FCPA and China – Why Paranoia is a Good Thing
Dan at China Law Blog has a very good post on the US Foreign Corrupt Practices Act (FCPA), specifically on who qualifies as a “foreign official” (apparently employees of State-owned Enterprises (SOEs) may be deemed foreign officials).
The take-away point from an FCPA compliance standpoint is that conducting business or seeking new business in China is different because of the Enforcement Agencies’ “foreign official” interpretation.
You can say that again. I try to stay away from FCPA when I can, and usually let experts handle cases that have progressed to a point that I think might be actionable. (I don’t hold myself out as an expert on U.S. law — too many years in China.)
That being said, the subject certainly comes up often when counseling US companies on their internal governance procedures, and I often feel that the best advice for clients is to be slightly paranoid. Dan has a few tips in his post on dealing with the whole SOE issue, which are good.
I’ll go one step further, as I’ve found that for some companies with extensive operations over here, it can sometimes be impossible (even through extensive training) to adequately train employees as to what is acceptable gift-giving under the FCPA. One reason is that training usually involves a lawyer talking to staff for an hour or two, giving them an article to read, and hoping that they paid attention to the legal minutiae.
Unfortunately, ten months later, when that staff member is thinking about giving an official some moon cakes, or perhaps buying a Spring Festival gift for their favorite SOE contact, all that training has become a blur. Maybe that person consults the manual, maybe they don’t.
Sometimes it’s easier to just tell your staff, in plain terms, that individual gift giving is strictly prohibited by the company. All gifts will be vetted by the company before going out. This allows you to put someone in charge of the operation that actually knows something about the FCPA and can spot trouble before it happens.
This is more difficult in smaller companies, of course, but in cases where, for example, you only have two guys in a Rep office over here, headquarters had better make sure that no gift giving at all is going on without their knowledge and prior approval.
I’ve seen staff completely ignore such prohibitions, of course, but you gotta start somewhere. If a violation occurs, then you have to decide whether to fire their ass over sending an unauthorized moon cake or keep them on and running the risk of a similar problem later on. Never an easy decision.
FCPA compliance can be really frustrating. You can train the shit out of your employees on this stuff only to see them completely ignore everything when the next holiday comes around. That’s why I favor simple rules like “Thou shalt not give gifts at all without prior approval.” Doesn’t always work, but at least there is no room for interpretation.
