Thinking about doing business in China? You’ll need to know about the FCPA. The Foreign Corrupt Practices Act (FCPA) is a US law that bans bribery and requires honest records, even when you’re working in China. 

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FCPA compliance for US companies operating in China helps you avoid big fines, criminal charges, and business risks. This guide explains what you need to know to stay safe and successful. 

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Read on to protect your company and learn more about FCPA compliance in China.

What Is FCPA Compliance for US Companies Operating in China?

The FCPA is a US law that makes it illegal for companies or their employees to bribe foreign government officials to get or keep business. 

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It also requires companies to keep accurate books and records and have internal controls to prevent bribery.

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For US companies in China, FCPA compliance means:

• Not offering, promising, or giving anything of value (like money, gifts, or entertainment) to Chinese officials to influence their decisions.
• Making sure your company’s records are accurate and reflect all transactions honestly.
• Setting up systems and procedures to prevent and detect bribery and corruption.

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The FCPA applies not just to direct actions, but also to indirect ones like using third parties, agents, or consultants to make payments on your behalf.

How the FCPA Applies to US Companies in China

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If your company is American, or even just listed on a US stock exchange, you must follow the FCPA in China. 

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The law covers all US citizens, companies, and even some foreign firms with US ties. This means your employees, contractors, and business partners in China can get you in trouble if they break the rules.

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A violation can happen if someone from your company, or someone acting for you, gives a bribe to any Chinese government official. In China, this can include not just politicians, but also employees at state-owned companies, which are very common.

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There have been many real FCPA cases in China. US companies have paid millions in fines for things like improper gifts, hiring relatives of officials, or making payments to win contracts. 

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The US government takes these cases seriously even if the bribe happened far from American soil.

Unique FCPA Compliance Challenges When Doing Business in China

China’s business culture is built on relationships, or “guanxi.” Gift-giving, banquets, and personal favors are part of how deals get done. But what’s normal in China can be illegal under the FCPA.

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Some of the biggest FCPA compliance risks in China include:

• Gifts and entertainment: Even small gifts or meals can be considered bribes if they’re meant to influence an official.
• Third-party agents: Many companies use local consultants or partners. If they pay a bribe on your behalf, you’re still responsible.
• State-owned enterprises: Many Chinese companies are owned or controlled by the government. Their employees count as “foreign officials” under the FCPA.
• Facilitation payments: “Grease payments” to speed up routine actions are not allowed under Chinese law and are risky under the FCPA.

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Doing business in China means you need to know where these lines are and never cross them.

Essential Steps for FCPA Compliance for US Companies Operating in China

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A strong compliance program is your best defense. Here’s what you should do:

1. Write Clear Policies

Create a code of conduct that spells out your anti-bribery rules. Make it clear that bribery, even through gifts or entertainment, is not allowed.

2. Do Due Diligence

Check out your partners, agents, and suppliers before you work with them. Are they trustworthy? Do they have a history of corruption? Look into their background, ownership, and reputation.

3. Set Up Internal Controls

Make sure all payments, gifts, and expenses are tracked and approved. Use approval limits and require receipts for all spending.

4. Keep Good Records

Every transaction should be clear and honest in your books. No fake invoices or hidden payments.

5. Regularly Review and Update

Check your compliance program often. Update it as laws or business practices change.

6. Get Legal Help When Needed

If you’re not sure what’s allowed, ask a legal expert. FCPA violations are serious and can be complicated.

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Also read: Common Legal Issues Foreign Businesses Face in China

Training and Awareness: Educating Your China Team on FCPA Compliance

Your team in China needs to understand the FCPA and know what’s at stake. Training is key.

• Train Everyone: All employees, managers, and key partners should get FCPA training. Use real-life examples from China.
• Spot Red Flags: Teach your team how to recognize risky situations like requests for cash payments, unusual invoices, or demands for gifts.
• Encourage Reporting: Set up a safe way for employees to report concerns. Make sure they know they won’t be punished for speaking up.
• Build a Compliance Culture: Reward honest behavior and make it clear that following the law is more important than closing a deal.

