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Two 'Guanxi' Bribery Cases Get Off Easy With No U.S. Charges

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By Jonathan R. Tung, Esq. on June 14, 2016 4:09 PM

The SEC has agreed to enter into non-prosecution agreements with two companies in unrelated corruption cases involving unauthorized and illicit handover of gifts to Chinese officials in order to increase business.

These cases highlight important cultural differences between businesses in the US and in China. Where Westerners may find corruption, Chinese businesses may simply find a case of guanxi.

Doing Business in China: Favors Help

In both cases, companies Akamai Technologies and Nortek arranged large payments of money ($40,000 and $290,000, respectively) as well as the illicit giving of meals, travel, hotel-rooms, and gift cards in order to induce individual members of the Chinese Communist Party to dole out favors, hand out preferential treatment, reduce fees, and relax oversight.

Although this sort of "business practice" is still common in China, it's very much against company best practices and guidelines, and it's also illegal under the Foreign Corrupt Practices Act. But the companies quickly self-reported to the SEC once investigations were initiated.

Turn Yourself In?

Does this mean that companies who self-report can expect leniency if not clemency from the SEC?

If it were only that easy. George Kostolampros at Venable, an expert at SEC litigation, was only able to offer this advice: there is no such thing as certainty with the SEC. He opined that rather than providing certainty that a company might catch a deal with the SEC when it self-reported, these deals only highlight the uncertainty of the costs of doing business internationally with a hand in the corruption pot.

Over the years, as companies seek to tap into China's market, a number of vexing patterns have been revealing themselves when it comes to doing business with China.

"Over the past five years, the greatest number of FCPA enforcement actions from any one country has been China," the SEC said in a statement."Fully 20 percent of all FCPA enforcement actions over the past 5 years originated in China."

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