Chinese companies that are listed or are planning to list on a U.S. stock exchange are at high risk of breaching the Foreign Corrupt Practices Act (FCPA) standards and being subject to increased investigation and enforcement efforts, according to a new report from global risk consulting company Kroll.
The latest edition of the Kroll Global Fraud Report highlights expanded efforts by the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) to increase compliance with the FCPA. The crackdown poses a particularly large threat to Chinese companies because of the high level of government ties within the Chinese business community, and the fact that many activities prohibited under the FCPA have historically been common practice in China.
“Chinese companies listed in the U.S. and indeed those with aspirations to list there, should be taking these anti-corruption measures very seriously,” said Tadashi Kageyama, senior managing director and the head of investigations for Asia at Kroll. “Prosecutors and regulators are now more aggressive in all phases of their activities, from investigations to prosecutions and sentencing, including a startling increase in fines, penalties and disgorgement.”
Under the FCPA, it is illegal for a person acting on behalf of a domestic or foreign company listed on a U.S. stock exchange to give anything of value to any foreign government official in order to obtain or retain business or to secure improper business advantage. Kageyama anticipates an increase in enquiries from Chinese companies with U.S. ties or ambitions, who want to learn more about the FCPA, particularly with regard to conducting the required risk analysis of their operations and advice in handling a potential violation. He said it was important for Chinese companies to understand that not only do they need to ensure that their own operations are “clean” but also that their agents, business facilitators and partners globally are FCPA compliant.
Kroll’s latest Global Fraud Report looks specifically at developments regarding the heightened enforcement of the FCPA, as well as anti-corruption measures being undertaken by other markets throughout the world, including anti-bribery measures in Germany and the United Kingdom. Other topics featured in the report include:
- Intellectual property fraud implications of the new China-ASEAN Free Trade Agreement
- Benefits of Directors’ and Officers’ (D&O) liability insurance
- The relationship between public and private sector fraud
- Bankruptcy fraud in the United States
- Product alteration in agribusiness