What are the major corruption issues facing Western companies operating in China?

Sales representatives of companies doing business in China are often tempted or forced to secure business by making improper payments to customer employees or government officials. If the recipient of the payments is a government employee, and the company offering or making the payments is a US company, such business practices violate not only Chinese (PRC) law, but also the US Foreign Corrupt Practices Act (FCPA). A Chinese domestic company engaging in such practices will also raise FCPA issues if it becomes the merger or acquisition target of a US company.

When providing anti-corruption training, what kind of programme do you believe is most effective?

We will initially discuss our proposal with the company’s general counsel, and follow it up with face-to-face training with employees, in special seminars. By using seminars, it allows employees to ask us questions, which we can then feed back to the company.

It’s also important to get the company’s senior management involved in any anti-corruption training programme. Unless a compliance training programme has head office support, it can be very difficult for local management to persuade their local employees to take the issue seriously.

In China, we will often provide an outline of both Chinese anti-corruption law and the FCPA in the same meeting. Some practices that are permitted under Chinese anti-corruption law are not permitted under the FCPA, so there are a lot of grey lines we have to discuss. US law tends to be more restrictive about what companies can and cannot do, especially when a company is dealing with government employees or related enterprises. Most Chinese employees understand what a government agency is, but they do not always associate state-owned industries as being part of the government for FCPA purposes.

When dealing with pure PRC anti-corruption law, we try to take a pragmatic approach in advising what is and what is not allowed.

You recommend creating a hotline for employees to "blow the whistle" on potentially corrupt corporate behaviour. How should that work in practice?

This will always depend on how extensive the multinational company’s Chinese operations are. If they have a strong presence in China, they may have the infrastructure in place to investigate an allegation properly. It doesn’t really matter where the investigation takes place – what is important is that the investigative team have the expertise and capability to carry out a proper investigation.

Many western companies are investing in China by buying up local Chinese companies. Do you think there are any particular industry sectors in China when FCPA compliance is a particularly important issue?

ome sectors, such as the telecoms sector, are notorious in China for bribery. Western companies have to evaluate the impacts of implementing FCPA compliance on the value of the target company, to determine whether to move forward with the acquisition in those industries.

During the due diligence process, corporate counsel should work closely with financial advisors, to assess whether any unusual payments made by the target company are justified, especially those relating to consulting fees, marketing expenses or agents’ fees. If, in their assessment, they decide that any legal risks are manageable, they should consider obtaining indemnity insurance and/or other means to cover potential liabilities.

Once a merger or acquisition has been completed, the company’s in-house counsel must instruct the newly formed or acquired company to stop problematic behaviour. This can be achieved through the adoption of a written code of conduct and training, implementation and enforcement of an ongoing compliance program, and internal controls.