As the Chinese economy continues its ascent, the pressure to clean up government and commercial corruption intensifies. The 2019 Work Report delivered during the 13thNational People’s Congress, the Chinese Communist Party declared its strong determination to deliver an overwhelming victory against corruption. They announced that courts at all levels have already concluded over 28,000 cases of embezzlement, bribery and dereliction of duty involving over 33,000 individuals. China has in the past rarely punished bribe-givers for commercial bribery, instead focusing on state officials accepting bribes, even though the Chinese Anti-Unfair Competition Law and the Criminal Law ban the conduct of commercial bribery. For many U.S. persons and corporations in China, however, corruption and bribery have been a major concern for some time. This is largely due to the Foreign Corrupt Practices Act of 1977 (FCPA). The FCPA has long been a tool of the United States Justice System to govern the behavior of US persons and entities abroad, with around 80% of FCPA cases in 2017 and 2018 being related to China.
What is the Foreign Corrupt Practices Act?
The FCPA is a broad anti-corruption anti-unfair competition law which applies to every US person and individuals working for US companies as well as entities with securities listed in the US. The FCPA prohibits making or even knowing about payments, gifts, or offers of anything of value to a foreign official for the purpose of influencing the official or otherwise securing any improper advantage in obtaining or retaining business. The language used in the FCPA has broad effect and has been known to include a wide variety of gifts ranging from goods of value (or cash), generous service contracts, and even to hiring relatives of a government officials.
Violations of anti-corruption and anti-unfair competition laws often result in fines and possibly incarceration for individuals and large financial penalties for corporations including injunctions, forfeiture of assets, and disgorgement of profits. Corporations are expected to self-regulate by identify red flags, investigate claims and remediate gaps in internal controls to prevent corrupt behavior from occurring.
1. Criminal Penalties
For each violation of the anti-bribery provisions, the FCPA provides that corporations and other business entities are subject to a fine of up to $2 million. Individuals, including officers, directors, stockholders, and agents of companies, are subject to a fine of up to $250,000 and imprisonment for up to 5 years.
For each violation of the accounting provisions, the FCPA provides that corporations and other business entities are subject to a fine of up to $25 million. Individuals are subject to a fine of up to $5 million and imprisonment for up to 20 years.’(1)
2. Civil Penalties
For violations of the anti-bribery provisions, corporations and other business entities are subject to a civil penalty of up to $16,000 per violation. Individuals, including officers, directors, stockholders, and agents of companies, are similarly subject to a civil penalty of up to $16,000 per violation, which may not be paid by their employer or principal.
Forviolations of the accounting provisions, SEC may obtain a civil penalty not to exceed the greater of (a) the gross amount of the pecuniary gain to the defendant as a result of the violations or (b) a specified dollar limitation. The specified dollar limitations are based on the egregiousness of the violation, ranging from$7,500 to $150,000 for an individual and $75,000 to $725,000 for a company. SEC may obtain civil penalties both in actions filed in federal court and in administrative proceedings.’(2)
3. Other Consequences
Apart from the penalties mentioned above, violations of FCPA may also lead to other negative consequences, including suspension or debarment from contracting with the federal government, cross-debarment by multilateral development banks, and the suspension or revocation of certain export privileges.
Notably in 2018 Polycom, a communications company headquartered in the US, agreed to pay $16 million for making illicit payments to Chinese government officials through its local distributors and resellers. Credit Suisse’s investment bank in Hong Kong also agreed to pay $76.7 million criminal and civil penalty for corrupt hiring scheme that violated the FCPA.
Businesses of all sizes are expected to maintain reasonable internal control and accounting standards to prevent bribery and corrupt behavior. When violations of anti-unfair competition and anti-corruption laws do occur, self-regulation can help avoid corporate punishment. In 2015, Tencent reported serious violations within the company resulting in several arrests including the general manager of Tencent Video. Huawei and Alibaba group both instituted anti-corruption campaign within their network of dealers and third-party affiliates, while also turning in alleged corruption cases to the relevant authorities. Adopting clear guidelines for employee behavior and establish a culture of no tolerance toward bribery and corrupt behavior is important and can even help reduce corporate punishment should an employee violate FCPA guidelines.
Complying with the Foreign Corrupt Practices Act in China
To comply with the FCPA, companies need to adopt anti-corruption compliance policies into their employment contracts explicitly forbidding any violations of the FCPA. The employee handbook should also guide employee behavior such as; limiting the amount of allowed expenses per account within a given year, policies for responding to possible illicit offerings, and procedures for handling conflicts of interest that might arise.
Compliance is usually something that doesn’t come naturally to most people. It takes practice and reinforcement. It’s important that companies use the opportunity during corporate events or employee training to re-instill anti-bribery values and practices laid out within the employee guidelines. Simple role playing is also an effective method of practicing compliance and training employees how to respond to illicit offers.
When someone learns of or suspects a violation of anti-corruption compliance policy, they should be directed to immediately report the matter to the internal compliance manager, legal department or closest possible authority. Managers at all level should be made responsible for the enforcement of and compliance with this policy, including dissemination of policy information as necessary to ensure employee knowledge and compliance.
Finding and implementing the right policies to comply with FCPA, detailing procedures in company guidelines and instilling compliance behavior throughout an organization can be a challenge. Compliance and legal experts are those who are most familiar with anti-bribery and anti-corruption policies in China. They can provide support for detailing policies and procedures to ensure that your company is doing its best to comply with anti-bribery and anti-corruption regulations. They can also provide assistance and support to lead anti-bribery anti-corruption training during your next corporate event to help ensure sure your teams are acting in accordance with your company policies.
This article was co-authored by Grace Guoyu Chen (firstname.lastname@example.org), Partner at Hiwayslaw. Ms. Chen has profound practical experiences in fields of employees’relationship management and related labor disputes, outbound investment, corporation reorganization and related tax planning, cyber and data security compliance including GDPR, safe production and GMP compliance, industry and internal criteria draft, modification and compliance,
Ms. Chen was external regular legal advisor for several renowned foreign invested enterprises, SOEs including but not limited to Metro operation and management company, biochemical pharmaceutical manufacturer, heavy machinery manufacturer, health management manufacturer, telecommunication company when practicing in Tianjin and Beijing.
- ‘A Resource Guide to the U.S. Foreign Corrupt Practices Act’, the Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission, p68
- ‘A Resource Guide to the U.S. Foreign Corrupt Practices Act’, the Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission, p69