China Should Go After Bribe Takers in FCPA Cases

As other contributors to this blog have noted (see here, here, here, here, and here), in transnational corruption prosecutions there is a huge disparity in the enforcement of corruption laws against bribe-givers (the “supply side”) and bribe-takers (the “demand side”). For example, corporations have been penalized under the U.S. Foreign Corrupt Practices Act (FCPA) for bribes they allegedly paid to foreign officials, but the foreign officials implicated in these enforcement actions have largely remained untouched under their respective countries’ legal and political regimes. The reasons why demand-side governments have not stepped up and investigated officials who have been implicated in FCPA cases may include the lack of political will, the lack of capacity, and lack of inter-governmental cooperation. The particular reasons likely vary from country to country.

The People’s Republic of China is one of the demand-side countries that has demonstrated such a disparity. In 2016, for example, the SEC concluded 26 FCPA-related enforcement actions, 14 of which were related to corruption in China. In the same year, the DOJ published 24 FCPA-related enforcement actions as well as five declinations under its pilot program, and ten of these cases involved China. (Note that there were some overlap between the DOJ and the SEC’s enforcement actions.) Yet there has been no report about China initiating investigations into any of the officials implicated in these cases. This suggests a failure, or missed opportunity, in China’s otherwise aggressive and wide-ranging anticorruption campaign. If the government officials who take bribes can escape without any consequences, even as the bribe-paying firms are penalized, it will be very hard to effect fundamental changes to corrupt business and cultural norms, which eventually will become roadblocks to the Chinese economy’s healthy and sustainable development. Furthermore, unlike other countries, China does not seem to face significant structural obstacles that prevent it from acting on these FCPA cases. It has the political will and capacity, and it has been collaborating with the U.S. government on other matters, such as bringing back corrupt fugitives from the U.S. It seems to be just a matter of awareness or choice. This post urges the Chinese government to take a look into the government officials implicated in the FCPA cases.

As noted above, the Chinese government has demonstrated strong political will and institutional capacity to fight corruption through its systematic anticorruption crackdown over the past four years. The crackdown has already swept tens of thousands out of public office and still shows no sign of subsiding. During a session of this year’s National People’s Congress, the Supreme People’s Court and Supreme People’s Procuratorate Presidents both reaffirmed that the authorities will show zero tolerance toward corrupt officials and pledged to continue the crackdown on corruption. President Xi Jinping, on multiple occasions, repeatedly warned that corruption would frustrate economic and social reforms and is the “greatest threat” to the Chinese Communist Party’s rule.

Furthermore, China and the U.S. have strengthened inter-governmental collaboration on anticorruption efforts in the past few years. The China-U.S. Joint Liaison Group (JLG) on Law Enforcement Cooperation, established in 1998, has been an important platform for the two countries to cooperate on anticorruption enforcement, particularly extradition. Although China-U.S. cooperation on extradition has encountered challenges in the past due to the differences of the two countries’ legal and political systems, both China and the U.S. have expressed support for enhanced anticorruption law enforcement collaboration during the Hangzhou G20 Summit last September.

Given all this, U.S. FCPA cases not only complement China’s domestic enforcement efforts by targeting the supply-side, but also could be used as a convenient prompt for investigating the implicated bribe-taking officials. Furthermore, cooperating on FCPA cases may be an area where the two countries’ interests in fighting corruption are well-aligned and may lead to a more fruitful cooperation on other aspects of anticorruption enforcement.

I am not suggesting that China should convict all of the officials implicated in U.S. FCPA cases. There will be a lot of legal, practical, and inter-governmental complications before U.S. supply-side enforcements could lead to actual convictions on the Chinese demand-side. Rather, I suggest that China take a look into those cases and make a deliberate decision whether to open an investigation, taking into consideration the nature and level of corruption, the identities of the bribe takers, and the timeframe.

In some cases, even when a company pays penalties under the FCPA for bribes in China, it won’t make sense for China to go after the bribe-takers. For example, quite a few pharmaceutical companies have paid fines to the U.S. government for allegedly providing Chinese public hospital doctors with illegitimate benefits in order to increase drug sales. (See the AstraZeneca, Novartis, SciClone, and GlaxoSmithKline settlements.) The misconduct in some cases goes back almost ten years. Going after a large and dispersed group of public hospital doctors, whose wrongful conduct took place years ago, may be impractical, or not worth the resources. In this sort of situation, the FCPA settlements might prompt the Chinese government to adopt more systemic reforms in the healthcare sector, rather than seeking criminal prosecution of individual doctors.

But there are other FCPA cases implicating senior Chinese officials still occupying important positions in government agencies or state owned entities. For example, Qualcomm agreed to pay $7.5 million for providing things of value to, and for inappropriately hiring relatives of, officials of a Chinese government agency and executives at two state owned enterprises in order to expand its technology and increase revenue in China. Another example is Nu Skin Enterprise, which was fined for allegedly making an RMB 1 million donation in 2013 to a charity related to a high-ranking Chinese Communist Party official in order to influence a pending provincial regulatory investigation. (See also the PTC, Akamai, Jun Ping Zhang, and Johnson Controls settlements.) These sorts of bribe takers are the top priority for China’s anticorruption campaign. And in some cases, the bribe takers’ identities will not be that hard to figure out. If the previous U.S. FCPA cases already gathered evidence for such cases, why wait?

3 thoughts on “China Should Go After Bribe Takers in FCPA Cases

  1. This assumes that the FCPA enforcement actions represent actual provable violations of law – rather than the end of result of corporate risk aversion. Indeed, several of the China FCPA actions involve “only” alleged findings regarding the FCPA’s books and records and internal controls provisions. Moreover, three of the “declinations” involved “possible” FCPA violations.

    The assumption that FCPA enforcement actions represent actual provable violations, while true obviously in some cases, is not true in all cases.

    • Of course you are correct that a settlement with the U.S. government doesn’t mean there’s a (provable) violation of the law, and that many of these settlements involve admissions of accounting violations rather than bribery violations (even if bribery is suspected). But I don’t read Yixuan to be arguing that the Chinese government should treat FCPA settlements as per se evidence that a violation of Chinese law took place — only that such settlements ought to prompt the Chinese government to conduct its own investigations. After all, even if a US company admits only to possible violations of the FCPA’s accounting provisions (in connection with allegations of bribes paid by the company’s employees, partners, or subsidiaries) to Chinese government officials, then that would seem to be at least priima facie evidence that there’s something that the Chinese government might have an interest in investigating. I don’t read you as disagreeing with that point.

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