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The Foreign Corrupt Practices Act. Can You Say China Relevant?

By Dan Harris and Steve Dickinson

I was talking with Kevin O'Keefe the other day about law blogs. Kevin is the founder of LexBlog, which dominates the market for setting law firms up on blogs. Despite originally being from Wisconsin (he now lives in Seattle), Kevin knows more about law blogging than any guy alive. Despite the recession, his business is still growing by leaps and bounds, which caused me to ask him if he had any plans to expand beyond legal blogging. His response to that was that legal blogging has barely just begun and there are still a huge number of legal arenas that are under-served or not being served at all. I agreed with him and then we started talking about how certain blogs are so good and so comprehensive they just fill "the space." One of the things I love about being an international lawyer is that I get to remain somewhat of a generalist. Yeah sure, there are certain things (OEM contracts, for example) that I have done hundreds of times, but there are other things of which I need to remain very much aware even though I, at least to a certain extent, never do. For example, my firm does not handle patent work, and yet I always try to stay up on China's patent laws so that I am well positioned to know when to advice a client to contact a patent lawyer and even who to contact. The same is true with respect to the Foreign Corrupt Practices Act (FCPA). I am never going to be a leading authority on the FCPA, yet because it is of such paramount importance to our clients doing business in China, it is imperative we stay current on what is happening on the FCPA front so we can help our clients set up preventative measures. One of my primary ways of doing that is to regularly read the FCPA Blog. It fills "the blog space" on the FCPA. I was reading an FCPA Blog post today, entitled, Getting Loud for Justice, on how "Respondeat superior as currently used should be drop-kicked out of the American criminal justice system." The post is based on an article, entitled, "One Rogue Worker Can Take an Entire Company Down: The courts are taking an uncompromising approach to respondent superior." My first thought was not to agree or disagree with the post's thesis, but to wonder how many CLB readers even know what respondeat superior is or have any clue as to why it may be incredibly relevant to them. I am going to let the FCPA Blog explain what respondeat superior is and why it really really matters:

Nothing magnifies the impact of the Foreign Corrupt Practices Act on corporations more than respondeat superior. Latin for "let the master answer," it's the legal doctrine holding companies vicariously liable for crimes committed by employees acting within the scope of their employment. Once an employee -- even a low-level worker acting against the company's orders -- admits to an offense or is found guilty, the company is automatically guilty too. Case closed.

Get that? Case closed. What that means for you as a company doing business in China is that if you have a rogue employee out there paying bribes or otherwise violating the Foreign Corrupt Practices Act, your company is at real risk of being hit so hard as to be shut down. So what's a company that does business internationally to do? The first thing you should do is familiarize yourself with the FCPA. At this point, you will just have to trust me when I tell you that if you are doing business with China, your time spent reviewing the FCPA will be well worth it. The United States Department of Justice (DOJ) has an excellent FCPA guide, appropriately entitled, the "Lay-Person?s Guide to FCPA." The second thing you should do is to formulate written FCPA guidelines and make sure all of your employees involved in overseas business have read and understand them. This means you get them to sign off (literally) on them and you test them in writing on it. Designate someone to monitor. By this point, no company with employees in China (be they Chinese citizens or not) should be without an employee manual. The employee manual is a good place to put in your basic FCPA compliance guidelines, though it is usually advisable to provide independent FCPA materials as well. And if you have Chinese employees, you absolutely must do all of this in Chinese. The third thing you should do is to maintain accurate books and records such that you have a good explanation for where your money has gone and why and so that you are in compliance with the FCPA's records provisions. Even companies that work hard to prevent FCPA violations may be found criminally liable for violations incurred by even rogue employees, but the US Department of Justice and the courts do credit those companies that make a real effort to prevent violations when it comes time to assess penalties. For more on the ramifications of engaging in bribery in China, check out the following: -- "U.S. Company Bribery In China: Violate The Law, Go To Jail." -- "Are Some US Firms Violating US Law In China?" -- "China's Anti-Bribery Laws Rising." -- "China And The Foreign Corrupt Practices Act (FCPA) -- Not Just For Americans Any More." -- "China Bribes And Transparency.... Or Why The FCPA Matters." -- "Avoiding Chinese Jails. I'm Talkin' To You." -- "China And The Foreign Corrupt Practices Act (FCPA). Sometimes You Just Have To Step Away...." What are you doing about the FCPA?

Full post as published by China Law Blog on July 26, 2009 (boomark / email).