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China Compliance: Don’t Rely On Your China Staff

Posted in Basics of China Business Law, Legal News

You’ve heard the message. If you want to keep operating in China and stay out of legal trouble, the time is now to get your China house in order. And this is quite possible.

But, can you rely on the advice of your China staff to establish corporate and regulatory compliance procedures, as well as anti-corruption policies? The answer is a weak (or is it a strong?) maybe. The problem is that far too often your local China staff views compliance and legal issues far differently than you or a government audit would.

In Dead and alive: metaphors for (dis)obeying the law U.Penn’s language log explains a common Chinese phrase used during reporting on the recent OSI food scandal, and by doing so helps highlights the problem:

规矩是死的,人是活的。… “It conveys a fairly typical Chinese attitude towards any rules/laws/regulations: they are made to break, bend and be compromised. View it [sic] positively, this indicates a way of problem solving. [emphasis added]”

You want your Chinese staff to solve problems, but you must be wary of how they do so, because breaking, bending or compromising rules/laws/regulations does not work for foreign companies doing business in China. Foreign companies with a history of local-style problem solving are low hanging fruit for Chinese government bureaus looking to demonstrate they have the will to enforce their own laws and that they care about the citizenry they are to serve.

Our China lawyers are always getting contacted to help foreign companies after they have gone through the following:

1. Foreign company sees need, and has some will to become compliant with Chinese laws and regulations and to establish a “no bribery policy” and it so instructs its employees.

2. Upon being so instructed, its Chinese employees think that “if we follow all these stupid rules we cannot accomplish anything”

3. The Chinese employees insist that they understand the company’s new “get clean” directive but little to nothing changes. Nonetheless, the foreign company relies on its local Chinese employees, believing that everything is just fine.

4. A government bureau shows up for an audit.

5. The foreign company learns that everything is not fine and that claiming that it was only doing what its Chinese employees insisted was legal and right provides it no relief. In fact, it oftentimes learns that claiming to have done only what some Chinese government bureau itself told them it to do also provides no relief.

6. Now, in the crosshairs, the foreign company realizes they require assistance beyond what their Chinese staff can give. At this point, they call our China lawyers.

Our job at that point is to try to reduce the sanction because it is usually too late to avoid all consequences. Without question, it is easier to get legal before the government knocks at your door. And relying on your local China staff to get legal rarely is going to work. For more on this is the case, check out Your Chinese-American VP Don’t Know Diddley ‘Bout China Law And I Have Friggin Had It.

An important first step to preventing a compliance/corruption problem is establishing a strong anti-corruption policy that zealously works to prevent your company and your entire staff from violating the China’s anti-corruption laws and those of your home country. At minimum, this means you have provided an Anti-Corruption Compliance Manual, written in both Chinese and in English, to all of your staff, and that you regularly conduct staff training to ensure the necessary shift in company culture takes place. This also means that you have objective third parties audit your company for compliance and then you take actions necessitated by that audit report.

And that leads to our next post focusing on compliance, which will discuss further why you need to get compliant now.

  • Lucas Blaustein

    This is spot on! What a great article!

  • Stephann

    so true 。。。 but the funny thing is in the end how do you solve this problem with the big fine from too much bribery without getting to chinese court and destroying your companies future in china? with an under table bribe …

  • Gary So

    Well, if you do all these requirements, it will be costly and lack of flexibility, eventually the business must go bust.