A couple months ago, we did a post, entitled, China’s Anti-Corruption Drive. What Next?  In that post, one of our China lawyers listed out the following takeaways (pun intended) from a lunch at which GlaxoSmithKline’s (“GSK”) China corruption problems were discussed:

  • Nobody really knows where and when the Chinese government will strike next when it comes to corruption. We all just know that it is striking a lot more often than it used to and striking against a much more varied list of companies (the smaller foreign companies that have gotten hit have for the most part managed to stay out of the news).
  • If you are a foreign company doing business in China in an industry the government deems important, you should be extra worried/cautious.
  • Be careful out there and make sure you do whatever you can not to have your company become a China statistic.

In light of China’s recent actions surrounding alleged GlaxoSmithKline bribery in China, these takeaways seem even more relevant.

In Glaxo’s Ex-China Chief Accused of Ordering Staff to Commit Bribery: Move Signals China Is Willing to Take a Heavy Hand Against Foreign Executives, the Wall Street Journal wrote of how Chinese authorities are accusing GSK of having bribed hospital doctors and health-care organizations in an effort to increase GSK’s China sales.

In the last few days, media attention has focused on the accusations against GSK’s former China Operations Chief, Mark Reilly. China alleges that Mr. Reilly ordered his sales staff and employees to offer bribes. Mr. Reilly is potentially facing many years in a Chinese prison.

Back to the takeaways.

First, no one knows where, when — and I will add how — China will strike against bribery. It is now beyond dispute that China is more forcefully addressing its corruption and bribery issues and that as is so often the case when China steps up its law enforcement, it has no problem in going against foreigners. China’s actions against Mr. Reilly are intended to send a clear signal to foreign executives that they are not immune from prosecution for corruption in China. And it has.

Mr. Reilly’s indictment also highlights the second and third takeaways. Companies in industry sectors that are important to China must be particularly cautious with respect to their China operations.

Mr. Reilly’s indictment is a “game-changer” for anti-corruption and anti-bribery considerations in China, not so much because it involves any new claims or law, nor even because the Chinese government is doing anything all that unexpected. It is a game-changer simply because it has finally caused foriegn companies in China to realize that they are at massive risk in China and that they are going to need to reexamine their risk-benefit calculations. Most importantly, it has at last caused many of them to understand that the money to be made from allowing illegal corporate behavior and lax compliance programs pales beside the possibility of criminal prosecution.

Foreign companies that engage in illegally corrupt practices in China will face what they now are realizing is a very real threat of Chinese criminal bribery charges. You need only look at the titles of the following posts of ours to know that we have consistently advocated for foreign companies to be vigilent China’s corruption risks:

One of our China attorneys, Steve Dickinson, was quoted in a Reuters article predicting how China will be aggressively pursuing Both Mr. Reilly and GSK:

They [the Chinese government] could bring an action against the company and seek penalties against the company and I wouldn’t be surprised if they did that actually, because the claim is so egregious that the company could be charged and fined . . . .  But the thing is you can’t put a company in jail and they want someone in jail. They want Mr. Reilly in jail for about 10 years. That’s what they’re looking to do.

GSK is not going to be an isolated matter. China is going after GSK because it both wants to show its citizens that it is serious about reducing corruption and because it is serious about reducing corruption. Last month, one of our lawyers was a panelist at the Dow Jones Global Compliance Symposium, discussing corruption in China. All of the panelists readily agreed that China would be stepping up its anti-corruption program and that increasing numbers of foreigners would get caught in that net.

Bottom Line: If you are doing business in China, you must take the necessary measures now — including implementing or updating your anti-corruption compliance programs — to ensure your company fully complies with Chinese laws and regulations.

  • sfinder

    I disagree with the statement “no one really knows where the Chinese government will strike next when it comes to corruption”—if you do the close monitoring of government policy statements in your industry, you will have a good idea where the government will focus next. There have been clear statements multiple times by government regarding in policy statements concerning the pharma industry, for example. It should not be a surprise.

  • neil

    I suspect the truth is that people who are in business in China have been paying bribes for many years, and living with the risks, and will keep on doing exactly that, thinking that they know and understand the place better than any outsider who is advising them otherwise. Many years ago I took the decision not to go to China, despite all the opportunities there, because I didn’t want to live with these kinds of risks in an environment where I was an outsider. It was certainly the right decision.

  • satuon

    Are they targeting foreign companies specifically, or are they just treating them equally like the local companies? That is, are the foreign companies more likely to be prosecuted as the local companies?

    • Hard to know exactly, but we get the strong sense that the government is stepping up its corruption enforcement against everyone. Of course, there is nothing better than going after a foreign company as that not only helps root out corruption, but it increases government popularity.