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A Gold Medal For Opinion Procedure Release 08-03

Foreign organizations in China have been vexed for years by the need to pay or reimburse Chinese journalists who attend local press events. The journalists can’t afford to travel on their own and their employers don’t reimburse them. But because most media outlets in the PRC are state-owned, the journalists are “foreign officials” under the Foreign Corrupt Practices Act. That means paying their expenses might violate the FCPA.

Facing this dilemma, foreign companies either don’t pay the journalists anything and pass up domestic press coverage for their events in China, or they pay the local journalists (sometimes on the advice of counsel) and risk violating the FCPA.

Now, thanks to the efforts of Trace International, there’s help. The DOJ has said the payments may fall within the FCPA’s affirmative defense for so-called promotional expenses. That defense allows the payment or reimbursement of expenses of foreign officials that are directly related to “the promotion, demonstration, or explanation of products or services.” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A).

In its opinion request, TRACE told the DOJ that for a press conference in Shanghai next week to announce the BRIBEline results for China, it will provide local and out-of-town journalists with the following benefits:

Local Journalists — A cash stipend of RMB 200 (approximately $28) for each journalist based in Shanghai. The stipend is intended to cover lunch, local transportation costs, and incidental expenses. The cash stipends will be handed openly to each journalist upon signing in for the press conference.

Out-of-town Journalists — A cash stipend of RMB 425 (approximately $62) for each journalist based somewhere other than Shanghai. The stipend is intended to cover lunch, local transportation costs, incidental expenses, and two additional meals. The cash stipends will be handed openly to each journalist upon signing in for the press conference. Reimbursement for economy-class inter-city domestic air, train, bus, and taxi travel upon submission of a receipt. One night’s lodging for out-of-town journalists will be provided at the hotel where the press conference is being held. The lodging costs, not to exceed $229 per journalist, will be paid directly to the hotel by TRACE.

TRACE represented that:

  • Members of the state-owned PRC media are not typically reimbursed by their employers for work-related travel expenses or meals when covering an event such as the TRACE press conference.
  • TRACE will make the stipends and expense reimbursements equally available to all journalists who attend the press conference regardless of whether or not the journalists subsequently provide coverage of the press conference and regardless of the nature of such coverage.
  • The 200 RMB and 425 RMB stipends TRACE intends to pay to local and out-of-town journalists, respectively, are reasonable approximations of the costs likely to be incurred by such journalists in attending a press conference in Shanghai.
  • TRACE will send letters to the invited journalists’ employers in advance of the press conference, advising that the stipend will be paid, its purpose, and TRACE’s understanding that the payments are permitted under PRC laws and regulations. The letter will invite anyone with a different understanding of the applicable rules to so inform TRACE.
  • TRACE has no business pending with any PRC government agency.
  • TRACE has obtained written assurance from an established international law firm that TRACE’s payment of the stipends is not contrary to PRC law.
  • TRACE will accurately record the payments in its own books and records.

The DOJ said it won’t take enforcement action. “Based on TRACE’s representations, the stipend and expenses TRACE intends to pay on behalf of foreign officials fall within the FCPA’s promotional expenses affirmative defense in that the expenses are reasonable under the circumstances and directly relate to ‘the promotion, demonstration, or explanation of [TRACE’s] products or services.’ 15 U.S.C. § 78dd-2(c)(2)(A).”

In an unusual reminder to other companies, the DOJ said that it “places no weight on the fact that it may be a common practice for companies in the PRC to provide such benefits to journalists attending a press conference.”

Great work by TRACE — and just in time to help the many sponsors and other foreign organizations coming to Beijing for the August 8th start of the 2008 Summer Olympics.

And kudos to the Justice Department for responding to TRACE’s request in just four days.

View DOJ Opinion Procedure Release 08-03 (July 11, 2008) here.

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  1. Interesting, but the value of the release is uncertain to commercial companies that cannot meet the stipulation that they “have no business pending with any PRC government agency.” Unlike TRACE, many US companies are in China to conduct commercial business which inevitably means business will likely be pending with a PRC agency or state-owned entity.

  2. Careful. Trace’s “representations” are not necessarily “conditions” applicable to all companies in a similar situation. For example, in at least one other recent Release related to the PRC involving promotional expenses, Release 07-02 (September 11, 2007), the Requestor represented that it had no non-routine business pending before the agency that employed the specific “foreign officials” receiving payments. That’s a much narrower representation and could apply to many or even most companies.

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