The Foreign Corrupt Practices Act Overview and Application to China


The Foreign Corrupt Practices Act (“FCPA”), enacted in 1977 and revised in 1998, criminalizes corrupt payments by U.S. and foreign issuers of U.S. Securities[1] (“FCPA Subjects”) to foreign officials anywhere in the world.[2] The purpose of the act is accomplished through the combination of both an anti-bribery provision and an accounting provision.

The FCPA anti-bribery provisions hold FCPA Subjects accountable when they offer, promise to pay, or authorize the payment of any money, gift, or promise to give anything of value, directly or indirectly, to a foreign official for the purpose of influencing any official act or decision, inducing an unlawful act, influencing government action, or securing any improper advantage in order to obtain, retain or redirect business.[3]

The accounting provisions of the FCPA require every registered issuer of securities to maintain reasonably detailed records of the issuer’s transactions and assets as well as a system of internal controls to effectuate those records.[4]

Together, these provisions promote fair business practices by guiding issuers to record all transactions of value and refrain from bribing foreign officials.

This article focuses on the anti-bribery provisions of the FCPA, The People’s Republic of China’s (“China”) civil and criminal prohibitions against bribery, and how to do business in China in compliance with both the FCPA and the anti-bribery laws in China.


In 1977, the Committee on Interstate and Foreign Commerce recommended an amendment to the Securities Exchange Act of 1934 to make it unlawful for issuers of securities to bribe foreign officials.[5] The bill passed quickly to combat the corporate environment where over 400 United States-based companies admitted to bribing foreign officials, acts which were considered “unethical” and “bad business.” [6] Incorporation of the FCPA into the Securities Exchange Act of 1934 makes it illegal for issuers of U.S. securities to offer, promise or make any unauthorized transactions of value.[7] To create accountability and transparency, the accounting provision further requires that all transactions of value be recorded in corporate records.[8]

A. The Broad Scope of the FCPA

U.S. courts have interpreted the FCPA to cover many types of illicit conduct.  In U.S. v. Kay, the court held that a gift need not lead directly to business quid pro quo. [9] Kay was charged with FCPA violations for bribing Haitian customs officials in order to receive reduced customs duties and sales taxes.[10] The U.S. Court of Appeals found that payments that lead to an improper business advantage in the future fall within the scope of the FCPA.[11]

B. Proverbial FCPA Get Out of Jail Free Card

Although the FCPA anti-bribery provisions are broad and broadly construed by the U.S. Courts, the FCPA has certain built-in exceptions.

1.         Facilitating Payments

Payments facilitating the performance of routine government functions are exempt from the bribery provisions of the FCPA.[12] These payments are commonly referred to as facilitating or “grease” payments and apply only to administrative tasks that are ordinarily performed by the official in his official capacity such as processing paperwork.[13] However, the exception does not cover any business decisions made by the official. Some academics have argued that such “facilitating” payments should be included within the bribery framework because of the possibility of improper influence of foreign officials, and other disconcerting side effects such as contributing to the creation of corruption within the foreign infrastructure, promoting inefficiency, unjustly impacting the poor forced to wait in line, and undercutting potential for economic growth.[14] The Assistant Attorney General of the United States recently indicated that the Department of Justice is considering reworking the facilitating payments exception.[15] While the exception remains in the FCPA, reliance upon the exception by U.S. companies may prove risky.

While the FCPA permits facilitation payments, the accounting and recordkeeping provisions of the law nevertheless require companies to accurately record facilitation payments in corporate books and records.  Failure to properly record such expenditures may result in prosecution by the SEC even if the underlying payments themselves are permissible.[16] In 1997, the SEC fined the Triton Energy Corporation $300,000 for misrecording facilitation payments.  There, monthly payments of approximately $1000 were made to ensure the timely processing of crude oil revenues but were mis-recorded in the corporate books.[17]

Companies who are forced to pay bribes should protect themselves from FCPA charges through detailed documentation of the extortion in corporate records.[18] In early 2010, the SEC found that NATCO Group Inc. (“NATCO”) violated the FCPA’s accounting provision when it reimbursed employees for paying bribes to foreign immigration officials to avoid imprisonment or deportation and booked the reimbursements as salary advancements rather than reimbursement for the payment of bribes as mandated by the FCPA.[19] Had NATCO accurately reported these transactions it could have avoided all FCPA violation charges.[20]

