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Bribe Paying Countries. China Is Second Worst.

By Dan Harris on Posted in China Business

Transparency International has just come out with a new ranking of bribe paying countries, entitled the 2011 Bribe Payers Index (h/t The Diplomat). This index “ranks 28 of the world’s largest economies according to the perceived likelihood of companies from these countries to pay bribes abroad. It is based on the views of business executives as captured by Transparency International’s 2011 Bribe Payers Survey.” 

Not surprisingly, “companies from Russia and China, which invested US $120 billion overseas in 2010 and are increasingly active in global business, are seen as most likely to pay bribes abroad. Companies from the Netherlands and Switzerland are seen as least likely to bribe.” 

Though I know there is no wholly objective way to measure a country’s scale of bribery, I am always impressed by Transparency International’s rankings because they always correspond fairly closely to my own “sense” of what is going on out there and the same is true of this ranking. However, in my own experience, China is far worse than Russia.

My law firm does a lot of Russia, as well as China work. We have many good Russian clients. We have only a few good Chinese clients. I am defining “good” here as a company that understands how to use lawyers, pays its bills, treats those in my firm with respect, and abides by the law.

We have confronted bribery issues head on many times with both Russian and Chinese companies and they virtually always respond very differently.

Let me explain.

A couple of times, Russian companies have strongly hinted or just come out and suggested that we pay off government bureaucrats or judges to get things done. Each time they have done that, I have made very clear that my law firm will not be a part of that and that if they are not comfortable with that, they should fire us right then and there. I then point out to them that their Russian lawyers referred them to us because we know how to handle things in the United States and the right way to handle things in the United States is NOT by paying a bribe. Every time I have had this discussion, it has worked. Sometimes, in fact, the Russian company has come back and said that they had mentioned our conversation to their Russian lawyers and their Russian lawyers had said we should not be fired.

Our results with Chinese companies have been very different. They tell us that “so and so told them that they can get this done in two weeks because they know so and so at the government and they know how the system works.”  We tell them this is not how the system works and, in fact, what they are proposing to do is only going to turn something relatively easy and straightforward into something difficult and illegal. The Chinese company often acts like we are a bunch of naive idiots and moves on, which is fine by us.

Anyway, I think the difference between Russian companies and Chinese companies (and yes, I realize I am generalizing from a relatively small sample) is that the Russian companies are much better able to adapt to where they are doing business. They simply have a better understanding for the fact that just because they do business one way in one country does not mean they must do business that same way in every country. I do not have any illusions about whether the Russian companies who choose not to pay bribes in the United States are paying bribes elsewhere, but I am impressed with how they are able to do things correctly in the United States. Far too many Chinese companies seem unable to believe that not all countries do business the same way.

So even though Transparency International says Russian companies are a bit more likely to pay bribes than Chinese companies, my sense is that the opposite is true in those countries (like the United States) where bribery is rarer overall. My experience has been that a Chinese company is more likely to pay a bribe in the United States than a Russian or any other one. I also note that our American clients have a much tougher time convincing their people in China to eschew bribes than they do in convincing their people in Russia not to pay bribes.

What are you seeing out there?

  • MHB

    That survey shows that legal services are given a ‘more likely to bribe’ rating than China.
    Interesting to hear your experiences. The lawyers job is in some ways to be the naive idealist – preaching the cold, hard law – and in others its to be the cultural bridge.
    Do you tend to have a better dialogue with your Russian clients than with your Chinese ones?

  • Stephanie

    Interestingly, the Doing Business Report for 2012 was also recently released, indicating China slipped from #87 (2011) to #91 (2012).
    (http://www.doingbusiness.org/data/exploreeconomies/china)

  • Hua Qiao

    I think this post helps clarify one issue that I see recur in China Law Blog. It is often asserted here that China’s regulations should be followed and that foreign companies should never wilfully ignore China’s laws. Many readers including me have responded back saying “it’s not that easy.” China’s laws are vaguely written and often times inconsistently interpreted by local regulators. Any company that wants to do the right thing is constantly confused by conflicting statements from officials who administer the laws and regulations.
    One must ask why there is so much confusion? I certainly think a material part of it is corruption. Other explanations include local party politics and also just a lack of enpowerment of local officials to make a definitive decision on anything.

  • Simon

    No bribe,no business for Chinese companies. But there is always a limit on how bribery can do even in China because things backfire sometimes.

