Staying Compliant in China under the FCPA

In general, the Foreign Corrupt Practices Act allows American businesses to make payments to foreign officials that are lawful under the written laws of the foreign country. Unfortunately, in the context of China, this has the potential to place American companies in a position where they must decide between violating the FCPA and losing Chinese business. China does have written anti-bribery laws on the books; these laws limit the value of gifts that can be given to government officials to RMB200. However, the laws are poorly enforced and are routinely violated by Chinese and foreign companies.

Whereas foreign companies may face limited risk in their routine violation of these laws, companies subject to the FCPA will face stiff penalties from American authorities if they succumb to the more traditional practice of ignoring the anti-bribery provisions. As a result, American companies may be less competitive than their counterparts who are subject to weak or poorly enforced anti-bribery laws. In turn, the desire to increase a company's competitiveness in the face of such adversity may tempt violation of the FCPA and its anti-bribery provisions. It is vital that companies avoid any such violations. Many companies thrive in China despite these competitive disadvantages. Furthermore, the Justice Department has been increasingly willing to prosecute for violations of the FCPA, and a prosecution will likely result in substantial monetary fines and possible jail time.

A similar dilemma arises with respect to payments made in the furtherance of legitimate business promotion. The FCPA allows for a company to make reasonable expenditures for expenses incurred in the process of promoting products or services. This includes "reasonable" travel expenses, and certain entertainment expenses. Where an American company pays for travel expenses on behalf of a foreign official, two important requirements must be satisfied. The payment must be reasonable, and it must clearly be for the purposes of promoting or demonstrating a product or service. With respect to entertainment expenses, expenditures have been subject to the RMB200 limit that is applied to gifts.

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Dezan Shira & Associates is a fully licensed accounting practice in China and offers business advisory, tax accounting, due diligence, payroll and audit services for multinational clients in China, Hong Kong, Vietnam and India. For inquiries or more information, please contact info@dezshira.com or visit www.dezshira.com.