Operating Overseas

[ By Hank Bourg and Peter O?Neil, Dezan Shira & Associates ]

The 1988 Trade Act by the United States Congress directed the U.S. Attorney General to provide guidance to potential exporters and small business regarding the Foreign Corrupt Practices Act of 1977, an act all U.S. businesses operating in China need to be familiar with.

The FCPA prohibits the ?corrupt? payment of money or bribes to foreign officials for the purpose of keeping or maintaining business. The FCPA also links in with several other U.S. acts, providing for federal prosecution of violations of state commercial bribery statutes. The FCPA requires U.S. listed companies to meet their accounting provisions, which are designed to operate in parallel with the anti-bribery provisions of the FCPA and require corporations to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.

The basic requirements of the FCPA are fairly straightforward. Rather, it is the cultural traditions and the common business practices that lend a layer of complexity to enforcement of the FCPA with respect to business done in the People?s Republic of China. While some business practices may be considered entirely acceptable, or even expected, in the course of doing business in China, these practices can often be a violation of the FCPA and are subject to steep fines and jail time in the United States. Companies subject to the FCPA may find themselves faced with making the decision between losing business and violating the FCPA. Violators face the prospect of criminal sanctions, civil sanctions, and injunctions. Criminal sanctions against corporations and other entities can exceed fines of one million dollars. Sanctions against individuals may reach five years in prison and fines of one hundred thousand dollar.

American companies hoping to retain business in China, as well as American companies with the desire to enter the market, face an imperfect and dubious business environment with respect to the FCPA. However, with meticulous planning, careful oversight, and the proper tools violations of the FCPA can be avoided. The mounting prominence of China?s position in the world markets is undeniable. Certainly the benefits of investment in China far outweigh the risks presented by the FCPA, so long as the proper precautions are taken. With an annual growth in the GDP of 9 percent for the last 26 years and an increasingly attractive environment for foreign directinvestment, foreign companies cannot afford to ignore the opportunities for investment. However, companies subject to the FCPA must be aware of several particular risks that are posed by doing business in China.

A potential violation of the FCPA would include the following elements:

  • An act by an individual, corporation, or other business ?covered? by the FCPA
  • An offer to give something of ?value?
  • To a ?foreign official?
  • With ?corrupt? intent
  • To ?obtain or retain business?

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China and Europe

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For more information on China’s legal and tax issues or to ask for professional advices in related matters, please write to info@dezshira.com


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