China Draws Scrutiny as US Regulators Renew Anti-Bribery and Corruption Enforcement Focus

RECENT FCPA ENFORCEMENT ACTIONS CONNECTED TO CHINA

As evidence of the DOJ’s and SEC’s clear and continued interest in China, four of the final six FCPA resolutions reached in 2023 involved conduct that occurred in, or was somehow connected to, China. And, more broadly, China was among the most frequently cited countries in connection with publicly disclosed FCPA-related investigations. Below we briefly summarize a few of the FCPA resolutions reached last year connected to China:

1. Clear Channel Outdoor Holdings, Inc: On September 28, 2023, the SEC settled alleged FCPA violations against Clear Channel Outdoor Holdings, Inc. (Clear Channel), with Clear Channel agreeing to pay over $26 million in disgorgement and prejudgment interest. This resolution was spurred on by allegations that Clear Channel’s agent, a former majority-owned Chinese affiliate, paid bribes to a Chinese government official to obtain outdoor advertising contracts in violation of the FCPA’s anti-bribery, recordkeeping and internal accounting controls provisions.
2. Albemarle Corporation: On September 29, 2023, the DOJ and SEC settled alleged FCPA violations against Albemarle Corporation (Albemarle), which agreed to pay over $218 million collectively, with $103 million in disgorgement and prejudgment interest to the SEC. The resolution was the by-product of allegations that Albemarle used agents who paid bribes to government officials in China, Vietnam, Indonesia, India and the United Arab Emirates in violation of the FCPA’s anti-bribery, recordkeeping and internal controls provisions.
3. Koninklijke Philips N.V. On May 11, 2023, the SEC settled alleged FCPA violations against Koninklijke Philips N.V. (Philips), a medical device manufacturer. Philips agreed to pay a $62 million fine in connection with the operations of its subsidiaries in China, which supposedly had sought to improperly influence government hospital officials in violation of the FCPA’s books and records and internal accounting controls provisions.

RECENT PASSAGE OF FEPA

In December 2023, the US Congress passed the FEPA, which makes it a federal crime for a foreign government official to solicit, demand or accept a bribe from a US company or citizen in exchange for taking (or omitting to take) official action or conferring an improper business advantage.

Historically, US anti-corruption enforcement efforts have focused primarily on the “supply side” of foreign bribery, with the DOJ and SEC charging companies and individuals with violating the FCPA’s anti-bribery provisions by offering, promising or paying bribes to foreign officials. Although the DOJ has pursued the “demand side” of foreign bribery through other means – for example, by prosecuting corrupt foreign officials who receive bribes under anti-money laundering statutes – the FEPA provides for a new federal criminal offense that complements the FCPA’s anti-bribery provisions by targeting foreign officials who accept or solicit bribes.

The enactment of the FEPA portends an uptick in US anti-corruption enforcement activity, particularly cases brought by the DOJ against foreign officials accused of corruptly receiving or soliciting bribes. The FEPA provides the DOJ with an additional enforcement tool to combat international corruption by focusing on foreign government officials who solicit or receive bribes where a sufficient US jurisdictional nexus exists. Rather than amending the FCPA, the FEPA establishes this new criminal offense by amending the domestic bribery statute codified at 18 U.S.C. § 201.

Under the FEPA, a foreign government official can be held liable for corruptly demanding, seeking, receiving, accepting, or agreeing to receive or accept, directly or indirectly, anything of value from a covered person or entity “in return for being influenced to perform an official act, being induced to do or omit an act in violation of an official duty, or conferring any improper advantage in connection with obtaining or retaining business for or with, or directing business to, any person.”

Several notable similarities and differences between the FEPA and the FCPA are worth highlighting:

1. Jurisdictional nexus requirement: The FEPA defines the circumstances under which solicitations or demands for bribes have a sufficient US jurisdictional nexus, referencing the same general categories of individuals and entities subject to the FCPA’s jurisdiction. Specifically, the FEPA applies when a foreign official demands, seeks, receives or accepts a bribe from (1) “issuers” of US securities; (2) “domestic concerns” (i.e., US companies and persons); or (3) any person while in the territory of the US.
2. Broader “foreign official” definition: While the FEPA largely adopts the definition of the term “foreign official” from the FCPA, the FEPA’s definition expressly extends to those acting in an “unofficial capacity for or on behalf of a government, department, agency, instrumentality, or a public international organization.” Moreover, unlike the FCPA’s definition of foreign officials, the FEPA’s also includes “senior foreign political figures.”
3. No corresponding SEC jurisdiction: While the FEPA introduces this new criminal offense by amending the US’s existing domestic bribery law, the FEPA, unlike the FCPA, does not confer any civil enforcement authority to the SEC.
4. Penalties: Statutory penalties for FEPA violations can range from (i) a fine of up to $250,000, or three times the value of the bribe, whichever is greater; and/or (ii) imprisonment of up to 15 years. By comparison, statutory penalties for individuals who violate the FCPA’s bribery violations can range from (i) a fine of up to $250,000, or twice the pecuniary gain or loss from the violation, and/or (ii) imprisonment of up to five years.

KEY TAKEAWAYS FOR COMPANIES DOING BUSINESS IN CHINA

• The passage of the FEPA and recent FCPA enforcement actions evidence the DOJ’s and SEC’s increased focus on aggressively combatting global corruption wherever it may occur, including in China, a frequently cited jurisdiction in alleged FCPA bribery schemes. Companies doing business or otherwise present in China should expect this continued focus regardless of any potential US administration change next year. Further, while the FEPA opens the door to criminal prosecution of foreign officials who accept or solicit bribes, practically speaking, it should not impact the DOJ’s interest in, and approach to, these types of matters.
• The FEPA’s broader definition of “foreign officials” – and, in particular, its express reference to those acting in an “unofficial capacity” on behalf of a government, department, agency, instrumentality or a public international organization – likely signals an area of increased enforcement interest for the DOJ. Companies engaging with intermediaries or others who hold themselves out as unofficially connected to Chinese state-owned entities should carefully review those engagements, with an eye toward potential anti-corruption enforcement.
• More generally, companies subject to US jurisdiction that do business or have a presence in China should continue to develop and maintain risk-based anti-bribery and corruption compliance programs. They should consistently monitor those programs so that they are in a position to timely amend and update their anti-bribery and corruption controls, particularly as to the onboarding and use of third parties abroad and government touchpoints.