FCPA Compliance and the Intersection of Cross-Border Legal Regimes

The Foreign Corrupt Practices Act (FCPA) of 1977 for many years was seldom acknowledged and little understood amongst PRC law firms. The FCPA, which targets anything of value provided to a foreign official for purposes of conducting business, attempts to promote transparency overseas to align best practices in the private sector with anti-bribery and accounting provisions. Over the last decade, FCPA violations have led to fines totaling hundreds of millions of dollars for MNCs operating in China. In 2008, Siemens alone paid a total of $800 million in settlements for bribery cases in several countries; since 2008, 13% of FCPA fines have been against MNCs involved in bribing PRC officials. After the financial crisis, the FCPA rapidly became one of the most lucrative legal areas, and the intersection of FCPA regulation and PRC law is now of utmost importance for firms focusing on anti-corruption.

Matt Erie, Professor of Modern Chinese Studies at the University of Oxford, found that anti-corruption compliance in China operates through self-discipline at the intersection of US and PRC regulatory regimes, and creates market competition for its enforcement. Based on legal experience, research and interviews with 42 lawyers as well as regulators, FCPA officials, in-house compliance officers, risk consulting firms, and other vendors in what is known as “FCPA Inc.,” Erie determined that compliance counsel is for the most part privatized, and lawyers play a key role in self-compliance. Erie also discussed the tension between the function of the law in compliance and the ethnographic production of social categories, which are contingent on historic, linguistic, and political factors and may contradict foreign legal regimes. The jurisdictional and political fault lines between the FCPA and PRC law heavily overlap, and the process of legal transplant (i.e. law of jurisdiction A applies to jurisdiction B) is heavily disputed; lawyers are increasingly avoiding imposing foreign law in favor of observing both systems simultaneously. There is a recent trend towards convergence in compliance – every FCPA violation is potentially also a violation of PRC law – and foreign subsidiaries with operations in China are subject to both regulatory regimes. There has been a rapid growth in FCPA market diversification, and lawyers have a significant role in determining what norms are applied in different contexts.

Fallout from FCPA investigations had led to alarming consequences for MNCs, and as a result there is a high demand for firms familiar with FCPA regulations, despite the ongoing controversy over whether or not FCPA enforcement significantly disadvantages United States MNCs abroad. Although the PRC and the US may disagree as to how to conduct an anti-corruption campaign, the two sides mutually benefit from aligning their interests. PRC firms now heavily engage in FCPA requirements, and it is common for PRC nationals to obtain degrees in the United States before returning to China to practice law. Likewise, US firms are increasingly likely to seek lawyers – often PRC nationals – with Chinese cultural and linguistic fluency. Erie described the reception of FCPA in China not as an extraterritorial imposition of law, but as a business opportunity. Erie also noted that because US MNCs bribing Chinese officials may theoretically implicate other political figures, the PRC has an incentive to be actively engaged in the investigation process.

FCPA does not mandate voluntary disclosure, but as a result of the way in which the law is enforced, many companies are willing to sign agreements that allow them to forego prosecutions in favor of paying fines or having a monitor imposed, given that such penalties can potentially result in massive reputational harm if the MNC fails to self-report. The PRC anti-corruption campaign beginning in 2012 has affected domestic and foreign businesses alike in a multitude of industries, and given the context of anti-corruption crackdown efforts, PRC firm Fangda found that 74% of respondents found compliance to be a major priority.

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