CliffNotes: you can build ForbiddenPalace-like wonders only in conquered capitals. You can have several of those, but your vassals are determined by the form of government you're in. And if you can't claim a title of a king/caliph, you can at least claim a title of duke/emir, which has much smaller effect.
This way, a conquered capital won't be just another city, but a real capital. A common misunderstanding is that it doesn't matter where the FP is built, that it just reduces overall corruption. While, it doesn't work like in Vanilla/PTW, it still reduces corruption first and foremost in neighboring cities (except for communal governments). It's also cumulative. I have to thank Alexman for his
research. It's an old thread, but I've missed it earlier, since it wasn't in C&C forum
I tried different settings and played with lowered Optimal City Number in order to make it balanced (FP increases OCN by 37.5%, or 100% for communism), to eventually limit the specific vassal states to specific governments, and I think it makes sense. On a standard map you'll usually be able to build 1-3 FPs in the conquered capitals (it works on random maps as well, the phony wonders have some hidden flags to encourage the AI to build them).