For a company planning entrance into the Mainland China market, exploring and assessing corruption concerns may be at the bottom of a long priority list, particularly during the accelerated moments around a transaction. It may be tempting to assume that, whatever the problems at a local People's Republic of China ("PRC") entity, they can be fixed once the entity is integrated into the corporate structure as a subsidiary, or once the reins are handed over to managers of a joint venture armed with compliance training materials. But corrupt acts by the target or venture, including violations of the U.S. Foreign Corrupt Practices Act ("FCPA"), can and will become the foreign corporation's problem if it fails to conduct adequate pre-transaction due diligence and follow through on whatever it finds.
In this article, Ms. Randell and James Parkinson address how a company entering the Mainland China market can asses and manage corruption risks during the run-up to closing, and early in the post-close period. We first sketch out the basic contours of the FCPA. They describe recent FCPA enforcement actions involving foreign company's actions in China, directly or through subsidiaries, and describe several relevant trends that can be seen in on-the-ground business practices at entities operating in China. Finally, the authors explore a number of areas that should be on the radar screen for foreign companies entering the PRC through an existing entity or the formation of a new venture, and describe a U.S. issuer's obligations with regard to the internal controls and compliance structure at a foreign subsidiary or venture.
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