By Hank Bourg
May 13 – The 1988 Trade Act by the Congress of the United States directed the U.S. Attorney General to provide guidance to potential exporters and small business regarding the Foreign Corrupt Practices Act of 1977, an act all U.S. businesses operating in China need to be familiar with.
The FCPA prohibits the “corrupt” payment of money or bribes to foreign officials for the purpose of keeping or maintaining business. The FCPA also links in with several other U.S. acts, providing for federal prosecution of violations of state commercial bribery statutes. The FCPA requires U.S. listed companies to meet their accounting provisions, which are designed to operate in parallel with the anti-bribery provisions of the FCPA and require corporations to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.
A potential violation of the FCPA would include the following elements:
- An act by a “covered” person
- An offer to give something of “value”
- To a “foreign official”
- To “obtain or retain business”
- With “corrupt” intent
There are two categories of “persons” under the FCPA: issuers and domestic concerns. An issuer is a basically a listed company that has filing requirements with the Securities Exchange Commission – the enforcing agent with respect to FCPA for issuers. A domestic concern is an individual or any form of business organization not registered with the SEC. The U.S. Department of Justice has enforcement responsibility with respect to domestic concerns.
With respect to an offer to give something of value, keep in mind there is no materiality to this act. It is illegal to offer anything of value as a bribe, including cash or non-cash items. The government focuses on the intent of the bribery rather than on the amount.
“Foreign official” is broadly defined by FCPA. Anyone working for a government-owned or managed institution or enterprise (including doctors, lawyers and accountants) is considered a foreign official. Any business person that also serves a foreign governmental agency is a foreign official. Also, employees of international organizations are also considered to be foreign officials under the FCPA. Any U.S. business operating in China must pay particular attention to this broad definition as many Chinese business people are also government officials. Ignorance of the person’s status does not provide exemption from prosecution for a violation of the act.
It does not matter whether there is an existing business relationship with the foreign official. So an offer of value to acquire business or to prevent the loss of business is covered by the act.
Corrupt intent encompasses the notion of a benefit given or offered to persuade a foreign official to misuse their position or authority through action or inaction and it includes quid pro quo arrangements. Quid pro quo generally assumes the benefit is given with reasonable expectations of some official favor in return. The quid pro quo does not need to have been executed nor does the foreign official need not be able to deliver it themselves. Again, note that the U.S. government does not need to establish the defendant knew their conduct violated the FCPA.
Hank Bourg is a U.S. certified public accountant and the head of the North American desk at Dezan Shira & Associates. For comments or inquiries, please contact him at firstname.lastname@example.org.