The Unique Foreign Corrupt Practice Act Compliance Challenges of Doing Business in China

China's economy remains "red-hot" and U.S. companies continue to view the Chinese market as being critical to achieving revenue targets and growth projections. However, with reward comes risks, and the lure of China profits can bring companies dangerously close to running afoul of the U.S. Foreign Corrupt Practices Act ("FCPA") unless business leaders fully understand and appreciate the many nuances of the broad-reaching statute and the unique FCPA compliance risks of doing business in China.The FCPA prohibits payment or offering of payment of money or anything of value to a "foreign official" in order to obtain or retain business (the "Anti-Bribery Provisions"). Proof of a U.S. territorial nexus is not required for the FCPA to be implicated against U.S. companies and citizens and FCPA violations can, and often do, occur even if the prohibited activity takes place entirely outside of the U.S. For this reason, business leaders must be knowledgeable about all business activity, including activity that takes place thousands of miles away from corporate headquarters.FCPA enforcement is at an all-time high and several recent enforcement actions concern business activity in China. The Department of Justice and the Securities and Exchange Commission (the two government agencies with FCPA enforcement authority) interpret the statute broadly such that much more than just a "suitcase full of cash to a government official" type of scenario is actionable. Included in this broad interpretation is the "foreign official" element of an Anti-Bribery violation, a defined term meaning "any officer or employee of a foreign government or any department, agency, or instrumentality thereof." Once a foreign company is deemed an "instrumentality" of a foreign government, every single employee, from the chief executive officer to an administrative assistant, will be considered a "foreign official" for purposes of the FCPA. This is true regardless of how local law may characterize the individual and regardless of whether the foreign company has attributes of a private enterprise such as publicly traded stock.While the FCPA applies to all of a company's international operations, FCPA compliance in China poses a unique risk and challenge given the prevalence of state-owned or state-controlled enterprises ("SOEs") in that country. As demonstrated by several recent FCPA enforcement actions, Chinese SOE employees will be considered "foreign officials" under the FCPA and a company's interaction with such individuals (individuals who likely are not viewed as a "foreign official" by business leaders and individuals who likely do not even view themselves as a "foreign official") will be subject to close scrutiny under the FCPA by U.S.enforcement agencies. Thus, FCPA compliance in China presents a trap for the unwary of the extent of “foreign officials” in that country, not to mention certain cultural norms and expectations of doing business in China.Despite the numerous FCPA compliance challenges in China, the FCPA risks of doing business in that country are manageable and can best be attained through effective, comprehensive, and well communicated FCPA compliance policies and procedures. The article concludes with guidance for business leaders to consider in developing such policies and procedures so that a company is able to legally and effectively navigate the lucrative Chinese market and avoid the costly and embarrassing shortcomings of other companies who rushed into China without fully knowing their business and without a full understanding and appreciation for the FCPA.