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- 1. Compliance & Ethics Professional ® a publication of the society of corporate compliance and ethics www.corporatecompliance.org May 2016 Meet Jay Martin Vice President Chief Compliance Officer Senior Deputy General Counsel Baker Hughes Incorporated Houston, TX 41 The 3 Cs of businessresumption John J. Graham and Cris Mattoon 37 China’s anti-corruption crusade: A global company’sguide Nadine Tushe 27 The role of complianceand ethics in company culture Frank Ruelas 31 Ethical dilemmas: Making responsible choices Muna D. Buchahin See page 14 This article, published in Compliance Ethics Professional, appears here with permission from the Society of Corporate Compliance Ethics. Call SCCE at +1 952 933 4977 or 888 277 4977 with reprint requests.
- 2. +1 952 933 4977 or 888 277 4977 www.corporatecompliance.org 37 ComplianceEthicsProfessional® May2016 FEATURE U ntil recently, China was known much more for staggering rates of economic growth than for rule of law. Today, growth rates have slowed, and businesses are turning to new statistics: enforcement actions as part of President Xi Jinping’s national Anti- Bribery and Anti-Corruption (ABAC) campaign. Before taking office in 2013, Xi vowed to crack down on both powerful “tigers” and low-ranking “flies.” The campaign has led to more than 100,000 indictments for corruption, with a powerful effect both on Xi’s popularity and the country’s business environment.1 Knowing the following key points can help companies take an informed rather than alarmist approach to the momentum building behind ABACenforcement in China. The campaign is not targeting the privatesector The ABAC campaign has some in the business community nervously recalling Russian President Vladimir Putin’s crusade against the Russian oligarchs. Such comparisons, however, are largely unfounded. Xi’s efforts, while certainly a watershed for the business environment in China, are not necessarily a cause for alarm for executives in privatebusinesses. China’s anti-bribery anti-corruption (ABAC) campaign is largely focused on the public sector. Business leaders who have China’s anti-corruption crusade: A global company’sguide »» Chinese president Xi Jinping has embarked on a landmark anti-graft campaign, yielding more than 100,000 indictments for corruption since he took office in 2013. »» The campaign is largely focused on state-affiliated enterprises rather than private firms. Foreign companies should tread carefully, but they are unlikely to be unfairly targeted. »» Recent amendments to the Chinese Criminal Law will allow for more rigorous prosecution of bribery and related crimes. »» The actual effects of these efforts on corruption levels in China, however, are unclear. »» Expect US and Chinese enforcement authorities to increase coordination of anti-corruption enforcement. by Nadine Tushe Tushe Before taking office in 2013, Xi vowed to crack down on both powerful “tigers” and low-ranking “flies.”
- 3. 38 www.corporatecompliance.org +1 952 933 4977 or 888 277 4977 ComplianceEthicsProfessional® May2016 FEATURE come under fire are mostly senior managers of state-owned enterprises (SOEs), not private firms.2 Virtually all of those named in legal actions are also important figures in the Communist Party, suggesting there are political as well as economic reasons for many of the arrests.3 Although private foreign companies of course cannot expect to act with impunity, they can take comfort that they are less likely than their SOE counterparts to be the targets of Chinese authorities. Legal reforms signal commitment to lastingchange Whatever Xi’s political motivations for bribery prosecutions, parallel legal reforms suggest commitment to long- term change in China’s posture towards corruption. A series of amendments to the Chinese Criminal Law took effect on November 1, 2015. In the area of anti-corruption, the amendments: ·· Criminalize bribery of close relatives of current and former state functionaries ·· Add monetary penalties for corruption- related crimes ·· Raise the bar for bribe-givers to be exempted from punishment ·· Revise sentencing standards for embezzlement convictions4 The overall effect will be a more expansive definition of bribery with generally more stringent punishments. This change to the legal framework suggests that declining tolerance for corrupt behaviors will last beyond Xi’s presidency. Observers should note that unlike escalating application of the United States’ Foreign Corrupt Practices Act (FCPA) to bribery abroad, Xi’s campaign has thus far focused on conduct within China. Unlike other global heavyweights, including the United States, United Kingdom, Russia, South Africa, and Brazil, China is not a signatory to the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention and has made no international commitments to controlling corruption by its companies abroad. Actual effects on corruption areunclear There is anecdotal evidence suggesting that Xi’s crackdown has resulted in a cleaner business environment. TheEconomist quoted a Chinese property tycoon’s assessment that Xi’s message was so clear that, “You can’t even give a bribe these days.”5 If true, this would be only good news for foreign companies, many of whom are already subject to other high-stakes laws against foreign bribery such as the FCPA. A lower incidence of bribery would mean a more predictable business environment with fewer compliancepitfalls. Unfortunately, however, the most prominent corruption metric, Transparency International’s Corruption Perceptions Index, does not support this conclusion. From 2013 to 2014, even as Xi’s ABAC campaign picked up steam, China’s perceived corruption score showed a marked decline. The score showed only minimal improvement in 2015, moving from 36 to 37 out of a possible 100 points.6 The Economist quoted a Chinese property tycoon’s assessment that Xi’s message was so clear that “You can’t even give a bribe thesedays.”
