Two developments related to China caused me to ponder the picture once again.
The first concerns a letter recently sent by U.S. Treasury Secretary Jacob Lew to Chinese Vice Premier Wang Yang. The second concerns the general thrust of much “western” commentary concerning China’s recent enforcement action against GlaxoSmithKline.
As highlighted in this recent Wall Street Journal article, Treasury Secretary Lew “warned his Chinese counterpart in a recent letter that a spate of antimonopoly investigations against foreign companies could have serious implications for relations between the two countries.” As noted in the article, “the warning comes after international business lobbies have raised complaints over a string of monopoly and pricing probes that they say unfairly focus on foreign companies.”
Predictably, China reportedly responded to the letter and concerns by stating – as noted in the article – that foreign and domestic Chinese companies are treated equally, that foreign companies are “welcome to hire the most famous lawyers in the world” to dispute Chinese allegations, and that if foreign companies disagree with Chinese law enforcement interpretations any company is free to “take the discrepancies to court.”
Although outside the FCPA context, the trading of barbs between the U.S. and China has FCPA parallels as concerns have been raised about U.S. enforcement of the FCPA against foreign companies and similar “see you in court” type statements have been made by the DOJ in response.
It is a fact that the clear majority of the largest FCPA enforcement actions of all-time (based on settlement amounts) are against foreign companies.
It is also a fact that many of these enforcement actions have been based on spare jurisdictional allegations. For instance and as highlighted in this prior post, the 2013 FCPA enforcement action against Total (the $398 million settlement amount was the third largest in FCPA history) was based on the following salient points:
- The enforcement action was against a French oil and gas company for making improper payments to an Iranian Official through use of an employee of a Swiss private bank and a British Virgin Islands company.
- The vast majority of the alleged improper conduct took place between 1995 and 1997 (that is 16 to 18 years ago prior to the enforcement action).
- The sole U.S. jurisdictional nexus (a required legal element for an anti-bribery violation since Total is a foreign issuer) is a 1995 wire transfer of $500,000 (representing less than 1% of the alleged bribe payments at issue) from a New York based account.
Expansive FCPA enforcement theories against foreign actors made its way into the Senate’s 2010 FCPA hearing when Senator Christopher Coons stated: ”Today we the only nation that is extending extraterritorial reach and going after the citizens of other countries, we may someday find ourselves on the receiving end of such transnational actions.”
As a matter of law, Senator Coon’s statement was technically inaccurate, there is no extraterritorial jurisdiction over foreign actors under the FCPA’s anti-bribery provisions, but the expansive jurisdictional theories are what I have called “de facto extraterritoriality.”
In any event, the concluding point is this: aggressive enforcement of domestic laws against foreign companies raise various policy issues and can lead to “lawfare.” At the very least, when the tables are turned it ought to cause U.S. law enforcement agencies and policy makers to look in the mirror because Secretary Lew’s recent warning letter may be viewed by some as the “pot calling the kettle black.”
China GSK Enforcement Action
As previously highlighted here, in September GSK announced that it had agreed to pay approximately $490 million to resolve a Chinese law enforcement investigation after a Chinese court ruled “that GSK China Investment Co. Ltd (GSKCI) has, according to Chinese law, offered money or property to non-government personnel in order to obtain improper commercial gains, and been found guilty of bribing non-government personnel.”
The general thrust of certain “western” reporting of the China action was critical in various respects as highlighted below.
- “an opaque justice system ultimately controlled by the Communist Party” (here)
- “after a one day closed hearing” (here)
- “The bribery conviction of a GSK unit took all of one day in Chinese court” “Unlike the U.S. Department of Justice, which often allows the companies accused of bribery to spend years conducting their own internal investigations–often followed with non-prosecution agreements–these convictions came just 15 months after Chinese officials began their investigation.” ”Chinese authorities moved very quickly to assess significant penalties in a forum that provided very little transparency” (here)
- “Many of us had wondered when the GSK investigation in China would end and we all found about the trial when it was announced in the newspapers last week. It certainly showed that the quality of justice in China is quite different than in the west. While it is not entirely clear how long the trial lasted, it appeared that it was [a one-day trial] …” (here)
Without in any way trying to comprehensively compare the overall U.S. legal system to the overall Chinese legal system, the following attributes of FCPA enforcement must at least be acknowledged.
The vast majority of corporate FCPA enforcement actions lack transparency and the resolution documents (whether a non-prosecution agreement, deferred prosecution agreement or civil administrative order) are the result of an opaque process ultimately controlled by the same office prosecuting or bringing the action.
As to the swiftness of FCPA enforcement actions, one can only assume that the majority of general counsels and board of directors of companies under FCPA scrutiny would be jumping for joy if the scrutiny – from start to finish – would resolve itself in 15 months rather than the typical 3-5 years (and in some instances more) of FCPA scrutiny lingering.
The concluding point is this: before criticizing how other countries are enforcing their anti-corruption laws (something the U.S. government has been pleading for other countries to do for years), we should at least look in the mirror regarding various aspects of FCPA enforcement.