Asian Firms, Individuals Must Heed Global Impact Of US Anti-Corruption Rules - Lawyer

Tom Burroughes

16 November 2012

Chinese companies are among those organisations warned to take heed of US anti-bribery legislation after fresh guidance from US authorities, international law firm Freshfields Bruckhaus Deringer has warned.

The US Department of Justice and Securities and Exchange Commission have spelled out how the US Foreign Corrupt Practices Act (FCPA) operates and give examples of China in terms of gifts and hospitality, among other cases.

"The FCPA has broad reach. It covers actions anywhere in the world by US companies, US issuers or US citizens,” Geoff Nicholas, head of the law firm’s international commercial disputes group and co-head of its global investigations practice, said in a statement emailed to this publication.

The warning comes at a time when governments, such as the UK’s, have recently enacted anti-bribery legislation to stamp out what are regarded as improper business influence in the form of luxurious gifts and hospitality. Among industries that are urged to take note of such laws are wealth management. (To view an article on the issue of kickbacks and fraud in Asia, click here.)

Freshfields’ Nicholas said US anti-bribery legislation is potentially global in scope, touching regions such as Asia due to joint ventures with local firms and individuals.

“US issuers covers any company listed on a national securities exchange in the US (whether stock or American Depository Receipts). The FCPA also covers any company or individual - not just US - where some part of the wrongful conduct takes place in the US. In one case, the DoJ took the position that this extended to a situation where the only connection to the US was that the bribe was paid in US dollars, transferred through a correspondent account in the US. Meetings in the US or telephone calls or emails to people in the US in connection with the bribe may also be said to be enough for a US prosecution," he said.

And he warned that joint ventures between the US and China could give rise to problems.

"Specifically, a joint venture between a US company and a Chinese company may fall within the scope of the FCPA. First, the US company may be said to be liable for any payments made by its Chinese joint venture partner on behalf of the joint venture. Secondly, the Chinese company may be exposed if there are communications with its US joint venture partner about the payment,” he said.

"It is difficult to put a value on what is improper, but the guidance blows away the myth that you cannot even buy a coffee or provide lunch for government officials. As the guidance makes clear, the FCPA does not prohibit ordinary business promotion, nor what might be regarded as common courtesies in the course of doing business,” he said.

Nicholas continued: "In some ways the guidance goes further than might have been expected. For example, it recognises that it may well be appropriate to pay for a business class flight for government officials to enable them to carry out an appropriate business related function, such as a site or product inspection or demonstration."

Large, “extravagant” gifts – however defined – cross the line of what is acceptable as they can be considered to improperly influence officials, he said.

“A specific example quoted in the guidance was the payment for a trip by foreign government officials to the US to ostensibly visit factories, when instead much of the time was spent visiting tourist destinations such as Disney World and Niagara Falls. It is clear that there needs to be a real and meaningful business purpose to any such trips, if the costs are to be met by the company," he said.