China's Anti-Bribery Laws Rising
CFO Magazine has an interesting article on China's anti-bribery laws, entitled, Corrupt or Careless? Written by Don Durfee, its tag-line is that "Enforcement of China's anti-bribery laws is on the rise, and foreign companies could easily be on the wrong side of Chinese law without knowing it.
The article starts out by briefly describing the Shanghai police's recent arrests of 22 McKinsey, McDonald's, and ABB, employees on suspicion of bribery. According to the article, the local "Chinese press reported that in one case, a local computer company had admitted bribing employees in McKinsey's information technology department to obtain a contract to install an IT network."
The article rightly notes that because "shady deals" are nothing new for China and because "the country's complex anti-bribery laws are often not rigorously enforced." the arrests "came as a shock to multinational corporations and left unanswered questions. The MNCs are asking themselves in these arrests "signal a new focus on the activities of multinationals?"
According to Lesli Ligorner, an attorney with Paul Hastings, China is stepping up its enforcement of its anti-bribery laws, throughout China, not just Shanghai. In many respects, China's anti-bribery laws resemble the U.S. anti-bribery law, the Foreign Corrupt Practices Act (FCPA). China outlaws bribing government officials and it also outlaws payment or acceptance of kickbacks in commercial transactions. The most a government official can accept is 200 renminbi ($25.80), "which is less than the cost of dinner at many restaurants in Shanghai." Under China's anti-bribery laws, a "government official" includes any employee of a state-owned enterprise (SOE).
"A foreign company could easily be on the wrong side of Chinese law without knowing it:"
In fact, the typical multinational corporation almost certainly is, says Steven Vickers, CEO of Hong Kong-based consulting firm International Risk. "Kickbacks, such as those we saw in Shanghai, are absolutely endemic," he says. "It should come as no surprise to [multinationals] that they would be affected. Unfortunately, many of them have a veneer of legal compliance that covers a local company culture that remains very mainland-oriented."
Ligorner urges foreign companies doing business in China "to increase compliance training and review employee handbooks in China to make sure that gift-giving limits are in line with local law." Carson Wen, an attorney at Jones Day's Hong Kong office, agrees. "You have to make sure you have the proper checks on employees in procurement and business development, especially," he says. "China has a commercial culture that doesn't take bribery seriously enough. But the government is now really keen on cracking this problem."
Bottom Line: Familiarize yourself with China's anti-bribery laws and follow them. Make it clear in writing to all of your employees that you expect them to abide by these laws and there will be repercussions if they do not.
http://www.chinalawblog.com/cgi-bin/mt/mt-t.cgi/1853
» China And The Foreign Corrupt Practices Act (FCPA) -- Not Just For Americans Any More China Law Blog
The WSJ China Journal (a really good blog we just added to our blogroll) has a post, entitled, "China’s Tricky Terrain on the Foreign Corrupt Practices Act," interviewing Richard Grime, an attorney with LA based mega-firm, O'Melveny & Myers. Both the i... []
Comments
expatreneurs are at a high risk of being busted as well.
Posted by: nanheyangrouchuan | April 4, 2007 8:01 AM
I'm totally speculating here but could this emphasis on anti corruption on foreign corporations be because the CCP is viewing the foundation of the country's current corruption mainly comes from foreign businesses?
Posted by: Howard Lee | April 4, 2007 9:29 AM
US MNCs' attempt to play the US and Chinese labor markets against each other may have backfired, with dire consequences for MNCs everywhere, including India:
http://www.atimes.com/atimes/China_Business/ID05Cb01.html
Posted by: nanheyangrouchuan | April 4, 2007 10:05 AM
Dan:
As you and I have both pointed out in past posts on our respective blogs, corruption just isn't a a good path to head down. I'd be interested whether the employees of American companies mentioned in the post as having been arrested were Chinese nationals or American ex-pats. If any were the latter, it is yet another example of the need to heed the warning in your immediately prior post as well.
Craig
Posted by: Craig Maginness | April 4, 2007 2:52 PM
"Chinese nationals or American ex-pats"
This is where we venture back into race obsession in China. Chinese nationals are just that, Chinese. Ex-pats as the Chinese gov't sees them are anyone except people of obvious or possible Chinese descent. "Hai gui", those chinese who immigrated to the West, studied, worked, lived, raised a family and took an expat posting in China are still viewed as "Chinese" by Beijing.
