It has been about a month since China’s police accused GlaxoSmithKline’s former head of China operations of making  illegal payments to Chinese doctors to boost GSK drug sales. Last fall witnessed the high-profile trial, conviction, and life sentence of Bo Xilai, the former head of the Chongqing Communist Party, on bribery charges. These two cases send a clear warning: Beijing is cracking down on corruption. Hard.

The GSK case shows that China will not tolerate corrupt activities by foreigners in sensitive industries, especially when such activities result in higher consumer prices. Beijing going after a foreign company for allegedly increasing health care prices is a smart political move, especially since the Chinese web is rife with complaints about exactly that.

But at the same time, it has become clear that Beijing is serious about rooting out corruption. The Party leaders in Beijing know that widespread corruption weakens their legitimacy and they are looking for ways to combat it. The important link between the Bo Xilai and the GSK cases is that they both involve defendants — a political elite and a foreign entity — whose arrests have engendered widespread discussion and sent a strong signal that no one in China is safe from prosecution. While Westerners are mostly complaining about the GSK arrests (multiple GSK employees have been arrested in addition to its former head of China operations), the Chinese internet is mostly loving it.

As a foreign company doing business in China, how should you react to the recent corruption crackdown?

First, resist the temptation to assume that China’s corruption crackdown is a bad thing for your business. China absolutely does engage in selective enforcement of its laws and foreigners absolutely will bear the brunt of that selective enforcement. But having said this, we are not aware of a single instance where the Chinese government has imprisoned an innocent foreigner or shut down a foreign business that fully complied with Chinese laws. In other words, if you scrupulously abide by Chinese law, you should be just fine, and stricter enforcement of China’s own anti-corruption laws should actually level the playing field between those who operate legally and those who do not.

Second, do not waste your time complaining about Chinese rules and regulations. The laws are what they are and your job as a foreign company doing business in China is to comply with them. American and British companies are already required to obey their own countries’ anti-corruption laws — the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act — that prohibit corruption globally, including in China, and so you really have no excuse for not already having an anti-corruption compliance program. However, you also should know that China’s anti-corruption laws are in at least some ways stricter than U.S. and British anti-corruption laws, so you cannot just assume that you are in compliance with China’s laws simply because you are complying with your home country laws. You must familiarize yourself with China’s anti-corruption laws and follow them as well.

Third, and most importantly, if your company has commercially benefited from actively or passively engaging in corrupt activities related to China, you need to immediately switch to operating a legally compliant business or you leave China.

You need to review what your China operation is actually doing (not what you sitting in New York or Los Angeles would like to believe it is doing) to ensure that your company is truly complying with Chinese law. I love telling of how a Beijing consultant I know listened to his client bragging on the phone of how his China operations were “100% corruption free” and then a few hours later (while sitting in the reception area waiting for his client to come out for lunch) heard one of that client’s employees engage in a bribery transaction.

And do not bother trying to justify violations by arguing that China’s laws are vague or that because other companies in your industry have gotten away with proscribed activities, you can too. Though both arguments may once have been true, in today’s China, any commercial gains from corruption are now outweighed by the legal and business risks. China has issued a clear directive that foreign companies bear the responsibility for ascertaining, understanding, and complying with applicable legal requirements and it is your job to heed that call.

All of this means that comprehensive compliance procedures are the new business norm in China. Note the word comprehensive; doing an internet search on your China employees and the Chinese companies with whom you conduct business is barely even a first step. You must know your employees and your Chinese counterparties thoroughly and that could mean months of due diligence investigations and document review. You then need to stay current with your knowledge through regular reviews.

China has made clear the risks of not complying with its laws. Your job now is not to complain, but to comply.

Sorry for the strong title on this post, but a recent Department of Justice (DOJ) case and China’s recent relentless crackdown on corruption mandates it.

The recent DOJ case was against Marubeni, a large Japanese trading company. The DOJ secured jurisdiction over Marubeni because some of the money used to bribe Indonesian government officials passed through the United States via a consultant who sent some of it on to Indonesia. We mention this to show the extreme jurisdictional reach of the FCPA, which makes countless foreign companies subject to its reach.

