Corruption risk complicated in China as bribery crackdown takes hold

The AFN poll of security managers working for multinational companies suggests that President Xi Jinping's anti-corruption campaign has not led to a reduction in commercial corruption. However, the fact that companies are seeing an increase in the number of corruption cases reflects improved compliance programmes, said AFN. The report, written for the AFN by law firm Dorsey & Whitney and advisory firm Blackpeak, also found that commercial corruption-as opposed to corruption in the public sector-is evolving, making investigation work more difficult.hideCorruption has been driven under the table in China, according to Nick Burkill, Chair of the AFN and Head of the London trial department at Dorsey & Whitney. With corruption becoming more closely scrutinised, corrupt employees are becoming more careful, he said. For example, corrupt individuals now avoid meeting at lavish dinners or social events, a once-useful indicator of corruption for investigators. "Our research shows that it is harder to detect corruption in China than it once was and that companies need to be more careful," according to Mr Burkill. Companies will not be able to eliminate the risk of corruption when doing business in China or elsewhere, explained Mr Burkill, but they can identify and minimise risk. Commercial corruption is being pushed beyond China's borders in a bid to make it less detectable in China. Mr Burkill suggests companies seeking signs of corruption investigate offshore, in particular at shell companies in Hong Kong, Singapore and Australia. Under its current president, China has increased its focus on public corruption, such as when a multinational has dealings with the government or a state-owned company. The government has yet to focus on corruption in the private sector although multinational companies must still be watchful for misdemeanours, according to Mr Burkill. Companies are just as likely, if not more likely, to face investigation for corruption related to their businesses in China from national regulators in the US and Europe, according to Mr Burkill. He noted that eight out of the ten largest fines dealt out by the US Department of Justice for corruption were to non-US companies. Anti-corruption legislation, such as the Foreign Corrupt Practices Act Legislation in the US and the Bribery Act in the UK, are far reaching. The US regulators have investigated and fined multinationals for overseas corruption through 'relevant acts' that link them to the US. For example, if meetings that involved corruption took place in the US, or if bribes were paid in US dollars, the company and its employees would be open to prosecution. In addition to fines against a company, directors and officers are also open to extradition and criminal prosecution for breaches of anti-corruption laws. In China the penalty for corruption includes execution. The scope of anti-bribery legislation in the US and Europe also extends beyond a company's direct dealings. Under US and UK laws, multinational companies are exposed to prosecution for bribery and corruption through their business partners, agents, distributors and subsidiaries, explained Mr Burkill. They are also potentially exposed through supply chains, he added. Companies should carry out due diligence on agents and partners. Anti-corruption programmes should have provisions to reduce the risk of third parties offering bribes on their behalf. There have been a number of high profile bribery investigations of multinational companies in China, most notably UK pharmaceutical company GlaxoSmithKline (GSK). The company was fined £297m in 2012 by the Chinese authorities, while GSK's former head of Chinese operations, Mark Reilly, and other executives were given suspended prison sentences. GSK is being investigated by the UK's Serious Fraud Office, which has been liaising with Chinese authorities. French and Swiss drug companies Sanofi and Novartis were also caught up in bribery allegations in China, as was AstraZeneca. French food maker Danone also faced bribery accusations related to its Dumex infant milk powder operation in China. Many companies have been fined in the US for corruption related to their Chinese operations. For example, New York-based cosmetics company Avon Products reached a $135m settlement with the US Department of Justice after pleading guilty to paying more than $8m in gifts to Chinese officials. Industrial systems company Johnson Controls, pharmaceutical company Eli Lilly and instrument maker Bruker Corporation have all admitted breaches of the Foreign Corrupt Practices Act for their business dealings in China. Mr Burkill noted that large companies have shifted from an annual review of anti-corruption policies to a rolling programme as they try to keep pace with the changes in corruption risk. He said that regulators will also want to 'test that a company's anti-corruption programme is real and is being enforced'.

Corruption risk complicated in China as bribery crackdown takes hold

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