In 1977 Congress passed the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1 et seq. (“the FCPA”) making it unlawful to make payments to foreign government officials in order to get or keep business. The Securities Exchange Commission and the Department of Justice are jointly responsible for enforcing the statute. Two types of businesses are subject to the FCPA, those with formal ties to the United States such as registration with the SEC and those who take actions the FCPA prohibits in the United States. The FCPA imposes certain accounting requirements on companies with securities listed in the United States to meet certain accounting standards intended to ensure that transactions that could be considered bribes to foreign officials were properly recorded, but of course the primary thrust of the statute was to make such bribery illegal. There are five elements, or components, that make up a violation of the FCPA’s anti-bribery prohibition:
- There must be a payment, offer to pay, authorization to pay , or promise to pay money or anything of value
- to a foreign government official or to someone who the briber knows will pass it on to such an official
- with a corrupt motive
- to induce that official to do or fail to do some action in violation of the official’s lawful duty or to use his or her influence to influence an official decision or to otherwise secure an improper advantage
- to get or keep business.
Notably, only payments to actual foreign officials (or payments that are intended to be passed on to such an official) are forbidden in the FCPA. It does not speak to what is often referred to as commercial bribery, where payments are made by a business to someone at another business to secure some sort of advantage.
For two very specific reasons, it is particularly likely that American businesses doing business in China will find it easy to run afoul of the FCPA. One reason has deep roots in China’s culture and the other is the result of the current economic structure of Chinese business. Culturally, business relations in China openly rely on the traditional concept of guānxi, which can be translated as “relationships.” The relationships on which traditional Chinese culture relies are formed outside of the work environment, and usually involve significant exchanges of gifts. Moreover, the relationships do seem often to be of the patron-client type, where one seeking to curry favor provides gifts to the putative patron. In this cultural milieu, such exchanges are not surreptitious or viewed as suspicious, but normal and perfectly above-board.
Given that gifts from one businessperson to another private person are not, in and of themselves, a problem under the FCPA, guānxi alone might not lead to much tension between doing business in China and United States law. The other factor in China, though, is that a significant portion of the economy consists of state-owned enterprises, in which various arms of the state are major shareholders, often controlling shareholders, in various businesses. As recently as 2019, state-owned enterprises made up 60% of China’s market capitalization. Given that the definition of who is a foreign official is quite broad, and includes party officials (such as officials of the Chinese Communist Party) and managers of state-owned enterprises (which, again, are the most important segment of the Chinese economy), the expectation that representatives of foreign firms build relationships through guānxi creates real dilemmas for American firms.
Interestingly, when Xi Jinping came to power in China, and began to consolidate that power, he used an anti-corruption platform as a tool to discipline party members and, it is widely thought, punish his enemies. Given the culture of guānxi, it was easy for him to find targets for his campaign.
Not surprisingly, then, more enforcement actions have been brought because of actions in China than any other nation. In fact, there have been more than twice as many enforcement actions filed alleging bribes of Chinese officials than any other nation. The SEC or the Department of Justice have filed sixty-nine enforcement actions alleging bribes were paid to Chinese officials, while the next highest total number of enforcement actions, for bribes paid to Brazilian officials, is only twenty-nine. A significant number of other enforcement actions have been filed for alleged bribes paid in other East Asian countries, including twenty-two actions involving Indonesian officials, twelve actions each for bribes allegedly paid to Vietnamese and Thai officials, eleven actions for bribes allegedly paid to South Korean officials (and one allegedly paid in North Korea). Many of these East Asian countries share the cultural history of guānxi, and thus raise much the same dilemma for American businesses as China.