Cultural Due Diligence: The Lost Diligence That Must be Found by U.S. Corporations Conducting M&A Deals in China to Prevent Foreign Corrupt Practices Act Violations


In April 2004, Lucent Technologies fired four top executives in its Chinese subsidiary. In February 2005, InVision Technologies (now GE InVision) paid $1.1 million in penalties consisting of a $500,000 civil penalty, disgorged profits totaling $589,000, and approximately $28,700 of prejudgment interest.3 In May 2005, Diagnostic Products Corp. surrendered $4.8 million in criminal and civil fines and disgorged profits. In August 2005, Alltel Information Services (“Alltel”) faced an informal inquiry by the Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”). All these events share one common theme—they all stem from bribery of public foreign officials by Chinese subsidiaries or Chinese sales agents of U.S. corporations. Regardless of this corruption, U.S. companies still flock to China with dreams of corporate globalization and increased profits.
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