The DOJ treated Marubeni quite harshly by securing a guilty plea to criminal activity from the parent company (not just the subsidiary that actually paid the bribe) and by requiring Marubeni cough up 88 million dollars for a $357,000 bribe payment. Marubeni was treated so harshly for the following reasons, as set forth in the DOJ press release announcing the plea agreement:

The plea agreement cites Marubeni’s decision not to cooperate with the department’s investigation when given the opportunity to do so, its lack of an effective compliance and ethics program at the time of the offense, its failure to properly remediate and the lack of its voluntary disclosure of the conduct as some of the factors considered by the department in reaching an appropriate resolution.

Marubeni (the parent) received enhanced punishment because, among other things, it did not have an effective anti-corruption compliance program in place and because it failed to alert the DOJ to the bribe payments after learning of them. If you are a foreign company doing business in China, you should above all else take two things from this press release: you need to have an “effective compliance and ethics program” in place, starting now, and you should immediately report any FCPA violations of which you become aware.

In China and the Foreign Corrupt Practices Act, we talked about the need for companies (particularly American companies) that do business with China to have a corruption plan and policy in place:

Both China and the US (and England too for that matter) are cracking down on corruption.  If you do not have a corruption plan AND a corruption policy in place, you just increased your chances of being in a world of pain at some point.  To put it bluntly, which of the following do you want to be able to say to the Chinese authorities/US federal prosecutors if your company is ever accused of having engaged in corruption?

  • Oh, sorry, I didn’t realize that corruption might be a problem.
  • We did everything we could to try to prevent this.  Here is our policy manual which we require our employees to sign when they join our company and re-sign to acknowledge every year thereafter.  And here is a record of the full day mandatory anti-corruption training we give to our employees every six months and the written materials we provide to them each time.  As you can see, the employees implicated in this case each attended x number of these sessions.  I really do think we did everything we could do as a company to try to stop this sort of thing and I think you will find that we do take stopping corruption very seriously.

Pretty obvious, right?  The FCPA and China is a hot topic these days not only because of the traditional Chinese culture of gift-giving and the sensitivity of allegations of government-related bribery and corruption, but also because of the complicated question of whether or not executives at state-owned enterprises (which are common in China) can be considered “government officials” for purposes of FCPA enforcement.  Based on our own quasi-empirical evidence — based strictly on companies contacting our China lawyers — the FCPA worry level for companies doing business in China went way up right about when GSK started having its problems.

For more on China’s own crackdown on corruption, check out How To Do Business In China Without Jail Time? Kill A Chicken.

And if you want even more information about on China corruption issues, I urge you to attend the Dow Jones Global Compliance Program, which will be taking place in Washington D.C., on April 22 and April 23. I will be on a panel there, entitled, China: Making Sense of the New Bribery Crackdown, which according to the program guide, will focus on the following:

China’s anti-corruption campaign has highlighted risks for Western companies in their choice of business partners and hires and how they monitor third parties. Our panel of experts will apply their expertise from working in China to take the temperature of the nation’s business environment and how companies should approach it.

Because corruption obviously matters….

Our comment lines (as always) are open.

My friend Kent Kedl co-wrote an article for the Moscow Times today, entitled, Why Russia Is Just as Good as China.  In that article, Kent (who knows China as well as anyone) tries to argue that businesses should be just as interested in Russia as they are in China and that corruption in Russia is no better or worse than corruption in China:

For some reason, investors find Russian corruption harder to metabolize. It is puzzling. The problem is as corrosive in one country as in the other.

Wrong, wrong, wrong.  Dead wrong.

And I say this based on my law firm’s own experiences and on the experiences of foreign businesses, as reflected in the leading corruption indexes.  Let me start out by saying that I love Russia.  Or more accurately, I loved it when I was younger.  I studied Russian.  I have been to many Russian cities.  But I knew Russia and Russia is no China.  Not even close.

Let’s start with corruption.  Transparency International ranks China 80 out of 177 countries. Russia is 127, right between Pakistan and Bangladesh.  World Audit ranks China 61 out of 150 in corruption, with Russia at 110.  I have noticed the difference in concrete ways.

