Avoiding The Pitfalls of "Hidden Rules" Chinese Graft Law and The FCPA

On July 28, 2009, the U.S. Securities and Exchange Commission ("SEC") announced its settlement of civil and administrative charges brought pursuant to the Foreign Corrupt Practice Act (FCPA)1 againt Avery Dennison Corporation ("Avery"), a multinational corporation that specializes in the manufacture and sale of self-adhesive materials and office equipment.2 From 2002 through 2005, both Avery and its local subsidiaries had engaged in a number of illegal transactions in China, Indonesia and Pakistan.3 These transgressions included bribing government officials, paying kickbacks to the executives of its corporate customers and hosting "sighseeing trips" for local bureaucrats.4 In one such instance, Avery executives in China agreed to pay a kickback to the project manager of a state-owned end customer. In order to concela this illegal payment, the sales manager requested that a local distributor fill all order forms, and subsequently refund the agreed-upon kickback from the distributor's expected profit. The corrupt transaction was disguised as a sale to the distributor, rather than the state-owned end user.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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