The Fight Against China’s Bribe Machine

“It’s just so unfair that American companies aren’t allowed to pay bribes to get business overseas.”

That was the startling argument U.S. President Donald Trump reportedly made in 2017 about the Foreign Corrupt Practices Act, which prohibits companies from paying bribes abroad. “Every other country goes into these places and they do what they have to do,” Trump had previously complained. If foreign firms could pay bribes for business, why did the law prevent U.S. firms from doing so? Equally problematic, in Trump’s view, was the FCPA’s role in furthering the United States’ status as “policeman of the world.” “What are we doing prosecuting people to keep China honest?” he asked during a 2012 television interview.

Years later, Trump’s queries have unexpected relevance. As president, Trump tried to weaken the enforcement of the FCPA. Now President Joe Biden has reversed course and formally designated foreign bribery—traditionally a regulatory and criminal issue—a national security concern. Combating corruption, Biden recently declared, “is not just good governance. It is self-defense.” At the G-7 this past June, Biden successfully enlisted key allies to declare that corruption threatens the stability and security of societies and to pledge strengthened multilateral efforts to “deny safe haven to corrupt individuals” and their ill-gotten gains. He repeated this commitment to root out corruption last month at the United Nations General Assembly.

These statements reflect a set of values that the Biden administration is eager to showcase as a contrast to the Trump era. Yet they also highlight an increasingly bipartisan foreign policy focus: the global competition over infrastructure, an area where corruption is endemic. In particular, few developments better explain the United States’ newfound focus on foreign bribery than China’s Belt and Road Initiative (BRI), which many view as the country’s attempt to expand its influence across the globe. With enormous capacity and capital, China now threatens to dominate the global race for building ports, railways, and telecommunications networks. And while the United States is no saint when it comes to corporate bribery, many policymakers have alleged that China is even more egregious in “export[ing] corruption skillfully and aggressively”

There are two main ways for the United States and its partners to push back. One is to outshine the BRI by offering more attractive and socially responsible infrastructure investments, as the G-7 promised to do. In the short term, however, the United States appears to be pursuing a second strategy: leveling the playing field. Instead of making U.S. bribes legal, as Trump wished, the U.S. government is increasingly eager to criminally prosecute Chinese actors who compete unfairly. Much of this activity has come, in both the Trump and Biden administrations, under the Justice Department’s so-called China Initiative—an ongoing law enforcement effort that presents a new front in the United States’ intensifying competition with China.

FBI Director Christopher Wray has confirmed the existence of over 2,000 China-associated investigations. And while many of these cases relate to intellectual property theft or espionage, one of the initiative’s current objectives is to “identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses.” Despite the practical obstacles in doing so—from thorny jurisdictional issues to the difficulty of obtaining legal assistance from Beijing—the Justice Department has demonstrated its capacity to pursue Chinese companies and individuals that pay bribes abroad. Focusing on China in this manner has clear appeal for the Biden administration. Yet it also may backfire in ways that undermine antibribery enforcement efforts and improperly politicize the U.S. justice system. It is therefore essential that the Biden administration conduct a full review—and potential reconsideration—of the means and methods by which the United States seeks to combat overseas Chinese corruption via criminal enforcement.

Leveling the Playing Field

The FCPA was created during the Cold War as an instrument of self-regulation. First passed in 1977, the law reflected, among other things, congressional concern that the United States’ image abroad was undermined by the specter of “corrupt capitalism.” Antibribery enforcement, accordingly, focused on the conduct of American firms, not Soviet ones. Now, the policing of American firms continues. But as the nature of competition has changed, the FCPA has also gained new relevance.

Whereas the United States and the Soviet Union competed for influence mostly via foreign aid and military assistance, U.S.-Chinese competition unfolds via the private sector as well. What’s more, the modern-day U.S. and Chinese economies are far more intertwined than their U.S. and Soviet predecessors. Many Chinese firms issue securities, maintain offices, operate subsidiaries, and process payments in the United States, which increases the likelihood that they will be vulnerable to U.S. prosecution.

While the United States is no saint when it comes to corporate bribery, China may be even more egregious.

