Last week, Rich Brubaker of All Roads Lead to China did an excellent post on China business risks, covering, among other things, corruption/bribery. An interesting mini-discussion on bribery has ensued in the comments section and in one of those sections, Rich listed out what he sees as the three prime examples of foreign companies engaging in corruption in China:

I think there are three cases of corrupt foreign firms:

1) Calculated risk-takers (largest category in my estimation)

The risk-reward ratio is acceptable for these firms. It’s easy to counter with a hypothetical example in which the company decides that it’s worth it: for example, a small-medium sized firm may figure it faces a ~0.01% of being busted, with a 50% higher chance of getting a $10 million contract. Of course they hire middlemen and feign ignorance if caught.

Type: small-medium foreign firms, some huge MNCs

2) China rogue exec (principal-agent problem)

China Exec has a lot of upside to making big profits, and does not fully internalize downside to the firm. My understanding is that foreign execs are virtually never subject to criminal prosecution in China, so absolute worst case is being fired and deportation (I’m not sure how many have been prosecuted under FCPA, but I’m guessing not very many). Global HQ may also look the other way.

Type: medium-huge MNCs

3) Uniformed or in denial of risks

The firm knowingly approves bribery in China, without considering the risks. As you paraphrase, ”well, all my Chinese competitors pay bribes to win contracts, so I have to”…

Type: all, but riskiest for huge MNCs (biggest target, highest global reputational costs)

Though I find his list interesting and probably accurate, I have my doubts it needs such fine parsing. My experiences tell me it is less complicated. When it comes to getting caught, there are essentially two kinds of companies. One kind makes very clear it will not permit corruption and it does whatever it can to make that very clear to its people. The other kind does a lot of winking and nodding and other things to make clear that though “I personally don’t like it, the less I know about it, the better.”

Am I being too simplistic?  Who out there has paid bribes?  Who out there is with a company that has paid bribes?  What are you seeing out there?  BTW, this blog, unlike some others, has absolutely no problem with commenters using assumed names. We delete comments because of inappropriate content, not anonymity.   

Print:
EmailTweetLikeLinkedIn
Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.