Perhaps the impact of anti-corruption efforts in China is most significant in driving the rise in U.S. FCPA enforcement actions. As a growing economic power, among other trade issues, China was required to pass anti-corruption laws as a condition of joining the WTO. It also then became a signatory of the UN Convention. The new commercial bribery laws in China are strong and impressive. Unlike other laws promulgated in the past in China, however, the government is aggressively prosecuting these new anti-bribery laws.
After taking bribes in excess of $800,000 from primarily Chinese companies to approve fake or inadequately tested drugs, resulting in the deaths or severe illnesses of many people, three senior directors in the State FDA were prosecuted. Ultimately, the head of the Chinese Food & Drug Administration was executed for his role in the scheme.
According to government websites, in the first year, nearly 3,000 government officials have been removed from office and prosecuted for corruption. Nearly 80 bribery cases have been solved. Almost 70 people have been criminally punished and nearly 30 suffered administrative penalties. A province transportation chief was sentenced to life in prison for receiving over $800,000 in bribes beginning in 1994. In many cases, the bribes occurred prior to the final passage, and certainly prior to any attempts at enforcement, of these provisions.
This year, over 1,000 officials have been prosecuted and punished. Nearly 13,000 cases involving over 15,000 government and non-government individuals have been, or are being investigated. According to Chinese government reports, China has completed prosecution on over 21,000 cases of commercial bribery, involving almost $700 million, since the aggressive efforts to stop corruption began in 2005.
China believes that it has clearly established its intentions to clean up the Party and is now focusing on corporations. The pharmaceutical companies that were implicated in the drug briberies are now being prosecuted and punished.
Chinese authorities are tracing the bribery from those implicated in earlier investigations back to the bribe payers. As they identify Chinese agents, corporations and individuals involved, those entities will be prosecuted, be they domestic or foreign. The US Department of Justice is interested in learning the identities of the US companies and their agents, joint venture partners, or contracting parties implicated by the Chinese investigations.
So what does all of this mean to US companies doing business in China?
Under the FCPA, the fact that a Chinese agent, joint venture partner or independent contractor is a separate entity is not a valid defense. The US entity has substantial exposure to liability if their partner is bribing foreign government officials. There is an affirmative requirement to investigate foreign partners, to have clear policies against violating the FCPA, to educate partners as to FCPA issues, and to institute financial and other controls to prevent or identify any inappropriate activities.
China, one of the rising economic powers and a country whose business climate has been consistently ranked among the lowest in terms of corruption by the Corruption Perception Index compiled by Transparency International, has begun to aggressively pursue violators of its new anti-corruption laws. Search “corruption” on the Chinese official English-language website.
In the past, the Department of Justice and the Securities and Exchange Commission focused on large multi-national companies doing business in highly volatile industries, such as energy, defense contracting and technology. Perhaps as a result of this focus, the United States continues to rank in the top ten of the World’s Worst Payers of Bribes according to Transparency International’s 2006 Bribe Payers Analysis.
As the world has begun to crack down, primarily on bribe recipients, these investigations are uncovering the bribe payers, often either US companies or their agents, representatives or partners in a foreign country. As foreign governments are now committed to stricter enforcement of these international trade laws, the U.S. Department of Justice is expected to follow suit and hold accountable the U.S. companies responsible for payment of international bribes.