International Law

ALERT: American Companies in China: US to Redouble Enforcement of Foreign Corrupt Practices Act:

The American Foreign Corrupt Practices Act seeks to criminalize bribery of foreign officials -- not of American officials -- by regulating and punishing the conduct of Americans doing business globally. In its "Report of the Committee on Banking, Housing and Urban Affairs to Accompany S. 305...May 2 (legislative day, March 28), 1977," the U.S. Senate noted:

The statute covers payments made to foreign officials for the purposes of obtaining business or influencing legislation or regulations. The statue does not, therefore, cover so-called "grease payments" such as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of duties.

The word "corruptly" is used in order to make clear that the offer, payment, promise, or gift, must be intended to induce the recipient to misuse his official position in order to wrongfully direct business to the payor or his client, or to obtain preferential legislation or a favorable regulation. The word "corruptly" connotes an evil motive or purpose, an intent to wrongfully influence the recipient. It does not require that the act be fully consummated, or succeed in producing the desired outcome.

Did you too see the word? I had to read it twice to make sure "evil" was not a typo. Hmmm.... This is, without doubt, activist legislation that seeks to influence global behavior indirectly by holding Americans to account. Does that sound right to you, when many of the nations it seeks to indirectly regulate employ bribery as a common and ordinary way of life? Isn't it their responsibility to clean up their own mess? Why am I to be punished for behaving as they would in their own land?

The EU and its member countries have enacted similar legislation. For those doing business globally, especially in the third world, where "gifts" are expected, anti-corruption leglislation in one's home country is a serious obstacle. In China, one of the most corrupt nations, those who require the assistance of government walk the wire of violating US and EU anti-corruption leglislation.

Once thought to be safe from the same level of scrutiny, payments to charities are not immune. Schering Plough's $76,000 contribution to a legitimate charity -- the favorite of a senior Polish official -- resulted in a $500,000 fine in June 2004 when the company failed to account for the payment as the bribe that it was deemed to be.

Government enforcement, at least in the U.S., will apparently be redoubled.

The U.S. Securities and Exchange Commission expects in the next two to six months to slap larger penalties than in the past on a number of companies that have allegedly violated the Foreign Corrupt Practices Act, reminding lawyers in the field that the regulator is taking a tougher stance today on international bribery.

"The dollar amounts in the cases that will be coming within the next short while will dwarf the disgorgement and penalty amounts that have been obtained in prior cases," said Scott Friestad, the SEC's deputy director for the Enforcement Division.

I have never understood why the American government has made -- over three decades -- the extraordinaty effort to reach into its taxpayer funds to prosecute the bribery by Americans of foreign officials. Where will the money come from to increase enforcement efforts of global activities? Ah, timing, timing, never to be forgotten -- this must be part of the Obama stimulus? Clean up the world, in our image, and have the American government pay for the enforcement of it. A missionary purpose, one with which I find it hard to agree.

But that is the law as it stands and we must follow it. Businesses dealing with China must thoroughly understand the effect FCPA has on even something as seemingly unrelated as its client development efforts. Thinking of showing the Import/Export Development Official of City X and his colleagues around your factories in the US and then taking them for a weekend jaunt in some city where you have no business interests? What are you going to pay for? Do you plan on giving them "spending money?" Do you risk going afoul of the FCPA? To answer those questions, the extent of your exposure needs to be determined up front. Your business activity needs to be vetted by your company counsel.

Here's fish for thought: are the activities of Chinese national employees of American subsidiaries, who may never have left China in their lives, also regulated by the FCPA? We will deal with that question in a forthcoming post.

Full post as published by Asia Business Intelligence on November 25, 2008 (boomark / email).