China’s Blocking Statute Creates New Challenges for Multinational Companies
A guest post today from Ropes & Gray attorneys Ryan Rohlfsen, David Zhang and Karen Oddo.
Introduction
The People’s Republic of China (“PRC”) recently enacted the International Criminal Judicial Assistance Law (“ICJAL”). The ICJAL effectively serves as a blocking statute that requires approval by PRC governmental authorities before any institution, organization or individual within the territory of the PRC can provide evidence, materials or assistance to any foreign countries’ criminal proceedings.
Friday Roundup
About time, scrutiny updates, ripple, for the record, just saying, and for the reading and listening stack. It’s all here in the Friday roundup.
About Time
After dinging companies for nearly 40 years for internal controls and risk management failures, the SEC names its first chief risk officer.
As highlighted in this prior post, if the SEC were an issuer there would be many books and records and internal controls issues within the organization.
FCPA Flash Podcast – A Conversation With Philip Urofsky Regarding 2018 FCPA Trends And Developments
The FCPA Flash podcast provides in an audio format the same fresh, candid, and informed commentary about the Foreign Corrupt Practices Act and related topics as readers have come to expect from written posts on FCPA Professor.
This FCPA Flash episode is a conversation with Philip Urofsky (Shearman & Sterling and a former FCPA enforcement official at the DOJ). During the podcast, Urofsky elaborates on various issues such as jurisdiction over foreign actors and parent-subsidiary issues found in the firm’s always informative FCPA Digest. Urofsky also opines on what the FCPA enforcement landscape might look like if business organizations would put the government to its burden of proof in enforcement actions.
Polycom Resolves A $36.6 Million Enforcement Action – SEC Believes That The FCPA Is A Strict Liability Statute And Just What Viable Criminal Charges Did The DOJ Decline?
Earlier this week, Polycom (up until 2016 an issuer which was then acquired by a private equity firm and is now a wholly-owned subsidiary of Plantronics) resolved a $36.6 million Foreign Corrupt Practices Act enforcement action ($16.3 million pursuant to an SEC administrative order and $20.3 million pursuant to a so-called DOJ declination with disgorgement letter).
The conduct at issue concerned a Chinese subsidiary which created “a separate, parallel sales management system outside of Polycom’s company-approved systems, which was orchestrated by Polycom’s Vice President of China” and whose employees used “non-Polycom e-mail addresses when discussing deals with Polycom’s distributor.” According to the SEC, “Polycom personnel outside China were unaware of the existence of this parallel system.”
Yet, in another example of the SEC believing that the FCPA is a strict liability statute, the SEC found that Polycom violated the FCPA’s books and records and internal controls provisions. Moreover, without highlighting any additional substantive information the DOJ “declined prosecution … despite the bribery committed by employees of the Company’s subsidiaries in China, and these subsidiaries’ knowing and willful causing of false books and records at Polycom.” However, based on the information in the public domain (that is the SEC’s order) it remains an open question just what viable criminal charges the DOJ actually declined.
Identifying Chinese Companies For FCPA Violations Conflicts With The OECD Convention
Perhaps it is neither here nor there 40 years later, but the FCPA’s legislative history is clear that Congress enacted the Foreign Corrupt Practices Act motivated primarily by selfish foreign policy reasons, not altruistic do-good reasons. (See here for the article “The Story of the FCPA”).
I was reminded of this when reading this recent DOJ press release announcing its China Initiative. Among the ten specifically identified components of the initiative is the following: “identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses.”