In Doing Business In China. Not That Bad, I compared corruption in China to corruption in Russia:

Back in April last year, I spoke at an Economist Magazine Business Without Borders event on China.  I mostly spoke about intellectual property protections in China, but my introduction dealt with China’s legal system as a whole.  Video of my introduction (but not the whole talk, near as I can tell) is online and was referred to me today.  I watched it and liked what I saw and I had it transcribed, per the below.

What I liked is how I try to put China and its legal system in their proper perspective, which is sometimes necessary.  It is sometimes necessary because we Westerners too often compare China to from whence we come, rather than to other countries closer to where China is socioeconomically.  This causes China to seem worse than it is, and also tends to exaggerate the difficulties in doing business in China.

Here’s my spoken intro, transcribed:

I’m going to start out not really focusing so much on intellectual property, but talking about China’s legal system generally. I’ve been dealing with emerging market countries for the last 20 years or so, mostly helping American companies navigate emerging markets. And my focus in the last 10 years has mostly been on China. In comparing China to other emerging market countries, my conclusion is that China’s legal system is actually more advanced and less corrupt than just about any other emerging market system.

And I’m not the only person who believes this.

As I was driving in this morning I was listening to BBC interviewing a Russian oligarch who was talking about how great Russia is for business, and he mentioned that Russia is actually better than China for business. And the interviewer called him out on that and said well you’re saying that, but no one else seems to say that. And he quoted a number — which I was going to quote today — which is that Transparency International (which is the most respected and the leading ranking of countries on corruption) ranks China 75 out of 176 countries, so it’s actually in the top half in terms of the least corrupt countries. The World Bank ranks China 91 out of 183 in terms of ease of doing business. And in my firm’s own experience, China is not that bad.

We have registered thousands of things with the Chinese government — trademarks, copyrights, licensing agreements — and not once have we ever been hit up for extra money. That’s not true in a lot of other emerging market countries where you do get hit up for a fee to expedite things. But you’re not really being hit up with a fee to expedite things; what they’re essentially telling you is if you don’t pay the fee to expedite your trademark application, your company trademark application is going to go into that “dark corner” over there.  And that generally does not happen in China.

Now, just yesterday, the new AmCham China member survey came across my desk. This is a survey of American companies that do business in China, and one of the questions asked of the members who have been involved in intellectual property litigation in China was what their impression was. And 63% of those members said that they were either satisfied or very satisfied. Now to me that’s an amazing number, because here in the United States, the word “satisfied” is usually not a word that’s associated with litigation.

So, I’m not saying China is perfect, it definitely is not and there are major issues there, major issues of corruption, major issues with its legal system, but what I am saying is for the average American company, it’s not that bad at all. And those are the sorts of things I am going to be talking about later.

I have been to China probably five times as often as I have been to Russia and yet I have been shaken down for bribes by police officers in Russia more than once and that has never happened to me in China.

I have a lawyer friend in a Russian province who tells me that it is a known fact (and trust me when I say that he knows) that 12 out of approximately 15 judges are on the take.

Now let’s talk about costs and safety.  Russia can be an incredibly expensive country to visit.  I remember a few years ago when one of my firm’s lawyers went to Moscow and I saw his $900 a night hotel bill.  I asked him why he needed to stay in such an expensive hotel (in Moscow).  His reply was that it was a Courtyard by Marriott and the Marriott was $300 a night more.  He went on to say that one pretty much has to stay within a certain area of Moscow for safety reasons and there just are not that many hotels there.

Violence against businesspeople is also more common in Russia than in China, not that it is unheard of in China. I am basing this both on the experiences of my clients and of what they tell me, and on what I have read.

Saying that both have corruption is meaningless.  The United States has corruption.  Even Denmark has corruption.  The issue though is not the existence of corruption; the issue is how prevalent it is and how much it impacts foreign businesses seeking to do business there.  Everything tells me that it is far worse in Russia than in China and I think I would be hard pressed to find anyone who disagrees with me on that.