Meanwhile, post–Cold War changes to the FCPA have extended its extraterritorial reach to foreign entities whose illegal conduct only tangentially touches U.S. territory. Specifically, Congress amended the FCPA in 1998 to capture “any act in furtherance of” an illegal bribe while in the territory of the United States, regardless of whether the perpetrators were American. That provides an additional hook by which the actions of a Chinese entity or its agents might be subject to an FCPA prosecution. Prosecutors also increasingly rely on other criminal statutes often implicated by bribery (such as money laundering) that have broad extraterritorial reach.

Take, for example, the 2018 prosecution of Chi Ping “Patrick” Ho. Ho led the nonprofit arm of a Chinese energy conglomerate known as CEFC, a position that enabled him to pitch the virtues of the BRI at the United Nations and elsewhere. Behind the scenes, Ho also sought to bribe Chadian and Ugandan officials in exchange for oil rights and other business advantages. But Ho made a fatal blunder that ultimately landed him in handcuffs at John F. Kennedy International Airport in New York. By maintaining a U.S. office and employing U.S. banks to transmit funds, Ho exposed himself to a litany of FCPA and money-laundering charges. The ensuing trial and conviction enabled the Justice Department to disrupt a key BRI-aligned bribery scheme, dealing a blow to the credibility of the BRI and leading to the eventual dissolution of CEFC. 

Bringing China to Court

Combating Chinese bribery via criminal enforcement—as opposed to political channels—offers some clear advantages for the United States. Chinese executives operating under Beijing’s protection may not especially fear sanctions or civil penalties sought by the Securities and Exchange Commission (SEC). But the prospect of prison time is different. Those executives—and their companies—will face a choice: refrain from bribery or avoid American jurisdiction entirely.

The intertwining of the U.S. and Chinese economies makes this latter choice difficult. Credible threats of increased FCPA enforcement ensure that Chinese firms cannot reap the benefits of the U.S. market while choosing to ignore its antibribery laws. To avoid the risk of prosecution, Chinese firms engaged in bribery would need to avoid issuing securities to U.S. investors, maintaining U.S. offices, and generally engaging American capital markets. For many Chinese firms, the prospect of sacrificing these economic benefits may prove too costly, deterring them from engaging in foreign bribery altogether.

In addition to deterring the “supply side” of Chinese bribery, BRI-focused enforcement may indirectly prevent its “demand side” equivalent, the officials pocketing the money in exchange for helping China secure a contract. While the FCPA does not address foreign officials who accept bribes, they may still be vulnerable to prosecution for other offenses—such as money laundering. And even if the Justice Department is understandably reluctant to charge foreign officials, merely being implicated in a federal indictment can create serious reputational costs for foreign governments. The Ho case, for example, provoked political scandals in both Chad and Uganda. Each successive bribery exposé makes foreign officials more likely to rebuff Chinese bribes for fear of being named in the next U.S. indictment. Beyond that, high-profile FCPA enforcement may spur overseas regulators to raise their game. Foreign law enforcement will be faced with an ultimatum: police BRI bribery or the U.S. Justice Department will. 

Not Without Risks

Taking the competition with China to the courtroom raises concerns, however. Most obvious is the prospect of retaliatory prosecutions. Whereas Chinese citizens in the United States generally enjoy the protection of an independent judiciary, foreigners in China have less protection against spurious retaliatory prosecutions. One need only look at China’s response to charges against a senior Huawei executive, Meng Wanzhou, for U.S. sanctions violations. In the wake of Meng’s detention by Canadian authorities, two Canadian citizens were summarily arrested in China for unspecified charges of “espionage.” They ultimately spent more than 1,000 days languishing in a Chinese prison. Within hours of Meng’s release last month, however, China released the Canadians—suggesting that Beijing was willing to engage in “hostage diplomacy” to secure the release of Chinese citizens arrested abroad.

Another important risk relates to the impartiality and independence of the U.S. justice system. There is a key difference between allocating more resources to combat foreign bribery in general (which is wholly permissible) and singling out Chinese organizations or individuals for bribery enforcement actions (which is not). If it appears that the Justice Department is selectively targeting Chinese entities, courts may begin to credit defendants’ claims of constitutional violations. But the appearance of selective prosecution is not only a legal issue; it is also a moral and political one. Civil rights groups have already identified well-founded concerns that the China Initiative stigmatizes Asian Americans amid an uptick in hate crimes. China, in turn, has exploited similar sentiments to cast doubt on the fairness of the U.S. justice system. For instance, Chinese state media suggested that the Ho prosecution had been selectively brought to “head off a perceived threat to [American] hegemony.”

