With the US-China trade war raging and the U.S. Department of Justice increasingly willing to reinforce tariffs, monetary policy and rhetoric with a sharp uptick in both investigations and enforcement proceedings, it’s understandable that businesses in both the United States and China are asking themselves when the regulatory risks of cross-border commerce may ultimately outweigh trade’s economic benefits. This is particularly true regarding the U.S. Foreign Corrupt Practices Act (the “FCPA”). Although answering that question is inherently different for every entity and individual, combining “best practices” and “situational awareness” still nearly always proves more effective than paranoia or disengagement.
Hint… When President Trump fires off tweets “ordering” US businesses to “get out” of China, even claiming, “We don’t need China and frankly would be far better off without them,” it’s probably a good time to reevaluate both one’s own internal compliance programs and those of your counterparties (this is advice that applies to US companies, Chinese companies AND third parties in equal measure).
(1) The China Initiative & FCPA
On November 1, 2018, the Department of Justice issued stringent new guidelines (unambiguously labeled “The China Initiative,”) ordering US Attorneys and investigators (primarily the FBI) to dramatically increase scrutiny over all US-China transactions. One such directive reads as follows: “Identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses.” (emphasis added) In isolation that might not sound like a big deal. Context, however, is key. The China Initiative explicitly explains: “[The need to address] the threat of Chinese malign economic aggression;” asserts that "No country [other than China] presents a broader, more severe threat to our ideas, our innovation, and our economic security than China," and includes former Attorney General Sessions’ uniquely blunt assessment: “Enough is enough. We’re not going to take it anymore.” The DOJ Memorandum further notes: “DOJ's National Security Division, senior officials from DOJ and the Federal Bureau of Investigation, and a working group of US attorneys from five different judicial districts have been tasked with leading enforcement activities in connection with the China Initiative.” Put simply, none of this constitutes a distinction without a difference.
(2) Applying Best Practices & Situational Awareness to Manage Heightened FCPA RISK
1. If your company hasn’t updated its compliance policies recently, now is absolutely the time. (One useful starting point is the DOJ’s regularly updated “Guiding Principles of Enforcement”. See “A Resource Guide to the U.S Foreign Corrupt Practices Act” at 57-66).
2. Remember that commitment to compliance starts at the top but must extend through the entire organization. Therefore, conducting effective training programs – and emphasizing how rapidly the landscape is changing – is essential for all employees (especially those most likely to be involved in “direct engagement,” e.g., overseas offices, salespersons and non-US executives.)
3. Internal investigations are critical tools when it comes to catching actual or potential violations before your company becomes a government target. However, without an appropriate crisis management plan and other proactive measures in-place, last-minute efforts are often too little, too late.
4. Communication with counterparties (including third parties) is crucial. Many businesses, for example, would be shocked to discover they could face liability for transacting with a non-violative company that creates indirect benefits by engaging a violative third-party consultant. (Not to mention the third party’s likely surprise…)
5. Never disregard the importance of cultural sensitivities. Especially when discussing these issues with cross-border counterparties, success results from balancing the importance of compliance with an understanding that even small missteps could damage longstanding relationships built on decades of trust.
To learn more about how JLG can assist with FCPA compliance, help navigate US-China trade relations, conduct training sessions and provide related counsel, you can schedule a free consultation online or contact us to make an appointment.