2. Affirmative Defenses

There are two affirmative defenses to the anti-bribery provisions of the FCPA.  First, if the payment was lawful under the written laws of the foreign country, the FCPA was not violated.[21] Second, if the payment was a reasonable and bona fide expenditure directly related to the demonstration or explanation of products and services, or the performance of a contract, the payee has an affirmative defense against claims of FCPA violation.[22] Payments made without intent for improper quid pro quo reciprocation may be considered bona fide; however, intent has been imputed were the payments are excessive or improper.  Any form of kickback program will likely be subject to intense scrutiny.[23] Even travel and related expenses have come under increased scrutiny.[24] For example, Lucent Technologies agreed to settle a claim against it for paying travel and entertainment expenses for approximately 1,000 employees of a Chinese state-owned company to visit the United States.[25] Ostensibly the trips were to visit Lucent Factories, however instead they visited tourist destinations like Las Vegas, the Grand Canyon and Disneyland.[26]

C.  Recent Influx of Enforcement

While the FCPA has been on the books since the 1970s, enforcement has recently increased dramatically.[27] In 2009, the Department of Justice prosecuted 34 FCPA cases resulting in $435.3 million in penalties,[28] compared with 17 in 2008, 16 in 2007,[29] and 8 in 2006.[30] Robert Kuzami, the SEC Director of the Division of Enforcement, confirmed this trend by announcing in 2009 the SEC would be creating a specialized unit to handle FCPA enforcement.[31] U.S. companies doing business abroad have come under stricter scrutiny.[32] As one commentary has put it, “the old ways of doing business globally won’t be tolerated anymore.”[33] For example, payments made by subsidiary companies, even after the parent company has voluntarily disclosed FCPA violations to the SEC, have been enough to re-implicate the parent.[34] Others have been convicted of FCPA violations for willfully avoiding knowledge of bribes being paid by associates.[35]


A.  Scope of Anti-Bribery Laws

The definition of bribery under Chinese law is limited in both application and scope.

1.Who Counts?

Under both the criminal and civil law, only persons “engaged in public service” in state-owned businesses or assigned to perform public duties in nonstate-owned businesses or organizations are subject to the anti-bribery laws.[36] Unless an employee is engaged in administrative tasks on behalf of the public, he can not be punished under Chinese anti-bribery laws.  Acts performed by non-state-owned enterprises which are still considered to be public service include, but are not limited to, (1) the administration of funds and materials for disaster relief, emergency rescue, flood prevention and control, special care for disabled servicemen and the families of revolutionary martyrs and servicemen, aid to the poor, relocating people and social relief; (2) the administration of funds and materials donated by the public for the public welfare; (3) the administration, operation and management of land, as well as the management of housing sites; (4) the administration of compensation for land requisition; (5) withholding taxes; (6) the performance of tasks relating to family planning, permanent residence, etc; (7) assisting the people’s government to exercise other administrative tasks.[37]

Furthermore, in contrast to the FCPA, under Chinese law, penalties for accepting bribes are harsher than those for offering them[38] and the courts have shown both the ability and willingness to convict foreigners.[39]

2.  What is a Bribe?

In contrast with the broad scope of the FCPA which restricts “anything of value,” including promises to pay and intangible benefits, the Chinese Criminal Code limits “bribes” to physical property.[40]

Chinese law requires bribes to be “fairly large” amounts of money or property.  According to the Supreme People’s Procuratorate Guidelines, prosecution occurs only when the value of the gift reaches a certain threshold. [41] Individuals may not give other individuals gifts valued over 10,000 RMB (approximately US$1,400); individuals may not give entities over RMB 100,000 RMB (US$14,000); and entities may not give other entities of over 200,000 RMB (US$30,000).[42] Chinese law provides higher thresholds for “commercial” bribery.  Article 164 of the PRC Criminal Code prohibits giving a “relatively large” or “huge” amount of “money or property” to any employee of a company, enterprise, or other entity for the purpose of securing improper benefits.[43] Whether the amount is “relatively large” or “huge” affects the length of prison terms and the threshold is judged on a local standard.  In Shanghai, for example, “huge” is said to be a payment over 100,000 RMB (US $15,000).[44]

3.  When is it a Bribe?

Criminal bribery only occurs when an illegitimate benefit is conferred based upon the payment offered or made to a government official.[45] Illegitimate benefits include benefits violating laws, regulations, state policies or administrative rules issued by departments under the State Council, and assistance or favors provided by state personnel in violation of laws, regulations, state policies or administrative rules issued by departments under the State Council.[46]