The U.S. government is increasingly eager to criminally prosecute Chinese actors who compete unfairly.

A prosecutorial focus on China can also create tension with U.S. allies. Article 5 of the 1997 Organization for Economic Cooperation and Development Convention on Combating Bribery explicitly prohibits the “considerations of national economic interest . . . or the identity of the natural or legal persons involved” in bribery enforcement. Indeed, the Justice Department’s China Initiative raised the eyebrows of OECD monitors, several of whom had expressed concern that it “focuses on China and references the FCPA.” And while the OECD ultimately accepted the China Initiative, national governments may not. Foreign nations may begin to view China-related legal requests coming from the United States as politically motivated, which could create difficulties for evidence gathering and extradition efforts.

Separately, prosecuting overseas Chinese bribery cases may hinge on evidence provided by foreign law enforcement and intelligence partners. But the prospect that such information could be used—even indirectly—to publicly charge Chinese defendants could make foreign partners wary of cooperation for fear of compromising sources and methods or angering Beijing. Moreover, publicly accusing foreign officials of accepting Chinese bribes always creates the potential for an international incident—as happened after the Ho indictment when Chad, a key U.S. security partner, blasted Washington for unleashing a “fierce attack against our head of state.” Even officials not directly implicated in Chinese bribery schemes may be reluctant to cooperate with the United States for fear of appearing subservient.

Doing It Right

If the Biden administration is intent on pursuing Chinese bribery as part of its foreign policy agenda, it should build in safeguards to seek to protect prosecutorial impartiality, reduce damage to international partnerships, and preempt Chinese retaliatory prosecutions.

In the first instance, the United States needs to forcefully reaffirm the separation between law enforcement and politics—a line that was tested repeatedly during the Trump years. In particular, Trump took the extraordinary step of dangling a detained Chinese executive as leverage in trade negotiations. The Biden administration should instead ensure that the White House and other federal agencies adopt the posture of the Justice Department and implement a stricter gag order prohibiting officials from commenting on enforcement matters. Doing so will help assuage concerns that the United States is employing federal prosecutions to obtain geopolitical leverage. 

Meanwhile the Justice Department, which has long operated on uncodified norms of prosecutorial independence, should build in more formalized safeguards against improper political interference, as Attorney General Merrick Garland has already begun to do. It should also publicly clarify how the China Initiative’s policy goals are separated from the independent charging decisions of career prosecutors. Finally, both the Justice Department and the SEC should continue their efforts to ensure the FCPA is robustly enforced against Americans who violate its provisions, which will help deflate claims of selective prosecution against foreign companies. 

Washington needs to weigh whether U.S. courts ought to be employed to solve what is chiefly a foreign policy problem.

To preempt blowback, the United States should also continue to emphasize multilateral bribery enforcement. While partnering with Chinese regulators is an unlikely prospect, Washington should bolster its existing efforts seek out cooperation from other foreign partners and be willing to step back when local prosecutors are willing to step up. Where countries make good-faith efforts to prosecute Chinese bribery within their own borders, U.S. officials should support those efforts before hauling prized cases off to faraway American courtrooms in support of the China Initiative. 

Ultimately, the Biden administration needs to weigh whether and when U.S. courts ought to be employed to solve what is chiefly a foreign policy problem. It may be the case that diplomatic olive branches—rather than prosecutorial arrows—are more effective in encouraging foreign leaders to reject BRI bribes. Bringing China to court may blunt some corruption, but it will not address its underlying causes and enablers.

For that, the Biden administration will need to look beyond the China Initiative. It will need to continue its efforts to lobby foreign partners to crack down on corruption. It will need to help strengthen the rule of law in countries most vulnerable to bribery solicitation. And it will need to lead by example, by redoubling efforts to root out domestic and overseas corruption enabled by American businesses. But above all, it will need to eventually convince Beijing that the political costs of turning a blind eye to its firms’ overseas activities exceed any benefits—with the hope that, ultimately, Chinese firms will be held accountable by Beijing, not Washington.