Firms face 'blockbuster' fines in US over bribery cases in China

PUBLISHED : Monday, 10 February, 2014, 4:31am
UPDATED : Wednesday, 12 February, 2014, 4:59pm

The United States is expected to impose "blockbuster" fines on companies bribing foreign officials this year, with China a likely target of US investigations, lawyers say.

A report by US law firm WilmerHale predicts "blockbuster" settlements under the Foreign Corrupt Practices Act (FCPA).

"US enforcement authorities have stated there are a number of very large settlements in the pipeline," said Jay Holtmeier, a partner at WilmerHale. "Given the attention paid to China in recent years, it is a safe bet some of those large settlements will involve conduct in China."

Holtmeier said fines under the FCPA for individual cases could run into hundreds of millions of dollars. The largest settlement was the US$800 million fine of Siemens of Germany in 2008.

Given the large amount of foreign investment in China, the high level of enforcement attention by US and Chinese authorities, as well as confidential cases seen by WilmerHale, there would be a number of FCPA cases involving China in the near future, Holtmeier said.

The report said there were a number of FCPA investigations involving China that had not yet been publicly disclosed.

John Tan, a Shanghai-based partner at US law firm Reed Smith, said he had seen a "marked increase in anti-corruption enforcement by Chinese authorities across multiple industries".

"It would not be surprising to see US or UK regulators leveraging this trend to bring more China-based enforcement actions," he said.

The intensity of US investigations in China under the FCPA would increase this year, said Wang Bing, a Beijing-based partner at Faegre Baker Daniels, another US law firm.

Wang cited the US Securities and Exchange Commission's recent barring of the mainland affiliates of the Big Four accounting firms from auditing US-listed Chinese firms for six months.

"If US authorities are suspicious of the auditors, they will be suspicious of Chinese firms listed in the US," Wang said.

The SEC ban was a signal the regulator suspected the financial reports of some US-listed Chinese firms were not reliable, he said. "If reports are false, they may be symptoms of corruption," he said.

Last year, the SEC charged Li Aichun, a former chief financial officer of Keyuan Petrochemicals, a Chinese-based firm listed in the US, with violating US securities laws by knowingly failing to keep proper accounts.

From 2008 to 2011, Keyuan maintained an off-balance sheet account to fund bribes for mainland officials, the SEC said.

The company agreed to pay US$1 million, and Li agreed to pay US$25,000.

In October, the WilmerHale report said, US cosmetics firm Avon Products announced that it was asked to pay a fine based largely on its conduct in China that was "significantly greater" than its US$12 million settlement offer to the US authorities.

Also last year, the US Department of Justice indicted Alan Riedo, a former executive of Maxwell Technologies, a Nasdaq-listed energy storage and power delivery company, for his involvement in the payment of bribes to mainland officials, the report said.

In 2011 and 2012, the department and the SEC conducted industrywide investigative sweeps of various industries, it said.