Companies are understandably eager to terminate their contractual relationships with counterparties that are known or suspected to be violating the Foreign Corrupt Practices Act (FCPA) because of the severe repercussions, legal and reputational, associated with violating the FCPA—or even being subject to internal or external investigations relating to the same. This is particularly the case because a significant number of FCPA enforcement actions against companies are based on misconduct by their contractual agents and other third-party representatives. However, companies may also be concerned about the legal risks associated with breaching a valid contract, especially if the damages could be significant.

A recent decision in the Eastern District of New York, Cicel (Beijing) Science & Technology Co., Ltd. v. Misonix, 17-cv-1642-GRB, 2022 WL 188994 (E.D.N.Y. Jan. 20, 2022), provides helpful guidance in this regard, addressing the circumstances under which a company may lawfully terminate a contract when its counterparty is violating (or is suspected of violating) the FCPA. In Cicel, a Chinese distributor sued a U.S. medical device company for, among other things, breach of contract based on the medical device company terminating its distribution agreement because the distributor violated the FCPA. Judge Gary Brown granted summary judgment to the medical device company, holding that “[u]nder New York law, the well-documented illegal conduct here [violations of the FCPA] renders the contract unenforceable.” Id. at *3.

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