- China - Foreign Corrupt Practices Act Compliance: Two Recent Cases Highlight Importance of FCPA Compliance in China
- June 30, 2008 | Authors: Edward J. Epstein; DeWitt R. Rogers
- Law Firms: Troutman Sanders LLP - Shanghai Office; Troutman Sanders LLP - Atlanta Office
China continues to be high on the FCPA radar screen of the US Department of Justice (“DOJ”). In early June 2008, the DOJ announced that two alleged FCPA violators, Faro Technologies Inc. (“Faro”) and AGA Medical Corporation (“AGA”), reached agreements with the DOJ in connection with their payments to Chinese officials.
Faro is a specialized computerized measurement devices and software supplier, based in Lake Mary, Fla. According to the DOJ statement of facts, Faro began sales of its products in China in 2003 through its Shanghai subsidiary. To gain business in China, Faro employees made payments to employees of Chinese state-owned or controlled entities during 2004 and 2005. At least $238,000 in payments was falsely recorded in Faro’s accounts as “referral fees”. It is also alleged in the statement of facts that in 2005 the payments were made by Faro through an intermediary under a bogus service contract.
As a result of the settlement with DOJ, Faro agreed to pay $1.1 million as a criminal penalty to the DOJ and to cooperate with DOJ’s investigation and implement enhanced policies and controls to ensure future FCPA compliance.
In a separate case, AGA entered into a deferred prosecution agreement with the DOJ regarding its unlawful payment practice in China. AGA is a manufacturer of congenital heart defect treatment products. It sells its products to hospitals in China through its distributors. Between 1997 and 2005, a high-ranking officer of AGA authorized corrupt payments to doctors of government-owned hospitals for selling AGA’s products to the hospitals. The payments were made through local Chinese distributors of AGA. AGA, through the local distributors, also agreed to make payment to officials of the China State IP Office to ensure the approval of its patent applications.
Under the deferred prosecution agreement, AGA agreed to pay a $2 million criminal penalty, fully cooperate with the DOJ and engage an independent monitor as to be accepted by the DOJ.
Both the Faro and AGA agreements with the DOJ were made in recognition of the violators’ voluntary disclosure, thorough review of the improper payments and cooperation with the DOJ in investigation.
Since Lucent agreed to pay a $1 million penalty to the DOJ in 2007 for improper finance practices in China, the DOJ has continued its scrutiny of suspicious payment activities of US corporations in China and its efforts in bringing about FCPA compliance in the US-China business world.
The above two cases emphasize the importance of establishing and maintaining a comprehensive compliance system for business operation in China that is compliant with both local laws and the FCPA.
These cases also highlight the need for heightened awareness of FCPA compliance in acquiring new business operations in China.