Members of the Central Committee of the Communist Party (“CCP”) are held to far stricter standards than other business men and women.  While not criminal in nature, CCP members are subject to discipline for any number of fifty-two violations.  For example, CCP members are obligated to refuse or surrender any money or gift (except those from family and friends) that exceeds 200 RMB in value.[47]

China’s Company Law governs business organizations. It specifies “a foreign company shall assume civil liability for the operational activities of its branches within Chinese territory.  [48] The Company Law provides that when a director, supervisor or  manager exploits his position to accept bribes or other illegal income, the illegal income shall be confiscated, and the wrongdoer shall be subject to sanctions by the company. If the violation constitutes a criminal offense, criminal liability shall be investigated in accordance with the law. [49]

China’s Unfair Competition Law prohibits businesses to “bribe through cash, property, or any other means in order to sell or purchase merchandise. Anyone who gives the other party kickbacks shall be deemed to have committed bribery and punished accordingly” [50] The other party who “receives commissions or kickbacks secretly” shall also be deemed and punished as accepting bribery.” [51] The penalties for commercial bribery include fines ranging from RMB10,000 to RMB200,000, and confiscation of illegal proceeds. Serious cases may be treated as crimes. [52]

4.  Accounting Provisions of the Chinese Law

China’s Unfair Competition Law provides that any commissions to intermediaries or discounts to any buyers “must be recorded in the accounting books of the company.”[53] Interim Provisions on Banning Commercial Bribery has the similar provision which provides purchasers and sellers can pay intermediaries commissions.  The payment and receipt of the commissions must be accurately recorded by the payor and payee.[54]

B.  Enforcement

Despite bribery being limited to property gifts and the exclusions for legitimate gains, bribery violations remain a major problem in China.  In the first half of 2007 alone, Chinese courts dealt with 24,879 commercial bribery cases.[55] Because the cost of violating the law is so low, companies often choose to continue illegal practices.[56]

The penalties for bribery for individuals include fines, criminal detention, imprisonment and confiscation of property.[57] The penalties for entities include fines and criminal detention or imprisonment of the person in charge. [58]

Recently, the Chinese Supreme Court convicted four employees of the British-Australian mining giant Rio Tinto, including an Australian citizen, of accepting bribes by non-state personnel and stealing trade secrets.[59] While the amount in question was clearly over the Chinese legal limits (evidence showed that the employees had accepted roughly $13.5 million), and the payments were made from Chinese, not foreign, companies, the verdict suggests China is cracking down on foreign companies doing business in China.[60] The Australian citizen in the case, Stern Hu, was sentenced to 10 years in prison.[61]

While there are indications China is becoming more critical of bribery,[62] the rampant corruption continues to present many challenges for companies doing business in the State.  A telephone hotline setup for whistle-blowers in 2009 received 11,000 calls in its first week.[63]


The Rio Tinto case was a wake up call for many foreign officials doing business in China.  The narrow construction of “bribery” by the Chinese law in contrast with the broad definition in the FCPA presents a number of issues that make China a challenging place to do business.

A.  Who Counts?

The FCPA includes any “foreign official.”  Because China’s businesses are largely run by the State through both state enterprises and state-owned enterprises (“SOEs”) the phrase “foreign official” appears to cast a wide net compared to other nations.[64]

B. What Counts?

Chinese law provides much higher thresholds before gift giving is considered bribery.  Although these limits would seem to provide greater latitude for U.S. companies to make small facilitating or grease payments, U.S. individuals, partnerships, corporations, and even those involved in joint ventures with Chinese individuals need to be extremely cautious.  While the text of the law still outlaws only the payment of money or the giving of personal property, recent trends have shown Chinese Courts have begun to define bribes in line with the international denotation and connotation of the word, including offers of intangible benefits with quantifiable value.[65] Additionally, any time a FCPA Subject violates the U.S. law, the individual or entity may be charged for an FCPA violation in absence of a clear exception such as a written law.  FCPA Subjects must be wary of both foreign and domestic charges.


For foreign companies doing business in China, established FCPA and Chinese law compliance procedures and protocols, training and constant monitoring are essential.  FCPA subjects should establish procedures based upon the FCPA inegrating those measures under Chinese law which are more narrow than the FCPA structure to be sure to be in compliance with both the FCPA and the Chinese law.

[1] More specifically, officers, directors, employees, or agents of U.S. and foreign issuers of U.S. Securities, which includes non-public U.S. companies and U.S. residents, and some foreign non-residents.  15 U.S.C. § 78dd-1(a) (2010); 15 U.S.C. § 78l, et seq. (2010).

[2] 15 U.S.C. § 78dd, et seq. (2010).

