Fully 16 of the corporate FCPA enforcement actions in 2016 were derived from China. Since 2012 well over 25 percent of all FCPA enforcements were derived from this single country. The Shearman & Sterling 2017 FCPA Digest opines why the reasons are varied, including, “(i) China’s size (both as a matter of geography and population); (ii) China’s role in the global economy; (iii) the similarity between bribery schemes arising out of China (i.e., gifts, travel, and entertainment); and (iv) the fact that many of the China-related bribery schemes involved the same industry (i.e., the healthcare and life science sectors).” These factors have no doubt led in part to the internal Chinese crackdown on domestic corruption and the bribery action against GSK in 2014.
While JPMorgan Chase led the costliest FCPA fine and penalty around its “Sons and Daughters” hiring program, coming in at $268 million; there were numerous smaller, more run-of-the-mill FCPA violations and enforcement actions coming out of China. U.S. companies are generally hamstrung by their inability to get solid numbers when auditing, mostly due to the language barrier and the Chinese reticence to share information with foreigners and hierarchal nature.
Whatever the reason, the enforcement actions make clear that U.S. and other western companies need to take their “A” compliance game with them when they enter the Chinese market, go in as a joint venture partner with a Chinese company, or purchase one outright. I would add to that the centralized government under the current regime adds a level of difficulty and complexity to any business dealings in China. Any U.S. company needs to assume that they are dealing with either foreign officials or employees of state-owned enterprises when doing business with any Chinese entity. Strong pre-acquisition due diligence, coupled with very specific post-acquisition integration and training of the Chinese staff is a mandatory exercise under the FCPA.