  • Marius

    Respecting the Chinese, it is so true, at least it was as the younger professionals know a lot better. Their general attitude was “when in China do as the Chinese, when overseas, dealing with Chinese, also do like the Chinese, because you are dealing with Chinese!” Such gou pi.
    I always start my international marketing course with a lecture how every country has its own “guo qing” and that they better get used to it!

  • Marius

    I would like to respond to Hua Qiao. If he or she is truly Chinese, he or she is ignoring the point that I often make to my clients: There is law and there is “window law”. Window law is the law as it is interpreted at the “window”, be that for incorporations or approvals of any kind. Also in this respect, China is not much different than, say, Canada (where I am from). Always, when I had something to get filed or “stamped” I made sure I had the right person in front of me, behind the window, and if he or she was not there I would come back later! That is why I recommend local lawyers for any dealings with the government. They know the local window law the best.

  • Twofish

    Marius’s point also goes for the US. Ultimately the reason why law is so complex and inconsistent is because we are dealing with human beings, and human beings are complex and inconsistent.
    Also the reason that US companies are less likely to pay bribes is FCPA compliance. It’s illegal for a US company (defined extremely broadly to include foreign companies listing securities in the US) to pay a bribe to a foreign official where official is defined very broadly.
    As far as I am aware it is not illegal for a Chinese or Russian company with no ties to the US or EU to *pay* a bribe.
    To give you an idea of how complex the law can be. Suppose I have a US$10 lunch at a bistro with a government official and offer to pay his lunch out of my expense account. That would be covered under the “business courtesy” rule of the FCPA, and would be considered OK. Now suppose it’s a hyper-expensive US$10000 lunch in which the plates are made of gold and we take a trip to Tahiti. That would not be considered OK.
    In between there is a dividing line, and you have full time lawyers at most major US companies deciding where the dividing line is, and they take their cue from the USDOJ who figure out where the dividing line is. You can try to go “zero tolerance” in which you don’t pay for anything, but in that case things get really silly, really quickly.

  • Steven

    The lack of a rule of law environment may contribute to that —makes lawyers and legal compliance less important in China.
    Another reason I am thinking is that, the Chinese companies going overseas are so obsessed with the way they are doing business in China, that is to make use of any loopholes of the laws or just ignoring the laws if everyone else is doing the same and not got punished.
    That mentality would not be changed when they go aboard, the logic behind it is, the law is fixed but the human beings administer it is not, and human beings always have weakness, so as long as you can find the weakness, you can save money and get what you want, it doesn’t matter in what form.
    Sooner or later they will get backfired and learn, it is not China.
    A separate note, the latest amendment to the Criminal Law of China has criminalized the bribery
    of foreign officials, however, how this would affect current trend remains to be seen and I think it largely relies on the determination of the top decision-makers.

  • Jay

    I don’t have experience in Russia but I’ve experienced a lot of what you described as the China way. I was a consultant in China until recently and I can’t tell you how many times I tried to explain to Chinese business owners that they couldn’t bribe their way into the US market or around US laws. They always treated me like I was a fool and went off and tried to do things their way – and always failed. But never seemed to learn.

  • Marius

    Yes, in the Arab world they used to say, when I worked there 40 years ago, “small gifts maintain the friendship”.
    Those were also the days that the Dutch Queen ‘s husband got relieved from all of his official duties for accepting $2,000,000 (that was a pile of money back then, I know because I am originally Dutch) from no company less than Lockheed (yes, in Dutch history books it is related to as the “Lockheed” scandal, as if Prince Bernhard had nothing to do with it!).