- 4. +1 952 933 4977 or 888 277 4977 www.corporatecompliance.org 39 ComplianceEthicsProfessional® May2016 FEATURE In such an unclear and rapidly evolving business climate, companies may need experienced local partners to ensure that their compliance programs evolve as quickly as the regulatory and enforcement environment aroundthem. Beware of synergy with US law enforcement Even though foreign companies are not bearing the brunt of China’s ABAC campaign, the long arm of the FCPA is not hesitant to extend to corrupt dealings in China. Indeed, China ranks second only to Nigeria in generating FCPA enforcement actions.7 In one example from October 2015, US pharmaceutical manufacturer Bristol-Myers Squibb paid $14 million to resolve charges that its joint venture in China exchanged cash and other benefits for prescription sales at state- owned and state-controlled hospitals.8 What’s more, US and Chinese enforcement authorities are operating with increasing synchronicity. Investigations focusing on the pharmaceutical industry in 2013, first by the United States and then by China, marked the first time that China echoed an ongoing FCPA investigation and led to several high-profile convictions of Western companies in China.9 In September 2015, the United States and China formally agreed to increase cooperation in preventing corruption, suggesting that this may only be the beginning of parallel enforcement actions in the two nations.10 The real pitfall for companies with global operations is that there is no international concept of “double jeopardy.” The same conduct could potentially lead to massive fines in multiple countries. With such potentially devastating consequences, the preferred outcome is, of course, to maintain strong compliance with the laws of bothcountries. Conclusion Leaders at global companies can feel relieved that Xi’s anti- corruption campaign, however momentous, is not intended to target them. Nonetheless, the heavy presence of state- owned companies that may be caught up in the storm and the continued prevalence of bribery in all transactions continue to make China a country of high risk as well as one of great rewards. With a strong and agile compliance program, companies can position themselves to receive only the upside of greater collaboration between the Eastern and Western superpowers.✵ 1. See “Robber barons, beware,” The Economist, October 24, 2015. Available at http://bit.ly/robber-barons-beware 2. Id. 3. Jamil Anderlini: “China corruption purge snares 115 SOE ‘tigers’” Financial Times, May 18, 2015. Available at http://bit.ly/china-corruption 4. Eric Carlson and Ping An: “China amends its Criminal Law: Impact on anti-bribery enforcement” The FCPA Blog, September 1, 2015. Available at http://bit.ly/china-amends 5. Ibid., Ref #1 6. Euan McKirdy: “China slips down corruption perception index, despite high-profile crackdown,” CNN, December 3, 2014. Available at http://bit.ly/china-slips 7. Infographic, “Enforcement of Anti-Bribery and Anti- Corruption Legislation Globally” Thomson Reuters. Available at http://bit.ly/anti-bribery-enforcement 8. Bristol-Myers Squibb Co., SEC Rel. 76073 October 2015. Available at http://bit.ly/sec-bristol-myers-squibb 9. Lisa Prager and Lara Covington: “U.S., China enforcement crossfire creates new risks” The FCPA Blog, October 18, 2013. Available at http://bit.ly/prager-covington 10. See, e.g., Mary Alice Salina: “US, China Agree to Cooperate on Fighting Corruption, Terrorist Financing,” Voice of America, September 26, 2015. Available at http://bit.ly/us-china-agree Nadine Tushe (nadinetushe@gmail.com) is an Anti-Bribery Anti-Corruption (ABAC) Compliance Consultant at STEELE CIS in Washington DC. Leaders at global companies can feel relieved that Xi’s anti- corruption campaign, however momentous, is not intended to targetthem.