The Foreign Corrupt Practices Act (FCPA) Wants You. Even If You Are In China.
The other day, I instructed a client of mine from doing something I was pretty certain would violate the Foreign Corrupt Practices Act (FCPA). When I told him that what he was proposing would almost certainly be illegal, he assured me that in the country in which he would do this, this sort of thing "goes on all the time" and, "of course, there can be no way I can get in trouble in the US for doing something like this overseas."
I explained the FCPA to him and he decided not to do what he had been planning on doing.
The amazing thing about this is that he is a very savvy international businessperson and he had never heard of the FCPA and he had been operating under the assumption that he would only be bound by the laws of the country in which he was actually operating. I thought of this today while reading, "The All-In-One FCPA Enforcement List," over at the FCPA Blog. This post lists pending FCPA prosecutions and I wonder how many of the people on that list simply did not know that their actions might subject them to criminal prosecution in the United States.
I know that for many of you, this post is incredibly obvious, but I also know that there are many people out there for whom this post will come as a complete surprise.
Bottom Line: When operating overseas, it is important to know the laws of both your home country and the country in which you are operating.
For more on staying out of jail while doing business in or with China, check out the following posts:
-- Understanding China FCPA Risks. Who Is A Foreign Official?
-- The FCPA And China. Do I Need To Get All Loud On You?
-- The Foreign Corrupt Practices Act. Can You Say China Relevant?
Comments (7)
Read through and enter the discussion by using the form at the endG.E. Anderson - February 27, 2010 1:53 PM
The US is among the few countries that tax incomes earned in other countries. And in the case of the FCPA, Americans may be punished for following the customs of another country.
Is there any country, other than the US, whose laws reach beyond its borders?
Matthew - February 28, 2010 8:05 AM
GE Anderson,
Numerous countries tax residents for income sourced outside of the country. Also, many countries have similar anti-overseas bribery provisions, although most are not as rigorously enforced as the FCPA.
Twofish - February 28, 2010 1:32 PM
It's not unusual at all for countries to tax citizens on worldwide income.
Also the FCPA laws are pretty similar to the laws that most other countries have on the books. The US passed it's FCPA law in the late 1970's and then pressured other countries into passing similar laws so that US corporations would not be at a disadvantage.
Also FCPA applies to any corporation which issues securities in the United States.
Also "following local custom" won't help you. It is a defense to the FCPA if you can show that the payment was in accordance with the written law of the country that the payment happened in. So if you try to argue, "well this is how business is done in Elbonia" you can argue back well then how come the Elbonians haven't made it legal.
Twofish - February 28, 2010 1:34 PM
One curious thing is that China frequently complains about the US overstepping its power, but US efforts to stop bribes being paid to Chinese companies is one thing that I've never heard anyone in China complain about.
Eric - March 1, 2010 10:12 PM
The FCPA applies not only to U.S. citizens but also, among others, to a "resident" of the United States, i.e., green card holder. See, e.g., 2009 case against Mario Covino, an Italian citizen and U.S. resident, in the Control Components case.
小杜 - March 9, 2010 7:34 AM
I just got hit with a FCPA and W8 request from from one of our clients for a (rather small value services fee)
Not only are most of the questions intrusive, it's none of their business for the most part.
Things like W8's, I have no problem with.
FCPA - too much information that's got nothing to do with what we provide for our client.
Once I got over my initial outrage at the US trying to dictate my own business here in China, I realised this is actually a minor profit centre.
If I need to go through and verify that none of the licence holding staff's aunties brothers sisters etc is working for a SOE, and have a lawyer take a look at the Q&A form for possible liability, then the client better be paying me for the time involved; Ergo - if my client wants this, he damn well better pay us for it.
I've re-invoiced that particular client back with a FCPA Compliant check fee. As they're a fortune 500, I expect them to pay it too.
IMHO FCPA is really a money grabbing scheme.
The US Tax authorities really want to know who / what / where / when so they can tax their corporations globally.
One thing that the FCPA *has* introduced, especially in China, is US companies now having a prominent data "NON" retention scheme. All emails and all paperwork over XX years is being deliberately destroyed in some companies just in case they get bitten by some of this.
The FCPA is less about corruption, and more about control.
America is following China's methods now...
David McKnight - April 2, 2010 8:43 PM
The FCPA can be a useful tool as well. Bribery is illegal in China, and we found that if one was solicited, we could simply point to the FCPA, and say we could end up in prison stateside. This was taken seriously by our Chinese counterparts, and they would not ask it of us again. It in no way hurt our relationship.