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Doing Business In China Without An Anti-Corruption Compliance Program? Are You Crazy?

Posted in Legal News

Sorry for the strong title on this post, but a recent Department of Justice (DOJ) case and China’s recent relentless crackdown on corruption mandates it.

The recent DOJ case was against Marubeni, a large Japanese trading company. The DOJ secured jurisdiction over Marubeni because some of the money used to bribe Indonesian government officials passed through the United States via a consultant who sent some of it on to Indonesia. We mention this to show the extreme jurisdictional reach of the FCPA, which makes countless foreign companies subject to its reach.

The DOJ treated Marubeni quite harshly by securing a guilty plea to criminal activity from the parent company (not just the subsidiary that actually paid the bribe) and by requiring Marubeni cough up 88 million dollars for a $357,000 bribe payment. Marubeni was treated so harshly for the following reasons, as set forth in the DOJ press release announcing the plea agreement:

The plea agreement cites Marubeni’s decision not to cooperate with the department’s investigation when given the opportunity to do so, its lack of an effective compliance and ethics program at the time of the offense, its failure to properly remediate and the lack of its voluntary disclosure of the conduct as some of the factors considered by the department in reaching an appropriate resolution.

Marubeni (the parent) received enhanced punishment because, among other things, it did not have an effective anti-corruption compliance program in place and because it failed to alert the DOJ to the bribe payments after learning of them. If you are a foreign company doing business in China, you should above all else take two things from this press release: you need to have an “effective compliance and ethics program” in place, starting now, and you should immediately report any FCPA violations of which you become aware.

In China and the Foreign Corrupt Practices Act, we talked about the need for companies (particularly American companies) that do business with China to have a corruption plan and policy in place:

Both China and the US (and England too for that matter) are cracking down on corruption.  If you do not have a corruption plan AND a corruption policy in place, you just increased your chances of being in a world of pain at some point.  To put it bluntly, which of the following do you want to be able to say to the Chinese authorities/US federal prosecutors if your company is ever accused of having engaged in corruption?

  • Oh, sorry, I didn’t realize that corruption might be a problem.
  • We did everything we could to try to prevent this.  Here is our policy manual which we require our employees to sign when they join our company and re-sign to acknowledge every year thereafter.  And here is a record of the full day mandatory anti-corruption training we give to our employees every six months and the written materials we provide to them each time.  As you can see, the employees implicated in this case each attended x number of these sessions.  I really do think we did everything we could do as a company to try to stop this sort of thing and I think you will find that we do take stopping corruption very seriously.

Pretty obvious, right?  The FCPA and China is a hot topic these days not only because of the traditional Chinese culture of gift-giving and the sensitivity of allegations of government-related bribery and corruption, but also because of the complicated question of whether or not executives at state-owned enterprises (which are common in China) can be considered “government officials” for purposes of FCPA enforcement.  Based on our own quasi-empirical evidence — based strictly on companies contacting our China lawyers — the FCPA worry level for companies doing business in China went way up right about when GSK started having its problems.

For more on China’s own crackdown on corruption, check out How To Do Business In China Without Jail Time? Kill A Chicken.

And if you want even more information about on China corruption issues, I urge you to attend the Dow Jones Global Compliance Program, which will be taking place in Washington D.C., on April 22 and April 23. I will be on a panel there, entitled, China: Making Sense of the New Bribery Crackdown, which according to the program guide, will focus on the following:

China’s anti-corruption campaign has highlighted risks for Western companies in their choice of business partners and hires and how they monitor third parties. Our panel of experts will apply their expertise from working in China to take the temperature of the nation’s business environment and how companies should approach it.

Because corruption obviously matters….

Our comment lines (as always) are open.

  • Cynthia

    Your blog talks about many intellectual property and anti-corruption issues. I was wondering which practice area would provide a better future for young lawyers at the entry level in the Chinese offices of US firms.