  • andeli

    @ Marcus (1)
    Corruption is not a Guoqing of China (if that is what you are arguing). It never was historically and it is not now. It is illegal and punishable by death. There is nothing in China culture that sanction corruption. Fubai means rotten and decay. The great dynasties of Tang, Ming and Qing all perceived their strength to come from a fair and just emperor who ruled uncorrupt in accordance with the mandate from heaven.
    And by the way Huaqiao means oversea Chinese, so her/she would by definition not be a true Chinese what ever that is.
    @ Twofish
    “Ultimately the reason why law is so complex and inconsistent is because we are dealing with human beings, and human beings are complex and inconsistent”
    That looks tautological to me. A law is complex and inconsistent because a law is made by man who is complex and inconsistent. A law is A and B because a law is created by man who is A and B. Does not answer much .
    We now end up with my basic claim that what you call laws in China are decrees decided upon by powerful entities within the state apparatus. As there is no constitution or judical review on these decrees they are keept in check by the state apparatus and Party through an internal process. Often a ministry will leak the decree before to see what the public thinks.
    The problem is that the institutions that are there to keep these decrees in check are attached to those who made the decrees. This means that when someone at the top (The politburo standing committee or the National Congress) decides something, then someone else in the system (A Ministry) implements this decision for them by decree. The ones at the top then checks the decree by using small committees appointed by themselves.
    This decree is never tried or tested by an independent party who exists outside the state apparatus. It can only be tried within the system.
    Now the system runs on the accumulation of power. Power is only accumulated by issuing as many decrees as possible hence my argument that everthing is illegal in China, because there is a decrees or law as you call it about every little action made in China. The thing is that the decrees are not enforced or can be held away from enforcement by corruption. Basically corruption in China works to get exempted from the implementation of the decree. Thats why the most corrupt members of the state apparatus are those who implement decrees and not those who create decrees.
    Had it been a decree held in check within a constitution and judical system I would call it a law, because there would be basic rules about what can and most important what cannot be decided by this law. The ability to accumulate power by the state apparatus is thus impaired by an other entity that does not accumulate power by creating decrees but by clarifying them historically (precedence) and by judical reference (judical review by use of a constitution)
    In that sense I think Huaqiao is right there are too many decrees, rules and regulations in China and thus society uses corruption to function. Remember corruption is a sign that a system does not function correctly.

  • MAC

    Twofish, I am not any kind of expert, but I seem to recall that China JUST established a law outlawing the paying of bribes abroad within the last week or so. It’s no wonder that Chinese companies would do it more if the Chinese government didn’t even have anything on the books about it.

  • LH

    Twofish writes: “As far as I am aware it is not illegal for a Chinese or Russian company with no ties to the US or EU to *pay* a bribe.”
    The way I read Dan’s post, it was focused largely on Chinese/Russian businesses doing business in the United States, and proposing to pay bribes in the U.S. to get things done. I for one find this to be perfectly unbelievable. The idea that a businessman of any nationality would think that it is worth the risk (of imprisonment, fines, etc. etc.) to offer a bribe to a gov’t official in the United States makes my head spin. I have heard that local officials of various kinds in the U.S. can be offered bribes, but what I know of the temperament of most federal officials and state officials is that they have zero sense of humor about this sort of thing and it would backfire 99 times for every 1 time it succeeded. If you add to this the growing protectionist sentiment in the U.S., I think a foreign businessman would have to be nuts — completely inexperienced in the U.S. — to think of going this route. To me, the big surprise in Dan’s post is that this subject even comes up with folks doing business in the U.S.
    Maybe I’m misreading his post and he’s actually talking about bribes being offered in jurisdictions other than the U.S., but when he writes “the right way to handle things in the United States is NOT by paying a bribe” I think he’s talking about bribing U.S. officials.
    -LH

  • http://gccuwo.org Calvin

    This is nothing new, as one of the reasons why my father finally moved from Hong Kong (and this was when they were still ruled by the British) was because he was tired of dealing with the companies there who were so open to giving bribes and to deal under the table so to speak. But this begs the question then, is it the Chinese government’s fault?
    Like Marius pointed out “when dealing with Chinese, also do like Chinese”, I think that the culture of “corruption” can be linked back to the Chinese primary socialization, where we are taught it is acceptable to be rewarded for our hard work and to do whatever it takes to get ahead. Both come from personal experience and both would lead to one being more likely to accept the concept of bribery as a normal way of doing things. This would explain why bribery was common in Hong Kong even when the British ruled it and how it is common in China now even though the government is against it.
    If that is the past though, what about the future? I talked to the Gordon Perchthold about his experiences at an Alumni event and he seems optimistic that as China modernizes, the acceptance of bribery will fade to the level as it exists in the west, but I am not so certain that such a cultural shift will happen that quickly if at all. It seems to me like just another way of life that western companies moving into China will have to address.

  • Marius

    Just for the record, Window Law has no relation to corruption or guo qing per se. In principle it is no different than what the police and the judiciary do every day: apply the law in a practical setting. That is how ,and by the way, WHY, the law works.

