Both U.S. and Chinese Officials Cracking Down on Corruption
NEW YORK, Sept. 24, /PRNewswire/ -- Investing directly in Chinese businesses has never been simple for U.S. companies. But a tougher corruption prevention environment within China now makes it even more urgent for U.S. companies and investors to focus on corruption issues when examining potential deals.
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According to the Deloitte Forensic Center, in response to major corruption scandals, the Chinese government created its National Bureau of Corruption Prevention in November of 2007. While China is focusing on the state officials who may be tempted to accept bribes, the bribe payer is the focus of growing numbers of investigations by the U.S. government into alleged violations of the U.S. Foreign Corrupt Practices Act (FCPA) which prohibits bribery of foreign officials.
Although the FCPA has been off of most companies' radar screens recently, U.S. businesses should consider ramping up their compliance efforts to avoid serious penalties both in the U.S. and in China.
News Facts
-- Criminal penalties under the FCPA can be as high as $2 million for
corporations and $100,000 for individuals. Fines can actually escalate
further under the Alternative Fines Act - up to double the benefit the
corrupt payment was intended to realize.
-- The SEC can also levy civil penalties of up to $10,000 against any firm
or person - and can seek disgorgement of profits in addition.
-- Companies found to violate the FCPA can lose their export licenses and
can be barred from doing business with the federal government.
-- Competitors can bring RICO claims for the same violation that created
FCPA liability.
Trend Data
-- China appears to be cracking down on corruption: In the last half of
2007, a former government agency head and a former Chinese bank official
were executed for accepting significant bribes and embezzling funds.
-- Meanwhile, the U.S. Dept. of Justice and the SEC, the two agencies that
enforce the FCPA, are investigating dozens of alleged violations,
including bribes, improper payments, kickbacks, and fraudulent
accounting related to at least six industries in China.
-- Foreign direct investment (FDI) in China is growing at double-digit
rates (14% in 2007) and is expected to total $2.6 billion from U.S.
firms in 2008. Surprisingly, that makes the U.S. just China's
sixth-largest source of FDI.
Quotes
Attributed to Clarence Kwan, in Deloitte's Chinese Services Group:
"We're seeing Chinese officials becoming less likely to try to extract bribes from American companies because of the Foreign Corrupt Practices Act."
Attributed to Nick Robinson, in the Forensic and Dispute Services Practice of Deloitte Hong Kong:
"Growing intolerance of fraud and corruption issues is prompting more and stricter enforcement in China. As supply chains get stretched, law enforcement will have to follow, cooperating in enforcement actions that target corruption."
Related Content
Video: The Foreign Corrupt Practices Act and China
Newsletter: Avoiding FCPA Risk While Doing Business in China
White Paper: Investing in China: Mitigating Corruption Risk in a Land of Opportunity
About the Deloitte Forensic Center
The Deloitte Forensic Center (DFC) is a think tank aimed at exploring new approaches for mitigating the costs, risks, and effects of fraud, corruption, and other issues facing the global business community. The DFC aims to advance the state of thinking in areas such as fraud and corruption by exploring issues from the perspective of forensic accountants, corporate leaders, and other professionals involved in forensic matters. The DFC strives to provide multidisciplinary analyses that companies and official organizations will find practical and helpful. A particular focus is placed on the use of technology as a means of providing solutions to fraud and corruption detection, mitigation, and prevention. In addition to encouraging a public dialog on these issues, the DFC also contributes to the development of the forensic accounting profession and raise its profile in discussions of issues of public importance. The DFC accomplishes its goals by bringing together leading professionals from a wide variety of backgrounds, including business, academia, law, government, and regulatory affairs. The Deloitte Forensic Center is sponsored by Deloitte Financial Advisory Services LLP.
About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.
SOURCE Deloitte
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