anti-bribery and corruption clauses in its contracts with these entities?
In order to confirm that our Representatives abide by anti-bribery and corruption laws, at the initiation of the relationship and annually thereafter, Representatives are required to certify that they have no knowledge of any violation of the Foreign Corrupt Practices Act and other anti-bribery laws and that they will continue to act in accordance with the HII Code of Ethics and Business Conduct and applicable anti-corruption laws.
All Representative agreements with medium and high risk representatives must be coordinated by the Law Department and must include anti-corruption clauses, including representations and warranties, termination rights, and, where appropriate, audit rights.
HII will refuse to engage, or will terminate engagement with, any Representative who commits acts of bribery or corruption.
7.1.5 Does the company ensure that its incentive schemes for agents are designed in such a way that they promote ethical behavior and discourage corrupt practices?
Effective compliance programs reward compliance and ethical behavior and discourage misconduct through proper incentives and disciplinary measures.
HII recognizes the corruption risks associated with incentive payments to Representatives and has placed strict controls around compensation to Representatives. HII relies on commission-based compensation for its Representatives only in exceptional circumstances and only if a valid business justification exists and controls are established. Such controls may include reasonable caps on commission percentages, staged payments over the term of HII’s contract with the customer, and proofs of service. Instead of utilizing commission-based compensation, HII typically agrees in advance with Representatives on payment metrics based on the services provided. This avoids improper compensation incentives and discourages corrupt practices.
Compensation, both in total amount and type, is a key factor in determining a Representative’s risk profile. As a result, commission-based Representatives are subject to greater scrutiny and an enhanced due diligence process.
As part of the risk-assessment conducted with respect to every Representative, HII also evaluates the financial stability of the Representative, requests financial or banking references, and ensures that the Representative has a properly established bank account in a country that does not raise red flags.
In addition, HII places heavy emphasis on controls around the payment process. As a condition of being compensated for any work performed for HII, Representatives are required to submit monthly activity reports and proper invoices. HII employees are responsible for reviewing these activity reports and invoices to ensure that the compensation sought is reasonable and appropriate in connection with the services rendered.
7.1.6 Does the company publish details of all agents currently contracted to act with and on behalf of the company?
HII will not enter into an agreement with a Representative that wishes to keep its identity or involvement concealed. However, HII’s Representatives generally expect HII to exercise discretion when releasing contractual information, especially information that is customarily considered to be private. As a result, for commercial reasons, HII does not generally publish the details of all of the Representatives it has engaged.
7.1.7 Does the company publish high-level results from incident investigations and sanctions applied against agents?
HII has zero tolerance for bribery or corruption. Our anti-corruption compliance program places a number of responsibilities on every member of the workforce. Chief among these responsibilities is the obligation to report known or potential violations of our anti-corruption policies and applicable laws.
HII conducts a prompt and thorough investigation into every report of bribery and corruption violations, including those committed by Representatives. In the event of violations of our policies or legal requirements, HII will immediately invoke a number of disciplinarily actions ranging from enhanced monitoring and compliance efforts to termination of the business relationship.
HII has not historically had many reports of bribery or corruption violations involving Representatives. Over the past 12 months, HII has not had a single report or allegation of bribery or corruption involving Representatives. The limited data that has resulted from a very small number of reports and investigations involving bribery is not conducive to high-level reporting. As a result, HII does not, as a matter of practice, publish the details or results of internal investigations, unless those results would affect HII’s financial reporting or disclosure is otherwise required by U.S. securities laws.
7.2 Joint Ventures
7.2.1 Does the company conduct risk-based anti-bribery and corruption due diligence when entering into and operating as part of joint ventures?
HII conducts comprehensive risk-based due diligence prior to entering into and operating joint ventures. The principal goal of the risk-based due diligence process is to systematically investigate and evaluate the financial, contractual, legal, strategic, management, human resources, and other aspects of the partner company, in order to assess the operational, anti-bribery, and corruption risks associated with the joint venture.
Enhanced due diligence is performed on joint venture arrangements that present higher risk, including those involving high-risk forums and government entities. HII will not engage in a joint venture if HII does not have sufficient information to determine the ultimate beneficial ownership of the partner company, or when HII is unable to mitigate potential risks.
Following the approval of a joint venture, HII seeks to negotiate implementation of ethics, compliance, and operational policies and procedures and joint venture governance mechanics that provide for the ongoing monitoring of the joint operation to ensure that such operations comply with anti-bribery and corruption laws.
7.2.2 Does the company commit to incorporating anti-bribery and corruption policies and procedures in all of its joint venture partnerships, and does it require anti-bribery and corruption clauses in its contracts with joint venture partners?
HII is committed to ensuring that its joint ventures operate in the same ethical manner as HII itself. To this end, we take steps to ensure, to the extent possible, that each of our joint ventures adopts compliance controls at least as robust as our own.
HII will only enter into joint venture contracts if anti-corruption clauses (including appropriate representations and warranties, termination rights, and, where appropriate, audit rights) are included. Notably, whenever possible, we include provisions that require each joint venture partner to remove any directors, officers or employees that it appoints to the joint venture if such partner reasonably suspects that such employee has engaged in unethical or improper behavior.
7.2.3 Does the company commit to take an active role in preventing bribery and corruption in all of its joint ventures?
HII takes a very active role in preventing bribery and corruption in all of its joint ventures. Our commitment to anti-corruption compliance is such that we demand an equal commitment from the companies with which we conduct business. As stated clearly in our Code of Ethics and Business Conduct, “HII does not tolerate bribery or corruption, regardless of where we are located when we do business.”
HII will refuse to engage, or will terminate engagement with, any joint venture partner who commits acts of bribery or corruption. Moreover, HII will actively seek to prevent bribery and corruption within its joint ventures by, as dictated by the circumstances, ensuring the joint venture adopts appropriate anti-bribery controls, appointing a compliance officer within the joint venture, and conducting regular monitoring and auditing of the joint venture.