In Part 1 of this series, I discussed how Chinese staff of foreign companies operating in China typically view China compliance very differently than the foreign company itself. In Part 2, I talked about how the views of Chinese staff can negatively impact the foreign company’s China compliance efforts. In Part 3, I discussed one aspect of what often happens with the local Chinese staff when the foreign company starts to enact real changes in its operations.

Today, I focus in on how Chinese staff will seek to undermine those who it sees as behind the foreign company’s seeking to  implement an anti-corruption and compliance program, and what you as the foreign company must do in the face of this.

In Part 3, we described how employees firs react to a compliance program:

Typically when a foreign company begins establishing strong anti-corruption and compliance polices for its China operations, it will encounter strong resistance from some or all of its Chinese staff. There are multiple reasons for this and the one usually given by staff is the fear that acting within the law will hurt company competitiveness. But there is also usually another reason for resistance — this one unstated — and that is the fear by staff that their kickback gravy train will be ending or, even worse, that their previous kickbacks will be revealed and they will be fired.

It is not uncommon for Chinese employees to view their job as a platform for more than just a salary; it is also a platform for leveraging additional income through kickbacks. This view is even more prevalent among employees of foreign companies, which are viewed as easy marks.

When a foreign company initiates or toughens its China compliance and anti-corruption programs, the local employees cut off from their (usually substantial) additional income stream, commonly get quite angry about this. Usually, they start out by trying to convince the foreign company that it is making a big mistake and that its actions will prevent it from being competitive in China. They also will oftentimes accuse the foreign law firm for not having “any clue about how business is done in China” and demand that it be fired. My firm’s China lawyers have many times faced this.

You absolutely must be prepared for at least some members of your China staff to viciously go after those who seek to bring the China operation in line. You can expect to experience some or all of the following:

  1. The staff involved in kickbacks asserting that someone else insisted that they take the kickbacks.
  2. The angry staff insisting that the entire compliance clean-up operation is being done to take out certain people in the company.
  3. The angry staff insisting that some of those involved in the clean-up operation be fired. In particular, be prepared for attempts to be made to frame those people supporting the clean-up.

All of the above are much more likely to happen against a foreign employee than against a domestic employee. We have seen local staff provide “evidence” of improper expense reports against foreigners, make allegations of sexual harassment against the foreigner(s), and come up with “new discoveries” that the foreigner is no longer eligible for a work visa, just to name a few examples.

As shocking as the above may be to you, what we find even more shocking is how often the foreign company takes the bait either because they truly believe the misinformation they are being fed or simply because they lose the stomach to continue moving forward with the cleanup.

When our China lawyers take on a China compliance/anti-corruption program, they warn our clients about the above (and about a number of other things as well) and stress that if they are not going to follow the program through to completion, it is a mistake even to start. Stopping midway with a compliance program will inflict the pain but fail to provide the benefits. Compliance programs are critical for China, but only if done to completion.