Coping with Corruption in Trading with China 1.

List all the different types of bribes, payments, or favors represented in this case under (a) FCPA, (b) Criminal Law of PRC, and (c) Law Against Unfair Competition of the PRC. Why is each either legal or illegal? a) Business Trips i. Legal: When foreign officials are invited to a companys headquarters in order to help gain knowledge about a companys product or other official company business. Some trips are expenditures directly related to the promotion, demonstration, or explanation of products and services or the execution of a contract with a foreign government agency. ii. Illegal: When a company pays for a foreign officials trip that has no connection to the company (ex.- trips to Paris, Rome, etc. for vacation) or when foreign travel is extorted (ex.- Case where PRC bank branch refused to issues a letter of credit until foreign travel was offered). b) Cash Payments i. Illegal: the payment of kickbacks, funding of college expenses for a trading officials child, or any direct requests for cash payments are illegal. c) Black Markets i. Illegal- the act of engaging in transactions within the black market to gain import/export licenses, inspection certificates, etc. is illegal. d) Gifts i. illegal under the Criminal Law of PRC- Gifts valued over $600, anyone who demands or accepts money or property in return for benefits ii. Legal under the Criminal Law of PRC Gifts valued under $600 (the law is vague) iii. Illegal under Laws Against Unfair Competition of the PRC- when a business gives money or property to customers to sell or purchase products Examples in Case i. Business/foreign trip to see company ii. Purchase of black market licenses and certificates iii. Travel abroad that is unrelated to the company and/or business transaction (ex. Chinese banking officials and family members vacations to Hong Kong, Paris, Rome, Las Vegas, and Pebble Beach) iv. Gifts of Sony cameras, luxury Versace/Burberry outfits v. Payment for a $330,000 Shanghai apartment vi. Funding of the chairmans sons tennis club and golf fees vii. Funding of a CIOs daughters European trip viii. Payment of kickbacks to PRC officials Honduran/US/Swiss bank accounts

e) FCPA i. grease payments and bribes to low-ranking officials to expedite jobs that they would normally complete is not illegal f) Criminal Law of PRC i. Applies to anyone who demands or accepts money or property in return for benefits is guilty of bribery ii. no punishment for gifts and benefits less than $600 (though the law is vague and doesnt explicitly state this). This put things like sporting tickets and wining and dining of executives in a gray area iii. Prohibits members from accepting gifts exceeding $500, but doesnt mean gifts under $500 wont be considered a violation of the law g) Laws Against Unfair Competition of the PRC i. Law is aimed towards commercial bribery ii. Prohibits businesses from giving money or property to customers to sell or purchase products 2. For those practices that you listed as illegal, classify each as lubrication, extortion, or subornation, and explain your reasoning. Lubrication: a small payment, gift, or service given to a low-ranking official in a country where such offerings are not prohibited by law Subornation: involves giving large sums of money- frequently not accounted fordesigned to entice an official to commit an illegal act on behalf of the one offering the bribe Extortion: payments are extracted under duress by someone in authority from a person seeking only what he or she is lawfully entitled to a) Foreign trips: Extortion for example in which the official withheld a letter of credict, lubrication for the other example b) Cash payments: Subornation. Payment was needed to secure contracts c) Black Markets: Subornation. Payment given to possess illegal documents d) Gifts (tennis club membership, cameras, etc). Lubrication 3. Which of the payments, favors, or bribes are illegal under the Foreign Corrupt Practices Act (FCPA)? a) Luxury vacations given to officials and family (Rome, Paris, etc) b) Gifts unrelated to the company/business: tennis, golf memberhips c) Kickbacks d) Utilizing the Black Market to attain illegal documents

4. Assuming that the FCPA did not exist, what is the ethical response to each of the payments, favors, or bribes you have identied?

Regardless if the FCPA exists or not, it is the responsibility of companies to conduct business in an ethical way. This conduct should be applied both domestically and internationally. Companies should seek out knowledge from companies who are praised or given awards for their integrity. Companies should always ask themselves, Is it legal? Is it right? Can ti withstand disclosure to stockholders, to company officials, to the public? 5. In your view, which of the expenses detailed in the lawsuit could be in violation of the FCPA, and which could be legitimate business expenses as the American Company contends? Discuss. Expenses that could be in violation: a) Sony Cameras b) Luxury outfits c) Vacations unrelated to business d) Funding of daughters European trip or sons tennis & golf membership Legtimiate business expenses: a) Corporate jet (for business trips) b) Apartment in Shanghai for business purposes (perhaps company member need to stay in the city or can be used as a place to entertain foreign officials) 6. Discuss the legal/ethical issues raised by the comments by the retired Foreign Service agent and the consultant. The retired Foreign Service Agent brings up how he could intentionally subvert the intent of the FCPA so U.S. investors and exporters would not lose out unfairly to companies and agencies from other foreign countries. This is reaffirmed by the consultant, who explains that corruption is huge and systemic. The obvious legal/ethical issue here is that the service agent intentionally broke the law. However, the ethical dilemma is that he committed this crime with good intentions. Despite the moral code the FCPA attempts to uphold, other countries are not subjected to its rules. Thus, American companies may lose out on certain contracts due to the FCPA. The best option in this situation is to bow out of the contract. Many other companies have done it before and have still been successful companies. The other lesson in this is to regularly train Chinese employees on American policy. Simply translating company policy from English to Mandarin/Cantonese/etc. is not enough. It has to be ingrained in every single employee. 7. List alternatives to paying bribes in international markets and discuss the plusses and minuses of each. Company can bow out of the contract/company a)Plus- can avoid litigation due to bribery/corruption b)Minus- can lose out on potential profits and consumers Use personality to convince officials in a way that one can compete a)Plus: completely legal under any of the acts b)Minus: Most likely will not work. If it will work, it will most likely take a long time to complete Entertain officials with official company events a) Plus: can still entertain officials with gifts and favors

b)Minus: This process still may bring up issues with governments