I am not saying that American companies or European companies or countries from anywhere outside China and Russia should be ignoring Russia because I do not believe that at all.  I think Russia has a wealth of opportunities for those who have the staying power to cut through its difficulties.  Heck, we represent a number of foreign companies that are thriving in Russia and some of them have been doing so for going on twenty years.  What I am saying though is that Russia is difficult, for so many reasons, and if you are going to go there, it behooves you to understand this before you leave.

Please note that I am also NOT saying that China is not without its own major problems, because it isn’t.  And I am not saying that doing business in China as a foreign company is easy (or even fair), again because it isn’t.  But again, it just isn’t as bad or as risky as Russia.  It just isn’t.

I just got back from a long trip to Vietnam, which generally ranks a few notches below Russia in the various corruption indexes.  And yet I am very bullish on Vietnam for many reasons — not the least of which is that the US has deemed it to be in its political best interests to do whatever it can to assist Vietnam — and our practice there just keeps on growing.  At the same time, just as with Russia, its “difficulties” should not be downplayed.

One interesting thing in the Russia/China comparison is that we have found Russian companies are better able to function in countries in which bribe-paying is not a wise way to go, and we wrote about this in Bribe Paying Countries. China Is Second Worst:

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.

Anyway, Russia is worse than China, it just is.  But it does have its opportunities and it should not be ignored.
Kedl concludes his article with the following:
In the world of compliance, we talk about “adequate measures” that a company takes to protect itself against corruption. But the recent probes into health care companies in China are forcing companies to redefine the meaning of “adequate.” For example, one adequate measure is due diligence: doing background checks on suppliers, distributors and other third parties with whom you will do business. The same is the case in Russia. Whether you’re doing business in central Moscow or the provinces, you need to know as much as possible about your partner and the potential risks that a company presents to you.

In most environments, a quick look at a business database and a credit check are sufficient. But in China, where neither databases nor credit checks are possible, “adequate” due diligence means sending people out to discreetly talk to the partner’s customers, vendors, regulators and former employees to get a deep sense of who the company is and how they do business. Russia presents a strong parallel here, as well. Quick database or credit checks are either hard to come by or fail to present a complete picture.

Many of the problems with health care companies in China today are a result of not doing adequate due diligence. Who cares if there are a billion Chinese customers if you’re going to destroy your company and your reputation in trying to reach them?

So Russia may not have a billion potential customers. It may also be a popular whipping boy for its business behavior. But companies who avoid Russia because of corruption and rush into China because of its market size are missing the point. Both countries contain the same risks, and each harbors significant reward.

I agree with virtually all that he says directly above. Russia and china do “contain the same risks” in that any company doing business in either country should conduct the sort of due diligence Kedl calls for and they also should require their employees participate in full-fledged anti-corruption training taught by outside professionals.  But the degree of risk is different.
I think in the end though, it really comes down to the company and its product/service and its expertise and its risk tolerance.
I’m just saying….
What do you-all know?

Thank you GlaxoSmithKline (GSK).  Though I have zero idea whether GSK is guilty of anything in China, I do know that the media’s near daily coverage of the bribery allegations against it has made my job as a China lawyer much easier.

Let me explain.

One of the issues we constantly face as lawyers that represent mostly American companies doing business in China is the split between the home office and the China office.  For how that so often plays out, I refer you to an excellent article by my friend Janet Carmosky, entitled, What a China Team Needs, and to a somewhat controversial post I did many years ago, entitled, Your Chinese-American VP Don’t Know Diddley ‘Bout China Law And I Have Friggin Had It.  Where this “split” really manifests itself for us as lawyers is on whether our client will operate legally in China or not.

In cleaning out emails yesterday (on a very long flight), I came across an email from co-blogger Steve Dickinson (written a few days after GSK’s China problems went public) in which he described this tension in his own inimitable and pull no punches fashion:

Strange deal. In case you have any doubts, Mr. Y. [the head American in China] will get along perfectly with Mr. S. [a dishonest consultant he wanted to bring in to “assist” us in getting a legal matter done more quickly]. They see the world in the same way. However, our client says they want to eventually go public and so you can imagine what a connection with Mr. S. would do in that situation. Mr. Y. wants to run their China office in the gangster way he thinks is typical of ______ [Chinese City]. In that sense, he is right that we don’t understand “how China works.” However, he is wrong. We understand very well how China works. We also understand that “the way China works” is not acceptable to publicly traded investors and US based investor groups in general.

