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A Focus On Chinese Guanxi

The sentencing memos in the Garth Peterson enforcement action provide an interesting back-and-forth between Peterson and the DOJ concerning the issue of cultural context, specifically the concept of Chinese guanxi.

Peterson’s sentencing memo (here [1]) contains a specific section titled “Cultural Context” and stated as follows (redactions in the original).

“Peterson committed an FCPA offense without stepping foot in the United States while working for a Chinese subsidiary of a United States company.  Peterson’s tenuous connection with the United States, despite being a U.S. citizen, makes this case very unusual and makes Chinese cultural considerations relevant.  Peterson admitted at his plea hearing that he helped the Chinese Official to invest personally in a Morgan Stanley investment at a beneficial price and that by misleading Morgan Stanley about this fact with another person, he conspired to violate the FCPA.  The Chinese Official was a close friend of Peterson’s – in many ways a father figure to him – and Peterson helped him in order to repay the help that the Chinese Official had given him through his career.  This type of favor is called ‘guanxi’ in China, a term that describes the exchange of gifts or favors in a professional setting.  Guanxi is the traditional way that business relationships are developed in China.  [Citations Omitted].  Peterson has spent much of his life living in Asia.  He learned Asian cultural traditions, and they are as familiar, if not more familiar to him, than United States cultural traditions.  His childhood friend […] wrote about Peterson’s ‘inexperience with the United States’ and his lack of familiarity with U.S. ‘culture, expectations, and walks of U.S. life.’  […] wrote that Peterson ‘seemed to fit in better on the other side of the Pacific’ and ‘thinks more like an Asian than an American.’  As part of Peterson’s Asian cultural understanding, he learned the Chinese business culture of gift giving, or guanxi.”  […]  We ask the Court to consider … the cultural context of Peterson’s crime when sentencing him.”

The DOJ responded (here [2]) as follows.

“Peterson’s assertion that he gave Chinese Official 1 a $3 million-plus interest in Tower Two [the investment at issue in the enforcement action] as an expression of ‘guanxi’ is also demonstrably false. Peterson says that ‘guanxi’ is ‘a term that describes the exchange of gifts or favors in a professional setting.’  The source upon which Peterson relies, […] describes the parameters of guanxi, which typically involves small tokens: the ‘exchange of gifts, favors, and banquets.’ Here, Peterson stole a $7 million piece of a building and gave a Chinese public official a piece worth more than $3 million. The grant of an ill-gotten, multimillion dollar interest in an apartment building is hardly the type of item one typically exchanges in Chinese culture. Any suggestion to the contrary borders on the offensive. […] Even if Peterson’s […] ‘guanxi’ arguments were based upon a true factual recitation – which they are not – they are legally irrelevant.  […] Corrupting a Chinese official in the course of stealing an interest in a building cannot be dismissed as a symptom of Peterson’s affinity for China or its culture.  If anything, his actions demonstrate quite the opposite.”

In reply (here [3]), Peterson stated as follows.

“The Government argues that Peterson’s inclusion of the Chinese Official was not an expression of ‘guanxi’ because the value of the Chinese Official’s interest was too great to fit within the technical definition of ‘guanxi.’  Whether the term ‘guanxi’ applies misses the point.  Peterson seeks to provide the Court with the full context for his actions, including the cultural and relationship-based motivations for his offense.  Peterson acknowledges that the Chinese culture and Peterson’s own desire to build his relationship with the Chinese Official do not justify his offense.  Cultural context and motivates, however, can be relevant t a defendant’s character for sentencing purposes, and Peterson asks the Court to consider those factors here.”

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The DOJ argues that cultural context is legally irrelevant in FCPA enforcement actions.  However, cultural considerations may be one reason for the frequency in which judges sentence below DOJ sentencing recommendations in FCPA cases.  For instance, as noted in this [4] prior post, in sentencing Ousama Naaman, Judge Ellen Huvelle’s (D.D.C.) stated that she has “traveled a lot in this world, and it is very complicated to say that our morality is necessarily that of other peoples.”  She considered the context of Naaman’s conduct (which occurred in Iraq) and refused to make Naaman “the poster” child that the DOJ wanted.

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See here [5] for a recent article in Newsweek regarding guanxi and the Foreign Corrupt Practices Act scrutiny of Las Vegas Sands.