Valuable Nepotism?: The FCPA and Hiring Risks in China

I. INTRODUCTIONIn the mid-1970s, investigations by the Securities and Exchange Commission (SEC) revealed that American corporations were making widespread illegal payments to government officials abroad.1 These investigations by the SEC revealed that over 300 U.S. companies made corrupt foreign payments involving hundreds of millions of dollars.2 These payments to foreign officials were primarily intended to help corporations gain business.3 To rein in these illegal payments and to restore public confidence in the integrity of the American business system, legislators argued for more detailed corporate record-keeping as well as more direct prohibitions on bribery of foreign officials.4 In 1977, Congress passed the Foreign Corrupt Practices Act of 1977 (FCPA), which has both an accounting and an anti-bribery component.5 This Note focuses on the anti-bribery component of the FCPA and examines the particular impact of the FCPA on American business practice in China. In discussing the risks of running afoul of the FCPA when doing business in China, the Note considers whether and how the FCPA applies to the Sons and Daughters (SND) programs that have entangled numerous banks with American prosecutors and regulators in the last two years.This Note begins by documenting the passage of the FCPA as well as the relevant requirements, exceptions, and amendments to the statute. Part III of the Note then turns to the recent enforcement trends by the Department of Justice (DOJ) and the SEC, with summary discussions on enforcements in 2013, 2014, and 2015. Part IV of the Note provides a high-level look at the unique challenges multinational corporations face in complying with the FCPA accommodating particular political and cultural norms in China. With that foundation, part V of the Note then offers a more in-depth discussion of the relevant FCPA questions multinational corporations face, using the SND program as an instructive and illustrative example. Part VI of the Note looks at two hypothetical hires and outlines a series of factors and questions that may help stakeholders decide when the line between relationship-building and bribery has been crossed. Finally, the Note makes a few suggestions on how best to avoid potential FCPA violations in light of these discussions.II. BACKGROUND AND REQUIREMENTS OF THE FCPAReports by the SEC in the mid-1970s showed that more than 300 U.S. companies had paid out hundreds of millions of dollars in bribes to foreign government officials to secure business overseas.6 Congress enacted the FCPA in 1977 after revelations of this rampant global corruption that included some of the largest and most widely held companies in the United States.7 The purpose of the FCPA was to effectively deter the corporate bribery of foreign officials.8The FCPA has two basic provisions that help achieve this goal. First, the FCPA amended the Securities Exchange Act of 1934 to require issuers - in effect nearly all major American companies - to keep detailed records and accounts which reflect corporate payments and transactions, regardless of its relationship to bribery issues.9 Second, the FCPA directly prohibited bribery of foreign officials.10 These two provisions apply to three groups of persons: U.S. issuers,11 concerns,12 and person other than an issuer . . . or a domestic concern who acts corruptly while in the territory of the United States.13 Because corporate bribery had often been covered up by the distortion of corporate books and records, drafters of the FCPA hoped that taken together, prohibition of bribery combined with the accounting requirements would effectively deter bribery of foreign government officials.14A. MANDATES OF THE FCPAThe FCPA prohibits corporations and individuals from bribing a foreign official.15 Specifically, the FCPA prohibits individuals and companies from exchanging anything of value with foreign officials to corruptly influence their actions for any improper advantage. …