So, "Chinese" offenders are put into prison, "expats" are usually sent home. Those foreigners that are in jail, usually in the Nanjing prison, are in there for stuff like possession of narcotics, weapons (usually knives) violations or aggrevated assault against a Chinese person and more than a few are sex offenders.
Posted by: nanheyangrouchuan | April 4, 2007 8:16 PM
Will China be where it is right now -I mean stronger and stronger economically- without corruption?
What would be the economic interests of all these government officials (included but not limited to Land Administration Bureau, Fire Fighting Bureau two of my favorites!)to start developing economic areas or building theatres/harbour if they don't get "gifts"? None because as official in an adminstration you get the same salary you work well or not!
Posted by: Romain Guerel (French working in Beijing) | April 4, 2007 9:20 PM
China is doing the right thing by enforcing the anti-bribery laws. Fighting against bribery and corruption is more severe than before. Briberies with Chinese characteristics have already spread from bad to worse within the whole society. In China, no matter where people go and what people do, they have to think of giving of briberies. All the people there are either giving or taking of briberies, sort of. Besides commercial briberies, people bribe school officials for better schooling, doctors for better treatments, hiring managers for better jobs, etc. Bribery is part of life and everyone is part of the family. Many of the high ranking officials take briberies for granted, and take the badness for sweetness.
Posted by: zzyzx | April 5, 2007 8:26 AM
Per the experience developing a brand new plant in Jiangsu, we have learned how to deal with difficult local officials. They were always with hidden agendas before giving the permits for building, power, environment, etc. Since we were not familiar with the city and officials, and did not want to cross the line at that time, we had to go through the influences in Shanghai and let them help tackling the local officials on some tough parts, let Chinese officials deal with Chinese officials. We know there were things being solved under the table.
Posted by: zzyzx | April 5, 2007 9:21 AM
nanheyangrouchuan --
Expats are at risk of "being busted," of course, but I am not sure anyone really knows the likelihood of that happening. By the same token though, we all know that if it does happen it will not be good so it is NOT a good idea even to take the risk.
Posted by: China Law Blog | April 5, 2007 5:14 PM
Howard Lee --
I don't think so. If Beijing thinks corruption is being caused by foreign business, they have a screw loose, and I don't think they do. However, certainly, just as in every other area of law, the foreigner does make easy (and perhaps even popular) law enforcement pickings.
Posted by: China Law Blog | April 5, 2007 5:16 PM
Craig --
My understanding is that these employees were all Chinese. But expats certainly are not immune and the fact that these were employees at foreign companies has to be of at least some significance.
Posted by: China Law Blog | April 5, 2007 5:17 PM
nanheyangrouchuan --
Not true. More than a few of them are foreigners in there for economic crimes. I know this because my firm has assisted in criminal appeals.
Posted by: China Law Blog | April 5, 2007 5:19 PM
Romain Guerel (French working in Beijing) --
You are being too negative. You are right that the incentives to be corrupt in China are very strong right now, but that is slowly changing. For instance, Shanghai's former mayor would probably disagree with you at this point.
Posted by: China Law Blog | April 5, 2007 5:20 PM
zzyzx --
That's true, but if you ask people whether they would prefer the system to be bribe free, most will say they would. Certainly there is a push for cracking down on this in China. My view on bribery is that it very much depends on the level of economic development and as China continues to evolve economically, bribery will decline.
Posted by: China Law Blog | April 5, 2007 5:23 PM
I was just discussing this with a friend last night who recently passed his Taxi Driver's Exam...
He has not got the money to "buy" an accelerated place in line for a lucrative job driving (3-600 USD a month)....
Sadly, I don't see this ending anytime soon in any area....The Shanghai crackdown sounds like the IPR raids:PR gimmicks....That does not mean they won't arrest an expat for stupidity...It is here in epidemic proportions with folks looking to get rich...
OMBW
Posted by: Lonnie | April 5, 2007 9:12 PM
"Not true. More than a few of them are foreigners in there for economic crimes. I know this because my firm has assisted in criminal appeals."
Then that is a new development.
Posted by: nanheyangrouchuan | April 6, 2007 12:35 AM