Mandarins Gone Wild

Las Vegas is Everyman’s cut-rate Babylon. Not far away there is, or was, a roadside lunch counter and over it a sign proclaiming in three words that a Roman emperor’s orgy is now a democratic institution. “Topless Pizza Lunch.” ~Alistair Cooke

According to the Associated Press (which based its reporting on stories in the state-run Xinhua News Agency), 23 officials from the eastern Chinese city of Wenzhou took a three-week trip to the U.S. The jaunt cost taxpayers $94,000, which the Communist Party has now ordered the officials to pay back.

The party animals (党动物) visited nearly a dozen American cities over three weeks but spent just five days on official business. They hit the beaches in Hawaii, caught a sex show in San Francisco, and spent two nights in $700 suites at the Sahara Hotel & Casino in Las Vegas. They said the purpose of their trip was to gain “An Overview of American History” and to study “Honest and Clean Government Management.” And if one of them hadn’t lost a bag on the Shanghai subway that contained dozens of receipts with lurid hand-annotated comments, their cover story would have worked. But whoever found the bag posted its contents on the Internet, and details of the escapade then spread “like wildfire across Chinese cyberspace over the past week.”

Although the trip in question was on the public tab and doesn’t involve the Foreign Corrupt Practices Act, it does show what regulators from China expect to see and do when they travel to the U.S. And those expectations can cause serious problems for American companies sponsoring the visits. Here’s how.

The FCPA allows payments to foreign officials for expenses related directly to “the promotion, demonstration, or explanation of products or services” that are “reasonable and bona fide.” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A). The affirmative defense, however, is notoriously risky, mainly because no one is quite sure what reasonable and bona fide really means. So compliance-minded companies play it safe by adopting elaborate restrictions on what they’ll pay for and what they won’t. The result is that anything resembling entertainment usually gets the chop. Fun is out, work is in. Think of it as the no-monkey-business rule.

But as the saga of the 23 travelers shows, regulators from emerging economies often expect fun, fun and more fun when they land on foreign shores. What they call a business trip, we’d call spring break. So a point to remember is this: The expectations of the travelers don’t change the host’s compliance responsibilities. A compliant company can pay or reimburse only those expenses that are reasonable and bona fide and related directly to the promotion or demonstration of a product or services. We’re not really sure what all that means. Except that it probably doesn’t include tuition for a surfing school on Oahu. Too bad.

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