  • Twofish

    LH: The idea that a businessman of any nationality would think that it is worth the risk (of imprisonment, fines, etc. etc.) to offer a bribe to a gov’t official in the United States makes my head spin.
    There is a certain process to this sort of thing. In the US, if you offer a cash payment to a government official in exchange for a decision, you are dead. On the other hand, if you are a US domestic company, you can form a political action committee, make large and legal donations to the election committee of the candidate, and when it comes time to make a decision, you can arrange a meeting with a lobbyist to explain your case. (Foreign companies can’t contribute to US elections, and there are a ton of rules for registering lobbyists.)
    In the US, you can’t get much done by directly handing cash to officials, but you *can* get a lot done by paying a lobbyist or consultant that knows the right people and can argue your case before them.
    Also in Chinese communities you’ll find lots of people offer intermediary services. In the best case, they will be able to expedite a government approval because they know the process, and can file the right papers and talk to the right people. In the worst cases, the intermediary will take the money and do nothing of real value (i.e. green card lottery lawyers).
    Calvin: This would explain why bribery was common in Hong Kong even when the British ruled it and how it is common in China now even though the government is against it.
    But it doesn’t explain why bribery is uncommon in Hong Kong now when it’s under Chinese rule or Singapore, which is mostly ethnically Chinese, today. One thing that drastically reduces bribery is to pay officials enough so that they don’t want to risk the danger of taking a bribe, and as a country gets richer, it can afford to pay its officials more. It also doesn’t explain why there are certain parts of the Chinese government that are relatively clean.
    Also in certain industries (say finance) it is seriously bad, bad idea for most Western companies to either pay a bribe or take a bribe in China. The only reason the Chinese government lets you do business in China is because people think you are cleaner and better, and if that’s not true, you are going to find the door slammed on you very quickly.

  • http://gccuwo.org Calvin

    @Twofish – I am actually unsure whether or not bribery is still common in Hong Kong as I haven’t done business there. It was my assumption from this article that bribery in China (including Hong Kong) is still just as bad as it was 20 or so years ago, though I realize that may not be the case.
    Also, being overseas Chinese myself, I feel like when I am dealing with other Chinese or the Chinese government, if the topic of bribes were to be discreetly brought up, “the door” so to speak would not be immediately slammed on me, though I see how it may be different for westerners, or more matter-of-factly, white people.
    What is your experience?

  • Bob Walsh

    Andeli pretty much nailed it with his description of rule by decree, and its effect in creating an environment for corruption.
    In a regulatory environment that features overlapping, conflicting, and kaleidoscopically changing regulations, each individual and business can only adapt and overcome by acquiring the skills to game the system. Only every once in awhile can you see instances where the government promotes compliance by making regulations clear, consistent, and immutable.
    As a result, I would challenge anyone to find a Chinese company that is in 100% compliance with every single law, regulation, decree, or guidance document that is issued by the constellation of rule-makers that govern its business.
    At least in my business, every good-sized company has a person or team that handles nothing but “government relations”. The company itself may make good faith efforts to comply with most laws, but for those with which compliance is impossible, the result of non-compliance has to be managed. The government relations team is usually charged with doing the management through the usual means, at the very worst, graft-for-performance.
    A while ago in Heilongjiang the government relations team leader of the company we visited pointed out: “Here, as everywhere, when licensing and permitting decisions are arbitrary and based on official whim, anybody in charge of issuance has his own license and permit to print money”.

  • Mr. Charles

    Hua Qiao is spot on. The law is not clear in China and even where the letter of the law is, the actual rule of law is weak enough that in practice Chinese laws resemble guidelines more than actual laws. It is wise and admirable to toe the line as much as possible, but to suggest that it’s possible to do so consistently (as Chinalawblog often does), seems unconvincing to me.
    Legal advice is usually vague and evasive.
    Bizarre legal reasoning informed by self-interest, and arrogant judicial impunity combined with a heavy public tolerance for opacity and corruption make for huge legal grey areas. Less so for foreign firms that are systematically in the wrong in most legal disputes (take the discussion on protecting molds in China, do we really believe that the rulings have anything to do with the letter of the law? Local firms will be favored, hands down).
    There’s also a big element of cultural relativity that is too painful to discuss. What is considered horribly corrupt in one place may be par for the course in another.
    I have to admit I do enjoy gaining more familiarity with the situation in China through my work and it does seem like things improve constantly. Looking forward to the day when China’s common people can enjoy reasonable legal protection and as a foreigner I hope to be included in that too.

  • Dan (another Dan)

    I’m kind of curious.
    How does one distinguish between a bribe and a gift?
    It’s a general question, not specifically targeting the Chinese or Russians. I took a few international relations/political science courses before and talked to a few people from several different countries (different continents), and nearly all of them mentioned about the art of gift-giving to open doors as well.

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