Bribed in the PRC. Prosecuted in the USA.

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Bribery”, “corruption” and “fraud” in China all are regular features of the business headlines. But readers (at least many of them) often assume that they are “Chinese” problems. Often they are, but it is not a safe assumption. In recent months I have come across three cases of employee fraud at foreign companies operating in China. The foreign fraudsters (in each case, interestingly, from the home country of the foreign firm) lead the Chinese 2 to 1. These cases have been kept out of the papers but others, such as the one reported below, act as useful reminders of the risks that business face when managing employees in foreign lands.

In the global economy, international transactions have international implications – for individuals as well as corporations. A case in point has recently been provided by a former senior executive (Si Chan Wooh) of Schnitzer Steel industries International (a US company), who has been prosecuted under the Foreign Corrupt Practices Act (FCPA) by the US Securities and Exchange Commission, and by the US Department of Justice, for paying almost US$200,000 in bribes, and for failing to keep accurate records. Caijing Magazine reports:

    “According to the Commission’s complaint, Wooh had given the cash bribes and gifts from 1999 to 2004 to managers of Chinese state-owned steel companies so they would purchase Schnitzer’s scrap metal. The illicit payments (“standard” kickbacks and “overpayments” that were later claimed back by the buyer) earned Schnitzer US$ 96 million in revenue and over US$ 6.2 million in net profit.

    The steel company executive was found guilty for violating the FCPA because it prohibits a U.S. citizen to pay foreign officials in order to obtain business with that person. The managers of the steel companies that Wooh had bribed were considered “foreign officials” as under FCPA because all the companies were either partly or wholly state-owned.”

Although the prosecution seems to rest on the fact that the payments were made to “officials” in state-owned (or just state-invested) companies (and that Wooh destroyed documents, thereby failing to keep the required records), it seems that US$1.7 million in payments made to private companies in China and South Korea were also taken into account, and that this could point to a more aggressive approach to the issue in the future – an issue that I flagged in a post in January.

Schnitzer is reported to have already paid US$15.2 million in fines – a strong signal to companies, and executives, that crime does not pay…especially when zealous US regulators are combined with all the political and commercial sensitivities that surround US policy on China these days. And, of course, when you just break the law!

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2 Responses to “Bribed in the PRC. Prosecuted in the USA.”

  1. Archive » Happy Chinese New Year!| China Business Blog Says:

    […] with care – especially where the Foreign Corrupt Practices Act (“FCPA” – which we noted back in 2007) is […]

  2. Archive » Briefly…Top Ten Tweets (From RMB Manipulation, Protectionism & Princelings, To ODI, FCPA & Autos)| China Business Blog Says:

    […] We have commented on FCPA impact before, and this case serves as a reminder to companies that bribery is a) illegal in China (see the Rio […]

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