Welcome to the Club
Initial Public Offerings (IPO’s) were back in the news this week. Leading the way was Shanda Games Ltd. By raising $1.04 billion, Shanda’s IPO was the largest since April 2008.
Shanda is a Beijing, China based online computer game company and its listing is the latest example of a foreign issuer (frequently a Chinese company) electing to trade its shares (or a portion of its shares) on a U.S. Exchange.
By becoming an “issuer” Shanda becomes subject to the FCPA.
Presumably, Shanda had experienced securities counsel advising it on its listing and the consequences that flow from such a listing. If not, and if you are listening, welcome to the club Shanda.
Your potential FCPA exposure is not just limited to the books and records and internal control provisions. The FCPA’s anti-bribery provisions also apply to you.
Don’t take my word for it, listen to the Department of Justice.
In 2006, the Department of Justice announced an FCPA enforcement action against Statoil ASA, a Norwegian company, for making improper payments to Iranian foreign officials – the first time DOJ brought criminal FCPA charges against a non-U.S. company. (See here for the deferred prosecution agreement).
The U.S. prosecuting a Norwegian company for making improper payments to Iranian foreign officials … how did that happen?
Statoil had shares traded on a U.S. exchange and was thus an “issuer” subject to the FCPA.
In announcing the settlement, the DOJ had this to say – “Although Statoil is a foreign issuer, the Foreign Corrupt Practices Act applies to foreign and domestic public companies alike, where the company’s stock trades on American exchanges” (see here).
And this – “This prosecution demonstrates the Justice Department’s commitment vigorously to enforce the FCPA against all international businesses whose conduct falls within its scope.”
The Statoil FCPA enforcement action is certainly not the only FCPA enforcement action against a foreign issuer. In fact, the largest FCPA enforcement action ever was settled in December 2008 involving Siemens AG, a German company (see here and here).
Despite these, and other, enforcement actions, there is still a common misperception that the FCPA is “the law that applies to only U.S. companies.”
With the IPO market showing signs of life again, with foreign companies (like Shanda) increasingly turning to U.S. capital markets, and with many of these companies doing business in FCPA high-risk countries, the number of FCPA enforcement actions against foreign issuers is likely to increase.
If H.R. 2152 Were to Be Enacted …
There is little in terms of substantive FCPA case law. Yet this much is clear – there is no private right of action under the FCPA – enforcement of the law is in the hands of the DOJ and the SEC (as to issuers).
However, Representative Ed Perlmutter (D-CO) would like to change that (at least a bit). In April, 2009, Perlumutter introduced H.R. 2152 – the Foreign Business Bribery Prohibition Act of 2009 (see here).
Big picture, under the proposed law, any “foreign concern” (defined to mean any person other than an issuer, domestic concern or U.S. person) that violates the FCPA’s anti-bribery provisions would be liable to any issuer, domestic concern or U.S. person for damages caused by the FCPA violation. Under the proposed law, a plaintiff would need to prove that: (i) the “foreign concern” violated the FCPA’s anti-bribery provisions; and (ii) the violation prevented the plaintiff from obtaining or retaining business and assisted the foreign concern in obtaining or retaining business.
In other words, if a U.S. company can prove that it lost business because a “foreign concern” gained that same business by violating the FCPA, the U.S. company could bring a lawsuit seeking damages. Under the proposed law, the damages would be the higher of the total amount of the contract or agreement that the “foreign concern” gained in obtaining or retaining the business or the total amount of the contract or agreement that the plaintiff failed to gain. To sweeten the pot, the proposed law requires treble damages along with attorneys fees and costs.
Certainly, lots to think about here.
But alas, with two foreign wars, government bailouts and debates about financial regulation, and now, the health care debate, H.R. 2152 remains buried in Congress. The last reported activity is from June 12, 2009 when the bill was reported to the House Subcommittee on Crime, Terrorism, and Homeland Security.
It’s been a few months since I thought about H.R. 2152.
But I was reminded of the law and its potential application last night while reading an interesting front-page article in the New York Times titled “China Spreads Aid in Africa, With a Catch for Recipients” (see here).
The article talks about business activity by Chinese companies around the globe, and how, according to quoted sources, Chinese companies may be securing contracts through improper payments, kickbacks and the like.
A good portion of the article is about Nuctech Company Ltd. (a Beijing-based scanner company) and its questionable activity in Namibia. The article quotes the Vice President of Nuctech’s “American rival, Rapiscan Systems.”
I trust you are now thinking about the potential application of H.R. 2152 as well?
Let’s go through the elements – “foreign concern” check, potential violation of the FCPA check, a domestic concern damaged by the “foreign concern’s” violation check.
Before FCPA lawyers start dusting off their copy of the rules of civil procedure and daydreaming about H.R. 2152’s promise of treble damages and attorney fees, H.R. 2152 needs to at least get “out of committee.”
In any event, for those in favor of H.R. 2152, the article would seem to present a poster-child of sorts.
Understanding China FCPA Risk
Many thanks to Dan Harris over at China Law Blog for inviting “me over” to share my thoughts on China FCPA risk. My post can be found here.
Understanding China FCPA Risk
Many thanks to Dan Harris over at China Law Blog for inviting “me over” to share my thoughts on China FCPA risk. My post can be found here.
Corruption in China
Consider the feature story in today’s NY Times Business Section titled “The Corruptibles” (in the print edition) (see here) for your long-weekend reading pile.
Among other interesting points, writer David Barboza notes that the “Chinese government has more than 1,200 laws, rules and directives against corruption” and that even with selective enforcement of these laws about “150,000 officials [are] being punished every year for bribery, corruption and other offenses.”
The cost of such conduct? According to a cited report, approximately 3% of China’s gross domestic product.
Query whether employees of state-owned or state controlled companies are considered government / public officials under any of these various laws, rules or directives applicable to such office holders (as opposed to say commercial bribery laws). If anyone has insight into this issue, please do share.