This is the problem.  Mr. Y. says this is the way it is done in _____ [Chinese City]. When he says that, he is absolutely correct in that a number of Chinese companies and fly by night American companies do operate like that there. That is probably what the advisors to GSK said to them and look what has happened there. The same will happen to our client if they keep relying on a guy like Mr. Y. His seeking out Mr. S. just shows you how his mind works. When I talked to Mr. K [a higher up in the US], he told me that he wanted a China operation that will pass muster according to US Wall Street due diligence standards and this is exactly what we are trying to give them. Mr. Y. does not understand that and he has no intention of delivering that. So, at this time, our client needs to decide what kind of operation it wants to run in China.

No matter what they think, they still need to consider what happened to GSK. If you run a crooked ship in China, you can be run out of town in just one day. That is the risk and that risk is very real. However, this is a classic case where their ENTIRE China operation rests on Mr. Y. So they cannot get rid of him and they cannot make him shape up. It is a very difficult situation. This is a serious matter and it requires careful consideration by our client. Again, consider what the advisors to GSK probably said: “don’t pay attention to those lawyers. They just don’t know how things work in China.” Famous last words ….… At any rate, I will say it again: this has nothing to do with the ______[legal matter we are now working on for the client]. The issue is how the client intends to operate in China. As long as they work through Mr. Y., the straight way will never work. It’s a big deal and it cannot be swept under the rug at this point.

We see this a lot. The lead person in China wants to move quickly and without much regard for legalities.  Our job as lawyers is to insist that things be done legally (and if they are not, we resign) and that means educating the home office on what that really involves.  While all the while, having to fight off accusations from the China office that we just don’t understand China as well as they do.  That may even be true, but our paramount job is to make sure our clients operate legally and thereby stay out of jail.

The GSK problem has made that easier.  Now when we tell our clients that they must abide by the law in China we are getting a lot more knowing nods. Thank you GSK.

In Big Pharma, Bad Medicine, and What GSK Can Teach MNCs in China, David Wolf does a great job setting out some of the lessons that must be learned from GSK.  Wolf nicely sets the stage with a brief description of where GSK is and how it probably got there:

The China operation of GSK stands accused of price fixing, of bribing doctors and hospitals by funneling those funds through travel agencies, hiding the bribes as travel costs and thus engaging in fraudulent financial accounting, and of conducting an internal investigation that failed to turn up any of these actions — actions the company now acknowledges were perpetrated by at least some employees.

This is an ugly litany, but it is not a new one. For over a decade it has been something of an open secret that some major pharmaceutical firms have been pursuing some variant of the pay-for-prescribe model. Doubtless, over the years many of those companies were counseled to cease such practices by employees and advisers. (There is some speculation as to why GSK was singled out as the monkey that would kill the chicken, but I’ll leave that to others.)

But one wonders whether, under the circumstances, GSK had a choice. It is a China business truism is that once a company has been through the market entry obstacle course and has begun generating (often spectacular) profits here, the pressure to sustain and grow that flow of cash is enormous. News about a company’s business in China moves the share price, and the prospects for business in the PRC is a key topic at a growing number of quarterly earnings calls. And the question is never “how” a company is doing business in China, but “how much.”

Capital, like justice, is willfully blind.

Wolf then nicely sets out why the Chinese government LOVES (yes loves) going after foreign companies on bribery charges:

In so doing the government has sent a powerful message not once, but twice: no industry or company, however vital to the well-being of the Chinese people, will be allowed to engage in illegal and unethical business practices, and the foreign firms will be punished first and with greatest vigor.

In so doing, the government accomplishes three aims: it slows or stops practices likely to enrage the populace; it sends an unequivocal warning to its own local industry; and it cripples or eliminates foreign competition for its own local firms.

He then comes up with the money quote, which any foreign company doing business in China ignores at its own peril:

To every other multinational company in every other industry in China, ask not for whom the bell tolls. Xi Jinping’s administration has put the world on notice that no matter what local firms do, unethical and illegal business practices on the part of multinationals in China will no longer be tolerated, and in fact they’re coming for the foreigners first.

