China’s new Anti-Unfair Competition Law, which came into force January this year, has resulted in more consolidation in government resources to conduct investigations and more parallel enforcement.
But China still has a long way to go in battling anti-corruption as perpetrators become increasingly sophisticated in their strategies, such as by using bitcoin and messaging system WeChat as ways to transfer funds. More importantly, what is needed is comprehensive legislation solely on anti-corruption, rather than a patchwork of laws, according to panellists at the recent Asialaw In-House Counsel Summit in Hong Kong.
Looking at enforcement statistics in recent years, the number of cases investigated by China’s Central Commission for Discipline Inspection (CCDI) has gone from 40,827 in 2016 to 51,008 in 2017. The number of officials punished by the CCDI went up by 25% to 71,644 in 2017.
|
|
"China has a quilt of legislation, but the highest common denominator is still the FCPA as it applies to businesses across the globe" |
|
|
Since China’s new law Anti-Unfair Competition Law came into effect in January, observers have seen a trend towards more coordinated efforts in enforcement. “With the regulatory coordination, including the creation of the National Supervisory Commission and the State Market Regulatory Administration, there has been more parallel enforcement,” observes Dora Wang, partner at Morgan, Lewis & Bockius. “Businesses face increased risk of dawn raids and routine inspections and during these inspections, inspectors often find clues that can be further shared with colleagues in other enforcement divisions. There’s also more unified and concerted efforts at the local level.”
Important features of the new law include a fine of up to CNY 3 million ($451,000 approximately) and, in worst case scenarios, the revocation of a business licence. It gives a broader range of powers for Chinese authorities to conduct investigations, including the power to detain a corruption suspect, seize assets and recommend cases for prosecution. Additionally, the scope of what constitute bribe recipients has been changed: previously, a potential bribe recipient had to be an entity whereas now the individuals who are behind the corrupt conduct are being targeted.
Perpetrators are getting more sophisticated in corruption cases. Payment methods in corruption cases are changing with evolving payment avenues. “Before advances in fintech, the focus was on cash payments or cash equivalents such as gift cards,” said Wang. “Now, perpetrators are turning to other ways to transfer funds through novel payment methods such as digital wallets and social media payments, which make them much harder to trace as these payment methods are increasingly used to disguise corruption conduct.”
An important feature of the law is that bribery committed by an employee of a business operator shall be deemed as the practice by the business operator itself, unless otherwise proven by the business operator with evidence. This feature raises alarm bells and businesses should put into place policies and programs to ensure that they are not imputed for their employees’ conduct. Panellists emphasised the importance of putting in robust compliance programs and having policies to curb misconduct by employees. Jonathan Shum Wan, assistant general counsel at Pfizer, said that at his company, an ombudsperson can provide confidential advice to employees on corruption matters. There is also a strong team in place for risk assessment by collecting data, carrying internal investigations and using big data for investigations. But importantly, the mindset of compliance is to create incentives for employees. This means reconciling bonus targets versus compliance targets by creating compliance KPIs as well as policies and procedures for whistleblowing.
“Corruption cases are now more difficult to spot because they are less about direct payments, but are more indirect, such as helping someone to get an internship for their kids in a company or ensuring a contract goes to a certain business,” said Alexander Shaik, partner, ADM Capital. These examples all make doing due diligence on the people, and those they have ties with, involved in a transaction all the more important.
Looking into the future, Shaik said that China still lacks a comprehensive anti-corruption law and has been working with a patchwork legislation so the next big phase could be a comprehensive Foreign Corruption Practices Act (FCPA) style law within China.
“China has a quilt of legislation, but the highest common denominator is still the FCPA as it applies to businesses across the globe,” he said.
See also
Corruption remains Asia’s top concern