Monitoring, Auditing, and Internal Controls for FCPA Compliance in China

You can’t just set up rules and forget about them. Ongoing monitoring is a must.

• Do Regular Audits: Check your China operations for compliance with the FCPA. Look for unusual payments, missing receipts, or suspicious transactions.
• Review Gifts and Entertainment: Track all gifts, meals, and travel offered to officials or business partners. Set limits and require approvals.
• Test Your Controls: Make sure your systems are working. Try “spot checks” or surprise audits.
• Act on Findings: If you find something wrong, fix it fast. Take action to prevent future problems.

What to Do If You Suspect an FCPA Violation in China

If you think someone in your company may have broken the FCPA, act quickly.

• Report Internally: Follow your company’s reporting procedures. Tell your compliance officer or legal team.
• Investigate: Do a fair and thorough investigation. Gather evidence, interview people, and document everything.
• Cooperate with Authorities: If needed, work with US and Chinese regulators. Being open and honest can help your case.
• Take Corrective Action: Fire or discipline those involved, fix your controls, and retrain your team.
• Learn from Mistakes: Use the incident to improve your compliance program.

Lessons from Recent FCPA Cases Involving US Companies in China

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Recent FCPA enforcement actions in China offer important lessons:

• Hiring Practices: Some companies got in trouble for hiring family members of officials to win business. Always check who you’re hiring and why.
• Gifts and Travel: Lavish gifts, trips, or entertainment for officials have led to big fines. Even if it’s “normal” in China, it can be illegal under US law.
• Third-Party Agents: Many cases involve local agents or consultants making improper payments. Always do due diligence and monitor their actions.

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The biggest mistakes? Not training staff, ignoring red flags, and failing to keep good records. Learn from these cases so your company doesn’t become the next headline.

Navigating Differences Between US FCPA and Chinese Anti-Corruption Laws

The FCPA is not the only anti-bribery law you need to worry about. China has its own strict rules against bribery and corruption.

• Chinese Law: Bribery of officials, commercial bribery, and even small “facilitation payments” are illegal in China. Penalties can include jail time and heavy fines.
• Who’s an Official?: In China, many business partners are state-owned. Their employees count as “officials” under both Chinese law and the FCPA.
• Double Compliance: You must follow both US and Chinese laws. Sometimes, what’s allowed under one law is banned under the other. When in doubt, follow the stricter rule.

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Also read: Types of Companies in China

Conclusion

FCPA compliance for US companies operating in China is essential for avoiding legal trouble and building trust. With the right policies and training, your business can thrive while staying on the right side of the law. 

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For tailored legal advice and support on FCPA compliance and other legal issues, contact Choi & Partners. Stay informed, stay compliant, and succeed in China’s dynamic market.

Frequently Asked Questions

Who is considered a "foreign official" in China?

A foreign official in China includes anyone working for the government, state-owned companies, or international organizations. In China, many companies are partly or fully owned by the government, so their employees may count as officials under the FCPA.

Does FCPA apply to non U.S. companies?

The FCPA can apply to non-US companies if they are listed on US stock exchanges or if they act in a way that involves US territory, like using US banks or emails. Non-US companies with close US ties should pay attention to FCPA rules.

Can a U.S. company own a company in China?

Yes, US companies can own businesses in China, but there are restrictions in some industries. Ownership can take the form of joint ventures, wholly foreign-owned enterprises, or partnerships, depending on the sector. 

Who is not covered by FCPA?

Private individuals and companies with no US ties are not covered by the FCPA. However, if you are a US citizen, company, or listed on a US exchange, you must follow the law even outside the US.

What is the extraterritorial reach of the FCPA?

The FCPA has broad reach. It applies to US companies and citizens anywhere in the world, and even some foreign companies if they have US connections or use US systems in their business.

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