It is time for an immediate and thorough self-examination for the kinds of business practices that will not withstand government or public scrutiny. The time to clean up is right now, even if it cost contracts, relationships, and hard-won business. Failure to do so only puts off the reckoning and ensures that the cost will be much higher when that reckoning comes.

He concludes by saying that the future in China will belong to foreign companies “prepared to live and die by a better standard of behavior, not to those who follow the lead of the meanest actors in the market.”  Forget about the “everyone else is doing it” defense.

But having hammered home the importance of acting ethically in China, how in fact can a company on the ground there actually accomplish that?  If it were easy, my law firm (and virtually every other law firm that represents companies doing business in China) would not have a lawyer who does almost nothing but help companies comply with various corruption acts.  But generally, you should, at minimum, be doing the following:

  • Have Rules.  You cannot expect your China employees to follow ethical rules if you do not have such rules in place.  You should make clear your stance against corruption when hiring, in your policy manuals, in your contracts, and in the due diligence you conduct of third parties.
  • Make Sure The Rules Are Being Followed.  Do not stick your head in the sand. If your China office is doing exceptionally well, there may be a reason for that.  If they are doing exceptionally badly, maybe they are at greater risk.  In any event, make it your job to know what is going on in your China office, beyond just revenues. Make sure that the rules are being followed.
  • Make Sure Your People Know the Rules Exist for a Reason.  I cannot tell you how many times one of my clients has told me that when confronted regarding a rules violation their employee insisted that he or she had done something for the good of the company and that they thought the rule they had violated was just there to create plausible deniability.  You absolutely must make sure that your people know that you truly do expect them to follow the rules and that there will be severe punishments for those that don’t.
  • Severely Punish/Fire Those Who Violate Your Rules.  You want your people to know that you take your rules seriously? Kill a chicken.
  • Know the Laws.  You can’t have good rules for your people without knowing what is legal and what isn’t.  This means that someone in your company must stay current on the corruption laws that might impact your business.

Got it?

Been a bit consumed preparing for a China seminar I am co-hosting.  Today I spoke with Sage Brennan, one of the consumer products panelists and we ran through some possible questions.  I threw out the following question as a possibility:  “What are some of the most pervasive myths you see about the Chinese consumer.”  Sage’s response was that would take him at least an hour to answer.  I then said in mock surprise: so you mean all the headlines about China’s consumers are not accurate.  We laughed.  I told him it was the same way in law and that there are certain things that are viewed almost as gospel and they are just flat out wrong.

My favorites follow:

1.  There is no point in having a contract with a Chinese company because they will just violate it anyway.  For a rebuttal of this, check out  China Contracts Make Sense.

2.  There is no point in registering your intellectual property in China because it will get stolen anyway.  For a rebuttal of this, check out China: Do Just One Thing. Trademarks.

3.  Corruption makes China impossible.  For why this is not exactly true, check out China Corruption By The Numbers.

4.  For some of the reasons set forth above, there is just no point in suing a Chinese company in China.  For a rebuttal of this, check out Litigating in China.

What myths about China are there in your industry?

I have a policy that if I receive five or more emails asking me to write on something, I will write on it.

I very intentionally have not written on China’s recent train crash, but I have received well over five mails either suggesting I do so, or calling me out for not having done so.  Interestingly, I have been called out by both “sides” (as if there should be sides on something like this).  I pull the following two emails to summarize the two sides:

EMAIL 1:  I am not surprised you have remained noticeably silent regarding China’s high speed train crash. I guess it just doesn’t fit in with your constantly telling us how great China is and how much it is becoming just like us. Your failure to write on this just confirms for me that the only reason your blog exists is to make money for your law firm. 

EMAIL 2: I am surprised you have not done anything on the recent train crash. It fits in perfectly with your always thoughtful writings on how China is unsafe and overrated and is not going to be taking over the world any time soon. To me, this crash is great proof of what you are always saying.

I kid you not.

I am not going to write about the train crash.

