China: Multinationals Need To Pay Attention To China's Anti-Corruption Campaign

The People's Republic of China continues to modify its anti-corruption enforcement regime through its new pilot program and the adoption of recent amendments to its anti-corruption laws.

In China, there are two major statutes that control anti-corruption activity: the Criminal Law of the People's Republic of China ("CL") and the Anti-Unfair Competition Law of the People's Republic of China ("AUCL"). The CL addresses commercial bribery, and the AUCL addresses both official bribery and commercial bribery. Official bribery involves bribery of a government official, while commercial bribery covers offering a bribe to a representative of a private organization. Importantly, unlike the U.S. Foreign Corrupt Practices Act ("FCPA"), which only proscribes making payments directly or indirectly to public officials, the CL and AUCL prohibit bribing private individuals and entities. In this respect, the CL and the AUCL share characteristics with the United Kingdom Bribery Act.

Since taking office in 2013, President Xi Jinping has led an aggressive anti-corruption campaign against government officials. According to media reports, China's anti-corruption campaign has successfully punished more than one million officials, seized more than $1 billion in assets, and extradited thousands of fugitives.1 Consequently, China improved four places in 2016 on the Corruption Perception Index to number 79 in the world – providing even more evidence that multinationals must take notice of China's efforts by ensuring that their compliance programs are keeping up with China's zealous anti-corruption efforts.2

Pilot Program Designed to Combat Corruption

Recently, the Chinese government launched a new pilot program granting authorities in the national supervisory commission with the powers to detain suspects, freeze assets, and even render a conviction.3 The new pilot program is designed to act as a check on government officials, including the officials within China's anti-corruption agency. Chinese authorities insist that "trust cannot replace supervision."4 Although the program is currently limited to Beijing, Shanxi, and Zhejiang, it is expected to launch nationwide shortly.

Amendment to China's Anti-Corruption Law

On February 26, 2017, China released a revised draft amendment to the AUCL which governs commercial bribery (the "2017 Amendment"). Although the 2017 Amendment does not define what constitutes a commercial bribe, it states that a company may not use money, property, or other means to bribe a counterparty to a transaction or a third party that can influence a transaction. Further, the amendment also prohibits a counterparty to a transaction, or a third party that can influence a transaction, from taking bribes. Additionally, the 2017 Amendment implements a books and records requirement mandating that both parties involved in the transaction keep accurate records. Finally, companies will now be liable for bribes carried out by their employees if the bribes were meant to seek an unfair competitive advantage, unless companies can prove that the employees acted solely in their individual capacity.

Impact on Multinational Companies

China's anti-corruption campaign continues to raise the stakes for multinational companies operating in China. For example, an Australian casino operator, Crown Resorts Ltd., has decided to cease its efforts to attract Chinese high rollers to its Australian casinos, as a result of Chinese authorities arresting eighteen of its employees under suspicion of violating China's anti-corruption laws.5 Casinos are not permitted to advertise their facilities as a gambling destination on mainland China, where gambling is illegal. However, casinos may advertise their destinations generally.

Accordingly, the following are potential consequences multinational companies operating in China should consider as a result of the latest changes in China's anti-corruption climate:

1) Increased Scrutiny: With both the pilot program and changes to the law, Chinese law enforcement officials continue to gain authority to investigate and prosecute anti-corruption claims. In certain instances, Chinese investigators can now detain suspects, freeze assets, and question individuals without an attorney present – actions that were previously reserved for prosecutors and courts. This broadened authority to enforce anti-corruption policies will impact individuals, entities, and third-party engagements.

2) Additional Amendments to the Law: Should the pilot program expand from its currently limited jurisdiction to the entire country, as is expected, this expansion may spur more amendments to the Chinese anti-corruption laws that specifically reflect the success of the pilot program.

3) Sounding the Alarm Abroad: Multinational companies that run afoul of China's anti-corruption policies may sound the alarm for other foreign authorities to begin an investigation under laws such as the FCPA or the United Kingdom Bribery Act.

Measures Multinational Companies Should Take

In order to better defend themselves against anti-corruption claims, multinational companies should consider the following measures:

1) Revise policies and procedures to reflect China's recently enhanced anti-corruption landscape;

2) Implement employee training programs that highlight the newly revised laws and amendments;

3) Conduct spot tests or audits to ensure that updated procedures and training are effective.

We hope that this alert offers guidance to readers on how to navigate China's constantly evolving anti-corruption campaign. Please feel free to contact any member of BakerHostetler's White Collar Defense and Corporate Investigations team with any questions or concerns.

Footnotes

1 BBC News, China combats corruption within anti-corruption agency (Jan. 9, 2017), http://www.bbc.com/news/world-asia-china-38551841.

2 The Corruption Perception Index is created by an organization called Transparency International. The index highlights the connection between corruption and inequality within a country. The lower a country scores on the index, the higher its corruption perception. Typically, corruption perception maps are colored from top-scoring countries, which are yellow, to lower-scoring countries, which are red. See Transparency Internatiaonl, http://www.transparency.org/news/feature/corruption_perceptions_index_2016.

3 Wall Street Journal, China Rolls Out New Graft Watchdog (Jan. 10, 2017), https://www.wsj.com/articles/china-rolls-out-new-graft-watchdog-1484042579.

4 BBC News, China combats corruption within anti-corruption agency (Jan. 9, 2017), http://www.bbc.com/news/world-asia-china-38551841.

5 Wall Street Journal, Casino Operator Crown Puts Big China Play on Hold (Feb. 23, 2017), https://www.wsj.com/articles/casino-operator-crown-puts-big-china-play-on-hold-148783720.

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