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The world is watching

Foreign companies doing business in China, especially U.S. companies and U.S. listed companies are confronted by the formidable challenge of determining whether cross-border operations and transactions are untainted by corruption.

The stories are legendary - bribery, possession, money laundering and more. In some countries, these practices are business as usual. Which is all the more reason to take this issue seriously.

A new salesperson for a business unit in Shanghai greases the wheels to get a deal done. A production manager in Guangzhou bribes officials to get materials delivered on time. It’s an age-old practice with many names - and it’s a sure fire way to destroy the value and reputation of any company.

Some argue that the chances of getting caught are slim. That doesn’t matter, because the consequences of getting caught are enormous. Your company can be liable for punitive damages, your officers and directors face personal and criminal risk, governments can impose sanctions and your company can be prohibited from getting future contracts.

First things

  • Know your agents in China.  Understand what you’re paying them - and why.
  • FCPA controls imbedded into the control infrastructure.
  • Monitor all documentation related to payments and transactions. If something seems unusual, don’t hesitate to investigate. If something seems too good to be true, it probably is.
  • Periodic company internal audit of entertainment expenses.
  • Insist on including right to audit clauses in all contracts.
  • Train teams so that they are knowledgeable of common vehicles for risk (promotional programs, donations etc).
  • Commissions and bonus are in expected and reasonable ranges.
  • FCPA specific education packages available.

Essential capabilities

If your leadership behaves in accordance with ethical, legal and moral guidelines, that will go a long way toward instilling integrity throughout the organisation. Beyond that, be sure you have your fingers on the pulse of all potential risks around corrupt practices, especially related to M&A. Don’t cut corners on any of these capabilities:

  • risk assessment related to corporate structures;
  • analysis of existing contracts and relationships;
  • investigations of reputation and integrity of principals;
  • corporate culture assessment;
  • assessment of internal controls and compliance programs; and
  • evidence preservation.
The long arm of the law

The recent surge in prosecutions by the U.S. Department of Justice and enforcement actions by the Securities and Exchange Commission under the Foreign Corrupt Practice Act of 1977 (“FCPA”) has forced companies to carefully examine whether they have effective policies and procedures in place to manage FCPA related risks.

FCPA deals with bribery and accounting. Its bribery provisions apply to U.S. public and private companies, U.S. citizens, and U.S. and foreign companies registered with the SEC. Accounting provisions apply to U.S. and foreign companies registered with the SEC, as well as foreign subsidiaries and affiliates of issuers.

Many countries have attached more and more importance to foreign corruption prevention and enforced counterpart laws and regulations to the FCPA.

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