I am instead going to explain why I have not written about it. My main reason for not having written about it is because (call me old fashioned), but I am appalled at the idea of instantly using a tragedy to advance any view. People died in that train crash. Real people.

I have nothing to contribute in terms of what caused the crash and one train crash, standing alone, in a massive country like China is not indicative of anything. I have not seen statistics regarding China’s train system so I cannot comment.  Also, no matter what those statistics say, I have to believe that traveling by train in China is much safer than going by car or by bus.

More than anything though, I do not want to use this crash to prove a point. Any point. I find that distasteful. It is wrong to use the dead to market ideas to the living. Both deserve better.

Here are some pretty unbelievably insensitive and very recent examples of people using tragedy for their own ends:

1.  Some complete idiot (and ungrammatical) blogger used Amy Winehouse’s death to let loose with a death threat against Israel. I quote directly from the post:

So Amy Winehouse, like so many others, is now dead and gone from over indulgence, a mentality that says nothing can hurt me, I am powerful, and I am invincible.


So, this brings me to the evil rogue state of israel, which, funnily enough, as it turns out, has quite a lot in common with Amy Winehouse, exept she had a great voice and didnt kill people constantly, they both suffered from the same affliction.

Once upon a time the mighty dinosaurs ruled the earth, and smaller life forms trembled at their feet, but nothing lasts forever, and just as the path chosen by Amy Winehouse caused her death, the path chosen by Israel will also cause it’s ultimate destruction. 

But, guess what? Israel is not “God” and ultimately what killed Amy Winehouse will also kill off israel as well. All we have to do is wait, and just keep on chip, chip, chipping away at the out of control, over excessive, over indulgent, spoilt brat killer bully that we now know as Israel.

2. Stan Abrams of China Hearsay did a post, entitled, “The Most Insensitive Story on the Wenzhou Rail Crash.” in which he awarded “the coveted insensitivity award” to Megan McArdle for her story in the The Atlantic, “The Significance of China’s First High-Speed Rail Disaster.” China Hearsay points out how Ms. McArdle used the train crash to tell “us that democracy is better than autocracy and that the United States should be thankful for the infrastructure system that it has.”  Stan goes on to say that a “lot of people are talking about the Wenzhou crash and what it says about corruption, incompetence, the fast pace of infrastructure construction, and so on. Plenty of questions out there. But taking this one crash and using it to somehow vindicate the deplorable state of U.S. infrastructure is laughable.”  I agree.

3.  Countless people have sought to use Norway’s killings to make their points and many articles on the killings have been in poor taste. But at least there is some basis for getting political on that since the killer ascribed his actions to his political (loosely defined) beliefs. 

Before the above, we had Pat Robertson on Haiti and Sharon Stone on a China earthquake. I could go on and on.

I remember hearing that really good books on an event are almost never written before at least thirty years have gone by since the event occurred.  Seems there ought to be some similar saying about a grace period before people start exploiting a tragic event for their own purposes. Thirty days maybe?

You want a story on China’s train wreck? I’m not going to wade in those waters; I’m just not the guy.

NOTE: i wrote this post before the issue of the Chinese people’s dissatisfaction regarding the handling of the aftermath of the wreck had become so front and center. I do not intend for this post to in any way take away from any of those issues.

UPDATE: Morissey (the rock singer) says eating meat is worse than the Norway murders. I haven’t had any meat for 17+ years and I think he’s an insensitive idiot and clearly off his rocker.

I gave a talk yesterday at a China seminar on litigating against Chinese companies in which I discussed suing Chinese companies in China. At one point, while musing about the cases my firm has overseen in China I remarked that I was not aware of any cases having been decided based on corruption. I then riffed on how we also had never once been hit up for “extra” fees when registering a company or registering IP or registering anything else.

I then talked of how corruption in China is somewhat overrated in that China is usually ranked in the high middle of most world corruption indexes, but with respect to foreigners should perhaps be ranked even higher. I said this because corruption involving foreigners is way lower in China than it is involving Chinese citizens. 

I then mentioned how in one country in which my firm does a lot of work, we are often asked for extra money to “expedite” our filings, which is really code for telling us that if we do not pay this extra fee, our registration will languish in a corner for an extra six months. That country does extremely (almost shockingly) poorly in the TI ranking.

