Monday, December 6, 2010

The FCPA's New Frontier

China-based entities have previously been involved in FCPA enforcement actions.

For example, in March 2010, DaimlerChrysler China Ltd. was charged in connection with the Daimler enforcement action and agreed to a deferred prosecution agreement. (See here). In May 2005, DPC (Tianjin) Co. Ltd., a Chinese subsidiary of U.S. based Diagnostic Products Corporation ("DPC"), was charged in connection with the DPC enforcement action. (See here).

However, to my knowledge, a China-based issuer has never been the focus of an FCPA inquiry.

I've noted for a few years now that it is only a matter of time. See here - "Why Compliance with the U.S. Foreign Corrupt Practices Act Matters in China" and here "Welcome to the Club".

The time has come.

Last week, as first reported by Joe Palazzolo (Wall Street Journal - Corruption Currents), Rino International Corp., a Dalian, China-based issuer (here), disclosed in an SEC filing (here) as follows:

"The Company has been notified by the Staff of the Securities and Exchange Commission (the “SEC”) that it is conducting a formal investigation relating to the Company’s financial reporting and compliance with the Foreign Corrupt Practices Act for the period January 1, 2008 through the present. The Company is cooperating with the SEC’s investigation. It is not possible to predict the outcome of the investigation, including whether or when any proceedings might be initiated, when these matters may be resolved or what if any penalties or other remedies may be imposed."

The same day, Rino announced (here) that its shares have been delisted from the NASDAQ exchange.

The SEC's inquiry and Rino's delisting appear to be a result of a scathing November research report by Muddy Waters LLC Research Report on the company (see here).

Whether the SEC's FCPA inquiry is focused on books and records and internal controls issues, or anti-bribery issues as well, with more China-based companies listing shares on U.S. exchanges, and thus becoming subject to the FCPA, the Rino inquiry may represent a new frontier of FCPA enforcement.

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