Increasingly, corporate counsel struggle to guide their companies in balancing compliance with the U.S. Foreign Corrupt Practices Act (FCPA) and business development in China. In China, gift-giving is a common business practice, and it is often difficult to identify who must be considered a “foreign official” under the FCPA. U.S. companies wishing to operate in the Chinese marketplace must design and implement an effective FCPA compliance program addressing the provision of gifts and other hospitality customs. This article offers practical advice regarding the design and implementation of an FCPA compliance program that balances the risks of gift-giving and the importance of staying competitive in China.
Gift-Giving in Chinese Business Culture
Gift-giving is a traditional introductory component of business transactions in China. The provision of gifts is often a prerequisite to even preliminary discussions with prospective Chinese business partners. In the Chinese model, gift-giving is important because the personal relationship is the foundation upon which business opportunity is built.
Chinese gift-giving dates back centuries and annually reaches a high point around the Chinese New Year, when “red envelopes” stuffed with cash are exchanged between business associates. The pressure to provide more cash and lavish gifts has been exacerbated by China’s transition to capitalism. More and more, Communist Party leaders and employees of government-owned entities are tempted to use their positions to share in China’s booming economy. In turn, prospective business partners are willing to provide expensive gifts with the expectation of a valuable business reward. The result is a high-risk corruption environment. Indeed, China ranked 78 out of 178 countries on Transparency International’s 2010 Corruption Perception Index, behind Brazil, Ghana, and El Salvador.
