China and the Foreign Corrupt Practices Act

At the China Law Blog, Dan Harris has thoughts about the prevalence of companies doing business in China on the Justice Department's list of prosecutions under the Foreign Corrupt Practices Act (FCPA).

In a post earlier this year, Harris noted:

Both China and the US (and England too for that matter) are cracking down on corruption.  If you do not have a corruption plan AND a corruption policy in place, you just increased your chances of being in a world of pain at some point.  To put it bluntly, which of the following do you want to be able to say to the Chinese authorities/US federal prosecutors if your company is ever accused of having engaged in corruption?

  • Oh, sorry, I didn’t realize that corruption might be a problem.
  • We did everything we could to try to prevent this.  Here is our policy manual which we require our employees to sign when they join our company and re-sign to acknowledge every year thereafter.  And here is a record of the full day mandatory anti-corruption training we give to our employees every six months and the written materials we provide to them each time.  As you can see, the employees implicated in this case each attended x number of these sessions.  I really do think we did everything we could do as a company to try to stop this sort of thing and I think you will find that we do take stopping corruption very seriously.

Pretty obvious, right?  The FCPA and China is a hot topic these days not only because of the traditional Chinese culture of gift-giving and the sensitivity of allegations of government-related bribery and corruption, but also because of the complicated question of whether or not executives at state-owned enterprises (which are common in China) can be considered “government officials” for purposes of FCPA enforcement.  Based on our own quasi-empirical evidence — based strictly on companies contacting our China lawyers — the FCPA worry level for companies doing business in China went way up right about when GSK started having its problems.

Harris has posted a great deal on the FCPA as it relates to businesses operating in China.

Further information about the FCPA can be found in Chapter 13 of Business Law Basics.  This is an issue that must be borne in mind by any business conducting operations in foreign countries.  As we noted in a prior post:

[T]he Foreign Corrupt Practices Act (FCPA) gives the U.S. government the authority to prosecute businesses and individuals for conduct that is not illegal, and perhaps seen as routine, in other countries. Earlier this year, for example, Wal-Mart was investigated for payments to local authorities in Mexico made to speed up permitting processes.

Critics of the FCPA say that it puts U.S. businesses at a competitive disadvantage where certain payments which would be considered bribes in the U.S. may be expected or even required by officials.