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White Collar

Things to pack for your trip to China: 1) socks, 2) tie, 3) compliance . . . 4) more compliance

December 11, 2013

White Collar

Things to pack for your trip to China: 1) socks, 2) tie, 3) compliance . . . 4) more compliance

December 11, 2013

Back to Fish's Litigation Blog

 

Companies conducting business in China face unique risks under the Foreign Corrupt Practices Act. Operating with an effective compliance strategy can mean the difference between business growth or disastrous outcomes for the company, its officers, directors, and employees.

Over the last decade, the enormous growth of China as an economic power has been a lure to American companies and individuals.  Go East, Young Man ran the theme of a New York Times editorial last year that extolled the abundant opportunities in China.  Historically, doing business in China has been a complicated task – consider the Boxer Rebellion of the early 20th century.  That’s no less true today, although the modern obstacles faced by a company come in the form of enforcement and fines for inappropriate business practices.  One key piece of regulation that American companies must keep in mind is the Foreign Corrupt Practices Act (FCPA).  Passed in the late seventies, this Act has resulted in an upsurge of civil and criminal enforcement over the last decade and a half, and China has been a particular hot spot.

As the name implies, the FCPA prohibits payments made directly or indirectly to foreign government officials to assist in obtaining or retaining business.  If that concept sounds simple, it isn’t.  Avoiding improper payments requires thoroughly vetting business practices, particularly the use of third-party vendors.  In fact, companies can violate the FCPA just by failing to keep adequate books and records.  And if that weren’t enough, other countries are catching on to the benefits of anti-corruption statutes, which can be used to levy enormous fines.  The U.K., Brazil, and even China have all joined the upswing in anti-corruption enforcement.  All told, the dollar amount of fines for foreign corrupt practices has run into the billions over the last few years.

A state-run economy such as China can be a veritable minefield in which to navigate anti-corruption regulations.  No matter the industry, in China it’s a good assumption that the business person on the other side qualifies as a state official for purposes of anti-corruption legislation, particularly the FCPA.   At the same time, however, many regions of China have cultural expectations related to gifts.  A foreign company must carefully address those expectations and adequately state the need to comply with regulations to avoid giving offense.  Nor can the recent growth in China be ignored.  The struggle to keep up has created a confusing patchwork of laws and new government agencies that often overlap.

One important tool a company can rely on is an effective and well thought-out compliance program.  First, this will prevent most problems from occurring.  Second, if problems do arise, the existence of such a program can be a key mitigating factor in negotiating a resolution with government enforcers.  In my next blog-post, I will turn to the hallmarks of an effective compliance program.

Related Tags

China
compliance
FCPA

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