China Law Blog

so prissy, the idealistic cultures of the world .. the pragmatic ones are so much easier to deal with

I received an invitation to the upcoming meeting of the world, global Elite called The Bilderberg Group, to discuss plans for global enslavement.

The invitation says that I should bring cole slaw.

Great post, and good call. I'm by no means an expert on the FCPA, but I have done some previous investigatory work on its enforcement. As structured, this deal appears to meet all the elements while qualifying for none of the defenses, assuming the 'gift' is not lawful under Chinese law.

One could claim the rep from Co. B was not a "foreign government official" per se, but any time your argument contains the qualifier 'per se', it's probably a good idea to reconsider your position.

I guess we shouldn't be surprised. Americans do business a certain way, but other countries obviously don't. It's going to get tricky doing international business, though.

Thanks for posting. I enjoy reading these short summaries.

Your client in question may not have been in violation of the FCPA's provisions if it made such a payment. The FCPA makes it illegal for any corporation or company organized and existing under the laws of one of the United States, or for any officer, director, employee, or agent of such US company, to make payments intended to undermine the rule of law in a foreign country. Specifically, such US companies and officers thereof are prohibited from making payments of any money, or any offer, gift, promise to give, or authorization of the giving of anything of value to any (1) foreign official, (2) foreign political party or (3) any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official, to any foreign political party or official thereof, or to any candidate for foreign political office for certain prohibited purposes. It is clear from the text of the statute that Congress intended to prevent US firms from engaging in acts intended to influence the acts or decisions of foreign officials, political parties, etc. Nowhere in the FCPA does it refer to gifts to private persons, including state-owned corporations, except in the context of those to be shared with foreign government officials, foreign parties or officials thereof and only if such individuals are expected to affect or influence any act or decision of such government or instrumentality in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person. In short, based on the facts above I doubt that federal authorities would have found fault with the 10% commission payment on the basis of the FCPA. Nothing in the facts you described above would lead me to believe that you were affecting or influencing any act or decision of the PRC government or instrumentality thereof. Federal authorities might have found other fault with the payment but the FCPA would not be the basis for any liability for your client.

That said, the question that apparently entered your mind (and rightly so, I think) is why is Company A asking your client to pay anything to Company B in the first place? If Company B is the consumer seeking your client's goods, then obviously they should be paying either your client's company directly or Company A as an agent for your client. If Company A wishes to act as middleman rather than agent for your client, it should simply have bought the goods in question from your client's company and then passed along that cost to Company B when it sold the goods to them and performed the necessary installation work. In short, your action seems to have been the correct one because the whole deal smells like an attempt to use an unsuspecting American company to pay a bribe to Company B so Company A could violate PRC laws and obtain new business. Not a good position for your client to be in if it wants to keep doing business in China!!

I'm surprised China Company A even told your client about the kickback.

Usually they don't.

Most Chinese companies understand the desire of Foreign companies to stay 'clean' and simply take the 'rebates' out of their own commission.

The foreign company is never consulted, told and usually can remain completely ignorant (ignorance is bliss) about any questionable business practices.

The letter of the law is followed and everyone makes their money.

Re: "Nowhere in the FCPA does it refer to gifts to private persons, including state-owned corporations. . . . "

Two points:

1. Employees of state-owned corporations have been found to be foreign officials under the FCPA.

2. Chinese anti-corruption laws apply to bribes to officials as well as transactions between private individuals. The penalties can be severe.

I cant believe you even seem to suggest he should even be thinking about it (or anyone else for that matter). Corruption only exist when we as indivduals allow it. It is wrong, plane and simple and in any culture or country. I live in China (for the past 5 years) and I refuse to ever give any bastard here 1rmb of "grease money" etc. Until we decide we will not tolerate it, it wont stop

The leading rule for the lawyer, as for the man of every other calling, is diligence. Leave nothing for to-morrow which can be done to-day.

While it is true that employees of state-owned enterprises have been found to be "foreign officials" within the meaning of the FCPA, there is nothing in the description of facts that points to a direct payment to any individual official of the state-owned enterprise in question. Dan made note of payments to the state-owned enterprise itself. I have yet to read case law that holds a payment to the foreign state-owned enterprise itself is a violation of the FCPA unless the facts show substantially more. The case law on point regarding direct payments to state-owned enterprises clearly demonstrates that US district courts are averse to holding that such payments are intended to influence the state enterprise's policy unless there is evidence of an individual official's pecuniary benefit. Moreover, unless other elements defined in the statute can be proven, e.g. that the payment was intended to influence the state enterprise's policy. Those additional elements must be proven to convict a US-based company or its officials of violation of the FCPA's provisions. I have had several discussions with US Attorneys, Commerce Department officials and FINCEN's general counsel on how the US government enforces these provisions and I doubt this set of facts rises to the level of violating the statute's provisions.

That said, I also noted in my prior post that Dan recognized there was a potential danger of violating Chinese laws and that he rightly advised his client to refrain from such activities. In Dan's client's situation, I would be far more worried about violating Chinese corruption laws than the FCPA.

The American Conference Institute (ACI) is hosting the 2nd China Summit on Anti-Corruption & the FCPA, June 16 & 17, 2009 in Shanghai. The acclaimed conference will provide a comprehensive update on the anti-bribery landscape in China, the intersection of the FCPA and local law, and how to implement an effective FCPA compliance program for Chinese operations.

go to www.americanconference.com/anticorruptionchina for a complete program.

A Chinese businessman once said to me something to the effect of:

"When all the foreign businesses started to come here, we expected they would raise the bar, not come down to our level."