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DOJ’s Spotlight on China May Shed Light on More than Intended

2018 has seen the United States and China trade a number of blows before a preliminary accord was reached between Presidents Donald Trump and Xi Jinping earlier this week. But time will tell if a ceasefire in the trade war will cool the heat that the U.S. government has committed to place on Chinese companies that use unfair trade practices to compete with U.S. companies — and what collateral consequences may follow for U.S. companies doing business in China.

Just one month ago, then-Attorney General Jeff Sessions announced a “China Initiative,” under which a newly-formed Department of Justice (“DOJ”) task force plans to prioritize prosecution of Chinese companies and individuals who threaten U.S. prosperity through the theft of intellectual property. The Initiative follows President Xi Jinping’s own announcement of the “Made in China 2025” plan earlier this year — a ten-year action plan to bolster manufacturing with a focus on high-tech industries, including information technology, robotics, aerospace, transportation and bio-tech. Mr. Sessions’ prepared remarks about the new initiative indicate how the current administration believes China may fuel that effort, highlighting instances of trade secret theft, hacking, and economic espionage against U.S. companies and research labs, and characterizing them as “deliberate, systematic, and calculated threats posed, in particular, by the communist regime in China.”

However, the goals outlined in the “China Initiative” go beyond the realm of cybersecurity and intellectual property protection. The initiative will also include the “Identif[ication of] Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses,” which feels somewhat out of place in this context. In fact, a focus on bribery cases in China may have the practical effect of putting U.S.-based companies that do business in China under the DOJ’s microscope. The FCPA’s jurisdiction generally reaches only companies that are based in the United States, are traded on U.S. security exchanges, or take some action in the United States in furtherance of a scheme to bribe a foreign official. A purely Chinese company may not fall within one of these categories, whereas subsidiaries of U.S. companies operating in China are likely to be subject to the FCPA.

Chinese markets have already been popular for FCPA enforcement actions by the U.S. government, where many industry players are state-owned entities (considered foreign officials under the statute). While the total number of FCPA matters has decreased during the Trump administration as compared to the number of matters during the Obama administration, the percentage of matters involving companies doing business in China has increased. And the actions have frequently included bio-tech and communications industries that may be the focus of intellectual property policing under the China Initiative. While it is still unclear if this initiative will actually result in a boost in FCPA enforcement, Chinese companies, as well as companies doing business with Chinese companies, are well advised to review their FCPA compliance programs in the wake of these developments.

Visit our website to learn more about V&E’s FCPA & Global Anti-Corruption practice. For more information, please contact Vinson & Elkins lawyer Chris James

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.