Upon further reflection, however, this domestic-foreign dichotomy is probably true in many other countries as well, as I know that to be the case in at least a few other countries as well. After the seminar, I went out with a couple of the speakers and one of them, a very experienced China practitioner, revealed that he too had never been hit up for a bribe. 

We then talked though of how foreign companies must still be very much on guard for corruption but our focus from that point forward was on one’s own employees. We talked of examples we had seen of companies being asked to give kick-backs in buy-sell transactions and of China-based companies of which we were aware whose existence pretty much depended on shady dealings.

So I am not saying corruption is not an issue for foreign companies doing business in China, as it obviously is. For more on that, check out “The FCPA And China. Do I Need To Get All Loud On You?” But when it comes to handling China’s legal formalities, I ain’t seeing it.

And apparently I am not alone in this. 

Transparency International just came out with its 2010 Corruption Perceptions Index and China does fairly well in it (again).  Denmark, New Zealand, and Singapore come out tied for least corrupt — no big surprises there. Canada is number 6, Hong Kong 13, Japan 17, the United Kingdom 20, Chile 21, and the United States 22.  Maybe I am too close to see things right, but I find it very difficult to believe Japan is less corrupt than the United States, but whatever.  Taiwan is 33, South Korea 39, Macau 46, Malaysia 56, China and Thailand tied at 78, India 87, Indonesia 110, Mongolia and Vietnam 116, Philippines 134, and Cambodia, Russia, and Laos at 154. For an interesting (and scary) article on what it can be like to practice law in Russia, click here

Without nit-picking too much, these numbers seem very roughly accurate to me.

What do you think? Any real surprises here?

New York mega-firm Hughes Hubbard & Reed (home of eDiscovery guru and friend Ross Lipman) has just come out with its incredibly current, helpful and thorough “FCPA/Anti-Bribery Mid-Year Alert 2010” [link no longer exists](h/t The FCPA Blog).

If you are doing business in or with China or with any foreign country, you must put this Mid-Year Alert on your reading list and then you must actually read it. It covers recent events in China throughout and it also has a section devoted to exactly that.

Though we foreigners love to poke fun at the “official” China press, it can be a good source for what Beijing is thinking and planning to do. Today’s issue of the China Daily makes clear the Chinese government’s position on foreign company bribery: Beijing does not like it.

In an article entitled, Multinationals also targeted in China’s anti-graft move the China Daily states that “China” “has warned multinational companies they are among its targets as it seeks to weed out corruption.” The article notes that bribery cases in China rose to 4,406 in the first seven months of this year, up 8.2% from the corresponding period last year.

The article goes on to quote a warning to multinationals doing business in China, straight from the Central Committee of the Communist Party:

Li Yufu, deputy director of the leading group on anti-commercial bribery under the Central Committee of the Communist Party of China (CPC), said that China will strengthen its cooperation with other countries to expose and punish multinationals who are engaged in commercial bribery in the country, while ramping up efforts to bring to heel those Chinese nationals who fled abroad after committing similar crimes.

It then briefly mentions the recent corruption cases involving French company Carrefour and German company Siemens.

I see this as just another example of Beijing increasing its authority, of China stepping up its legal enforcement, and of China going after foreign companies  to test the waters and to placate its own people.

The easy advice here is do not bribe anyone and make sure your employees do not bribe anyone either. And if you do not have such a policy in writing, in both Chinese and in the primary language of your company, I suggest you spend this holiday season getting it into place.

Transparency International just came out with its newest ranking of countries by corruption and China comes in tied with Morocco, Suriname, India, Peru, and Brazil for 72nd out of the 179 countries rated. China’s ranking (at least as compared with those countries of which I have familiarity) seems about right to me.

Denmark, New Zealand and Finland tied for first place. Singapore placed 4th, Hong Kong 14th, Japan 17th, Taiwan 34th, Korea 43rd, and Vietnam 123rd. Not surprisingly, corruption in most countries closely correlates to their economics. Russia is a notable exception to this, placing 143rd.

I would have liked to see how China’s ranking this year compares with previous years, but I was not able to find previous lists.