[3] 15 U.S.C. § 78dd-1(b) (2010).

[4] 15 U.S.C. § 78m(b)(2).

[5] H.R. Rep. No. 95-640 (1977), available at

[6] Id.

[7] 15 U.S.C. § 78dd, et seq. (2010).

[8] 15 U.S.C. § 78m(b)(2).

[9] See US v. Kay, 359 F.3d 738, 755 (5th Cir. 2004).

[10] US v. Kay, 359 F.3d 738, 741 (5th Cir. 2004).

[11] US v. Kay, 359 F.3d 738, 761 (5th Cir. 2004).

[12] 15. U.S.C. § 78dd-1(b) (2010).

[13] 15. U.S.C. § 78dd-1(f)(3) (2010).

[14] Robert Bailes, Facilitation Payments: Culturally Acceptable or Unacceptable Corrupt? 15(3) Business Ethics: A European Review 293-98 (2006).

[15] Christopher M. Matthews, Breuer: FCPA Facilitating Payments Worth Discussing, Main, May 26, 2010, available at

[16] See SEC v. Triton Energy Corp., Litigation Release No. 15266 (Feb, 27, 1997), available at

[17] Id.

[18] See In re NATCO Group Inc., SEC Adm. Proc. File No. 3-13742 (Jan. 11, 2010), available at  SEC v. NATCO Group Inc. Litigation Release No. 21374 (Jan.11, 2010), available at

[19] Id.

[20] Id.

[21] 15 U.S.C. § 78dd-1(c) et seq. (2010).

[22] 15 U.S.C. § 78dd-1(c) et seq. (2010).

[23] See, e.g., SEC v. ABB Ltd., Litigation Release No. 18775 (July 6, 2004), available at; see also SEC v. Ingersoll-Rand Company Ltd., Litigation Release No. 20353 (Oct. 31, 2007), available at

[24] See SEC v. Lucent Technologies Inc., Litigation Release No. 20414 (Dec. 21, 2007), available at

[25] Id.

[26] Id.

[27] See, e.g., Dione Searcey, U.S. Cracks Down on Corporate Bribes, Wall Street Journal, May 26, 2009, available at; see also Michael F. Perlis & Wrenn E. Chais, Investigating the FCPA,, Dec. 8, 2009,

[28] Samuel Rubenfeld, Expanded Whistleblower Program Could Aid FCPA Enforcement, Wall Street Journal, Apr. 12, 2010,

[29] Mendelsohn Says Criminal Bribery Prosecutions Doubled in 2007, 22 CORP. CRIME REP. 36(1), Sep. 16, 2008, available at

[30] Id.

[31] Robert Khuzami, Remarks Before the New York City Bar: My First 100 Days as Director of Enforcement (August 5, 2009), available at

[32] The attention is at least in part due to the passage of the Sarbanes-Oxley Act in 2002, which makes executives liable for a public corporation’s criminal activities. Perlis, supra note 27.

[33] Perlis, supra note 27.

[34] See In re Avery Dennison Corp., No. 3-13564 (July 28, 2009), available at

[35] On July 9, 2009, Frederic Bourke was found guilty by a jury and convicted of conspiracy and bribery under the U.S. Foreign Corrupt Practices Act and Travel Act in the U.S. District Court for the Southern District of New York.  Carrie Johnson, U.S. sends a message by stepping up crackdown on foreign business bribes, The Washington Post, February 8, 2010,

[36] 1997 Criminal Code (promulgated by the Standing Comm. Nat’l Peopl’s Cong., Mar. 14, 1997, effective Oct. 1, 1997), art. 93, translated by Wei Luo (1997) (P.R.C.).

[37] 1997 Criminal Code (promulgated by the Standing Comm. Nat’l Peopl’s Cong., Mar. 14, 1997, effective Oct. 1, 1997), chap. 9, translated by Wei Luo (1997) (P.R.C.).

[38] 1997 Criminal Code (promulgated by the Standing Comm. Nat’l Peopl’s Cong., Mar. 14, 1997, effective Oct. 1, 1997), art. 385 and 389, translated by Wei Luo (1997) (P.R.C.).

[39] In re Stern Hu, Registration No. 沪一中刑初字第34号 (Shanghai Municipal People’s Prosecution, First Branch, Mar. 22, 2010); See also, David Barboza, China Sentences Rio Tinto Employees in Bribe Case, New York Times, Mar. 29, 2010, available at,  (In the Rio Tinto case, an Australian businessmen was sentenced to ten years in Chinese prison for bribery and stealing business secrets).

