Anti-Corruption Best Practices for Beijing Olympics
A recent China Law Blog posting U.S. Foreign Corrupt Practices Act and China (go to http://www.chinalawblog.com/2008/06/navigating_the_foreign_corrupt.html)
has caused me to think about how businesses from Canada and other countries should protect themselves from unwanted publicity and accusations (by government prosecutors and/or competitors) that they crossed a line and inadvertently engaged in bribery activity. In particular, the upcoming Beijing Olympics and the entertaining that goes along with such international sporting events may not be, but should be, on the business radar screen as risks pointing at the company. Simple entertainment activities may turn into nightmare scenarios because western ideas about benign nature of client development activities result in low levels of scrutiny of those activities. However, when it comes to entertaining in a foreign country and entertaining business associates and potential business associates in that foreign jurisdiction, the rules may change. The client or potential client or representative receiving the benefits of the entertainment may be a foreign public official. Since the nature of client development is the provision of a benefit to obtain or retain a business advantage, a prima facie case of bribery may be easily put together.
As a result, businesses who have Beijing Olympics entertainment plans should carefully contemplate the following:
(1) who is on the invitation/guest list?
(2) where do the invitees work?
(3) is that workplace government, a government department, government agency, agent of government, state-owned or partially state-owned enterprise or other public body?
(4) what is being provided to the guest?
(5) how much is being spent to provide the benefit to the guest?
(6) how are the expenses being recorded in the business accounting ledgers?
(7) how are the expenses recorded on all other forms of documentation (e.g., invoices kept for records)?
(8) has the compliance officer scrutinized the client development plans?
(9) would it be appropriate to obtain an outside opinion on the application of anti-bribery laws?
(10) would it be appropriate to obtain an advisory opinion from a home country (e.g. Canada) on whether the expenditure would be considered to be an act of bribery of a foreign pubic official under anti-bribery laws?
In addition, such businesses should consider whether anti-corruption legislation in more than one country would apply (e.g., Foreign Corrupt Practices Act (U.S.A.), Corruption of Foreign Public Officials Act (Canada), China’s anti-bribery laws, etc.) to a single activity of business entertaining. Many countries have signed the O.E.C.D. Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (O.E.C.D. Anti-Bribery Convention), including, Argentina, Australia, Brazil, Canada, Chile, Iceland, Korea, Japan, New Zealand, Norway, South Africa, Switzerland, most EU countries, and the United States. Most of these countries have enacted domestic laws making it both a criminal offence and a civil violation to give a bribe to a foreign public official in order to obtain or retain an advantage in the course of business.
Most anti-corruption laws make it an offence in the home country to bribe a foreign public official and, therefore, have extra-territorial application. If the extra-territorial anti-corruption laws in more than one jurisdiction apply to a single benefit given to a particular individual, there would be a possibility of multiple prosecutions for a single entertainment event and there is nothing in international law that would require one country to concede its prosecutorial rights to another.
It goes without saying that there is serious risk on the horizon for companies which have purchased tickets for Beijing Olympics events for business entertaining / client development purposes and planned lavish dinners, booked blocks of hotel rooms, and/or booked transportation for their guests (e.g., flights to and from China, train or flight transportation within China, etc.)
The China Law Blog Article, which quotes from a WSJ article and quotes from Richard Grime of O’Melveny & Myers, raises some important points should cause executives to stop and think:
1) Western anti-corruption legislation applies to transactions with foreign public officials. The term foreign public official is often defined broadly and would include representatives of state-owned or partially state-owned enterprises. Western countries do not have the same number of state-owned enterprises and can get into trouble when doing business in China.
2) Western anti-corruption legislation applies to transactions that have a nexus to the home country. However, the nexus may be as insignificant as telephone calls or emails from that country to organize the client development activity.
3) Western anti-corruption legislation often contains provisions relating to the recording of bribery in books and records. If a bribe is recorded as an entertainment expense instead of as a bribe, the elements of the violation may be satisfied. It is very easy to misdescribe a payment.
4) The standards set out in western anti-bribery legislation do not require intention of the bribery so much as the intention to engage in the activity that was bribery. The prosecutors may not have to prove beyond a reasonable doubt that the business had a corrupt intention.
5) In China, entertainment is part of the business culture. Entertainment crosses the line into bribery when the entertainment of the foreign public official can be considered to be lavish. Since the cost of ticket for some Olympic events are over $500 per ticket and a hotel room for a single evening during the Beijing Olympics can be over USD$ 1,000 per night, western prosecutors may see these gifts as lavish (especially for a person earning a Chinese wage).
The risk of prosecution is higher given the world attention on the Beijing Olympics. With all eyes on China and some of the business entertaining taking place in plain view, it will be easier for investigators and competitors to collect evidence in order to make allegations / accusations when contracts are awarded by the Government of China or Chinese state-owned enterprises or to ask questions about contracts that have been previously awarded since the announcement that Beijing would be the host city of the 2008 Summer Olympics. Most importantly, it is possible that the U.S. officials will be watching the entertainment activities of companies from O.E.C.D. Anti-Bribery Convention countries in order to make formal requests that the home country conduct investigations. The United States has been critical of countries such as Canada and Brazil for their lack of prosecutions on multinational companies for foreign bribery activities.
For more information and discuss the application of Canada’s Corruption of Foreign Public Officials Act, please contact Cyndee Todgham Cherniak 416-307-4168. Cyndee Todgham Cherniak, is Counsel in the International Trade Law Group at Lang Michener LLP and an adjunct professor at Case Western Reserve University School of Law in Cleveland, Ohio teaching a course on the North American Free Trade Agreement (NAFTA) and bilateral trading arrangements. In addition, Cyndee is a consultant to the Asian Development Bank on preferential trading arrangements.
For more information and discuss the application of Foreign Corrupt Practices Act, please contact Susan Kohn Ross 310-312-3206.
