Avery Dennison case a window on the pitfalls U.S. firms face in China

Reporting from Shanghai — When Pasadena-based Avery Dennison wanted to build its road and traffic business in China a few years ago, it hired people like Lily Tang. The Beijing homemaker had an asset the company craved: political connections.

Tang's husband, Chen Qi, is a senior official at the China Communications and Transportation Assn., a quasi-governmental group led by former ministers. That connection, said current and former Avery managers in China, helped the company win contracts for thousands of dollars' worth of government projects.

In one case, according to interviews and a copy of a signed contract reviewed by The Times, Avery received an order to supply $375,000 worth of reflective safety products for highway jobs in Tianjin, east of Beijing, and paid a commission of about 8% to an enterprise operated by a friend of Chen's.

Chen's friend, Guo Longjun of Beijing, said he had passed the money on to "experts," whom he wouldn't identify.

Such payments may be part of an ongoing federal investigation into whether Avery violated the Foreign Corrupt Practices Act, which prohibits U.S. businesses from bribing foreign officials.

Avery reported possible violations on its own in 2005. It characterized them as relatively minor and said it had taken corrective measures. Though it is by no means the only U.S. company involved in a corruption investigation of its business dealings in China, its experience provides a case study of the pitfalls American firms face as they try to capture a piece of the Chinese market.

Justice Department officials say enforcement of the FCPA is second only to fighting terrorism in terms of priority. Currently, at least 91 cases are open, triple the number four years ago, according to a report issued last month by Shearman & Sterling, a New York-based law firm that tracks FCPA cases.

China is getting more attention. Of 25 criminal prosecutions under the law in the last two years, six involved activities in China -- the largest number after Iraq and Nigeria. Among the companies involved were Lucent Technologies, which agreed to pay a $1-million penalty for supplying about 315 trips to the U.S. by Chinese officials. The company recorded some of them as "factory inspections," but they were in fact visits to places such as Disneyland, Las Vegas and the Grand Canyon, the Justice Department said.