[40] See, art. 385 and 389, supra note 38.

[41]See Regulations on Standard for People’s Procuratorate to Accept and File for Investigation Cases Issued by the Supreme People’s Procuratorate of PRC on August 6, 1999, effective on September 16, 1999.


[43] 1997 Criminal Code (promulgated by the Standing Comm. Nat’l Peopl’s Cong., Mar. 14, 1997, effective Oct. 1, 1997), art. 164, translated by Wei Luo (1997) (P.R.C.).

[44] See Opinions on Issues Concerning the Application of Law in the Handling of Criminal Cases of Commercial Bribery (promulgated by the Sup. People’s Ct. and the Sup. People’s Proc. Communique, Nov. 20, 2008, effective Nov. 20, 2008) (2008) (P.R.C.).

[45] 1997 Criminal Code (promulgated by the Standing Comm. Nat’l People’s Cong., Mar. 14, 1997, effective Oct. 1, 1997), art. 389, translated by Wei Luo (1997) (P.R.C.).

[46] See Notice on Severely Punishing Bribers While Handling Serious and Major Criminal Bribery Cases (promulgated by the Sup. People’s Ct. and the Sup.People’s Procuratorate, Mar. 4, 1999) (1999) (P.R.C.)

[47] Several Rules on Service by Leaders and Officers of the Central Committee of the Communist Party (promulgated by the Central Comm. of the Communist Party, Feb 24, 2010) (2007) (P.R.C.) (replacing the 1997 draft rules).

[48] 2005 Company Law (revised by the 18th Session of the Standing Comm. Nat’l People’s Cong., Oct. 27, 2005, effective Jan. 1, 2006), art. 203 (P.R.C.), available at

[49] 2005 Company Law (revised by the 18th Session of the Standing Comm. Nat’l People’s Cong., Oct. 27, 2005, effective Jan. 1, 2006), art. 216 (P.R.C.), available at

[50] Anti-Unfair Competition Law (promulgated by the Standing Comm. Nat’l People’s Cong., Sept. 2, 1993, effective Dec. 1, 1993), Article 8.1. (P.R.C), available at

[51] Id

[52] Anti-Unfair Competition Law (promulgated by the Standing Comm. Nat’l People’s Cong., Sept. 2, 1993, effective Dec. 1, 1993), Article 22. (P.R.C), available at

[53] Anti-Unfair Competition Law of the People’s Republic of China (1993), Article 8.1.

[54] Interim Provisions on Banning Commercial Bribery, Order of the State Administration for Industry and Commerce of the People’s Republic of China (No.60), November 15, 1996.

[55] China deals with 24,879 commercial bribery cases in first half, People’s Daily Online, Aug. 19, 2007,

[56] See, e.g., Jodi Xu, In Rio Tinto Bribery Case China Says ‘The Enemy Is Us’, Wall Street Journal Blogs, Aug. 14, 2009,

[57] Criminal Law of the People’s Republic of China  (1997, amended 2006), Article 385 to 394.

[58] Id.

[59] See, Prosecution of Stern Hu, supra note 39.

[60] Id.

[61] Id.

[62] Id.

[63] Whistleblowers flood China’s Anti-corruption Hotline, People’s Daily Online, June 30, 2009,

[64] Despite certain market-based changes China has many state-owned or state-controlled enterprises (“SOEs”) The FCPA defines “foreign official” to mean “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, . . . or any person acting in an official capacity for or on behalf of any such . . . instrumentality.”15 U.S.C. §§ 78dd-1(f)(1)(A), 78dd-2(h)(2)(A), 78dd-3(f)(2)(A). Application of the definition of “foreign official” under the FCPA to officers and employees of SOEs is consistent with Chinese law and DOJ interpretations of “foreign official. DOJ Opinion Release No. 08-01 (Jan. 15, 2008) (minority owner and Chairman of a foreign company whose majority owner is a government-owned enterprise considered “foreign official” for purposes of FCPA where, in addition to his role as Chairman of the foreign company, he also was General Manager and formal legal representative of government-owned enterprise). Patrick M. Norton, The Foreign Corrupt Practices Act: A Minefield for U.S. Companies in China, 18 China Law & Practice 15 (2004).

[65] A recent opinion by the Chinese Supreme Court and Procuratorate explicitly defines bribes as including non-property benefits such as home furnishing provisions, coupons, travel expenses and membership cards with monetary value.  See Opinions on Several Issues Concerning Law Application in Handling Criminal Cases of Commercial Bribery.”