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U.S. Law Firms Face China Bribery Probe

At least two unidentified American law firms with offices in Beijing and Hong Kong have been mentioned in connection with an anti--corruption sweep in China. The current investigation is apparently linked to Avon Product's Foreign Corrupt Practices Act disclosure two weeks ago. The direct seller of beauty products reported it had launched an internal review into possible violations of the FCPA that involve "travel, entertainment and other expenses" paid to Chinese officials.

The Wall Street Journal and Reuters are now reporting the detention of at least two senior officials from China's Ministry of Commerce who oversaw the licensing of foreign companies. Guo Jingyi and Deng Zhan were picked up recently, along with one or two lawyers from Seafront, a Chinese law firm said to have close ties to Ministry of Commerce officials. One of the detained lawyers is Seafront's Zhang Yudong, a prominent Beijing-based attorney who helps foreign companies obtain business and investment licenses in China.

Reuters also says Chinese investigators are "reviewing foreign investment cases involving at least two U.S. law firms with offices in Hong Kong and Beijing, part of a growing corruption probe, the sources said, declining to name the firms."

This is the first time we've heard of Chinese anti-corruption investigators looking closely at local and foreign lawyers. Any American law firms named by Chinese law enforcement agencies may risk criminal prosecution at home under the Foreign Corrupt Practices Act. The law bans corrupt payments directly or indirectly to foreign officials to obtain or retain business, including payments to secure business and investment licenses. No major American law firms have been named in FCPA enforcement actions or publicly disclosed investigations since the law came into effect in 1977.

Although every U.S. law firm is required to comply with the Foreign Corrupt Practices Act, not all firms have been diligent about their own compliance efforts, and that puts them at risk. In FCPA training sessions we've conducted for U.S. law firms, we've noticed that most American lawyers working overseas are familiar with the FCPA and can usually spot potential problems. In contrast, foreign lawyers practicing with American firms overseas sometimes know little or nothing about the FCPA (and may be reluctant to ask for help in understanding it). Yet those same lawyers are frequently called upon to help clients secure business and investment licenses in high-risk countries such as China. The work requires daily contacts with regulators, either directly or through intermediaries, and many of the regulators openly expect illegal gifts and payments.

American law firms helping clients overseas -- either from offices in foreign countries or in the United States -- should have FCPA compliance programs in place. The programs need to include large doses of regular FCPA education and training for all lawyers, and for staff in sensitive positions.

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This weekend, with Tuesday in mind, we watched the 1933 film, Gabriel Over the White House. The film's concrete predictions about the uses and abuses of executive power make it one of the most interesting American political movies ever made. After 75 years, it's still amazingly relevant. This clip with Gene Healy from the Cato Institute talking about Gabriel will give you the idea:

Good luck to everyone hoping to cast a ballot on Tuesday.

We'll be back on the other side of the election.

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Full post as published by The FCPA Blog on November 02, 2008 (boomark / email).