Tricky Terrain on the Foreign Corrupt Practices Act

We recently met with Richard Grime, a Washington D.C.-based partner at the law firm O’Melveny & Myers, during his recent trip to the region, to talk about a tricky issue for U.S. businesses in China: the U.S. Foreign Corrupt Practices Act. Prior to joining O’Melveny, Grime was at the Securities and Exchange Commission for nine years and spent most of that time working on FCPA cases.

Grime noted that the U.S. Department of Justice has been dramatically increasing the number of FCPA cases being pursued. Last year, 16 new cases were filed, twice as many as in 2006. And between 2006 and 2008, 30 cases were filed, “more than all the cases filed by the SEC in the previous 28 years of the statute,” Grime says, a shift attributable in part to the recent increase in resources dedicated to FCPA enforcement.

Below is an edited transcript from our recent conversation focusing on China:

What are the major issues when it comes to China and the FCPA?

The FCPA covers corrupt payments to what you think of as government officials. But in fact it applies to any employees of government departments, government agencies and instrumentalities. So because the Chinese economy is so heavily influenced by and impacted by government ownership of various enterprises, you are dealing with many more so-called government officials and foreign officials under the FCPA than in the U.S., for example.

Then there are two other parts that apply to public companies. Those deal with books and records and internal controls. The issue for many public companies is that the books and records provisions are very easy to violate because there’s no intent required, unlike the anti-bribery provision where you have to have a corrupt intent. And it’s not difficult to mis-describe a payment. Also, books and records just the financial statements. It goes down all the way to local books, it goes down all the way to receipts and invoices and etc. So it has a broad scope, and as a result, relatively small payments that don’t satisfy all of the requirements for a bribe often are mis-recorded.

So in China it’s the broad definition of foreign officials, it’s the influence of gifts and entertainment and it’s also the use of intermediaries, agents, consultants, business facilitators, whatever you want to call it. Those really impact cases in China.

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Foreign Corrupt Practices Act (FCPA): News and Updates.