Jeffrey M. Rawitz and Erica L. Reilley of Jones Day published an article in Mondaq: China: The Foreign Corrupt Practices Act: Walking The Fine Line Of Compliance In China.
Four Suggestions for Avoiding FCPA Complications in China
Any company seeking to avoid potential FCPA problems in China, or elsewhere, should start by developing a rigorous internal compliance program. A good compliance program will include clear standards and procedures and will provide thorough training for all employees that have business dealings with China or any other foreign nation. Compliance materials and training should be targeted to the employees receiving them; thus, employees in China should be trained by local staff that understand the FCPA and can take into account the likely cultural issues—e.g., the long-standing Chinese tradition of gift giving—that may have an impact on proper compliance.
In addition, companies can limit exposure to potential FCPA problems through vigilant adherence to corporate due diligence. As noted above in the section on successor liability, U.S. enforcement authorities do not always view a merger or acquisition as extinguishing liability for past unlawful conduct. Thus, a company planning to merge with or acquire a company that has done business in China will need to do its due diligence on the target company’s business dealings, including those of its partners, agents, and distributors, to ensure FCPA compliance.
A third suggested practice to limit FCPA exposure is to negotiate and draft contracts that minimize FCPA risks. A company can do this by incorporating standard representations, warranties, and covenants in contracts with agents and distributors wherein they affirm their understanding of the FCPA and their commitment to comply with its requirements. Appropriate oversight of these agents and distributors, via inspection of business records and financial reports, may also prove helpful to ensuring a company’s overarching compliance with the FCPA.
Finally, a company’s potential FCPA liability can be minimized by forming an investigative team that can respond quickly when potential FCPA issues arise. The first part of this process requires that employees feel comfortable raising potential issues as they come up—compliance training can be particularly helpful here in assuring employees that the company wants to know of these concerns. Typically it is best for in-house counsel to be responsible for receiving such reports and for managing the resulting investigations. Lawyers usually can best assess the potential for liability (and thus the need for a complete and thorough investigation), and they can take appropriate precautions to keep the identity of the reporting employee confidential. Where notice of potential FCPA liability comes from U.S. enforcement authorities, it often is best to have in-house counsel work closely with outside counsel to provide a certain level of independence and objectivity throughout the investigation as well as to cooperate with enforcement authorities, if needed.