Last week, Chinese police detained employees at the Shanghai, Beijing, and Changsha offices of a British pharmaceutical giant as part of an investigation into possible economic crimes committed by the company in China, including bribery.
The Chinese government investigation follows U.S. SEC and DOJ investigations of possible FCPA violations committed by this company in China. It would seem, then, that the Chinese action was prompted by the U.S. investigation is a parallel investigation.
This may look like an obvious tactic for the Chinese government to take, with its longstanding anti-corruption campaign and the numerous SEC and DOJ investigations into FCPA violations in China. But the current investigation of the pharma giant is apparently the first such parallel investigation undertaken by the Chinese government.
A review of several high profile China-related FCPA cases turns up no parallel Chinese investigations. As recently as this year, an SEC enforcement action against Keyuan, a Chinese company, did not prompt an investigation by authorities in China.
After the huge DOJ and SEC enforcement action against Siemens in 2008, a China Mobile executive was sentenced to death for accepting bribes from the company. But Siemens itself escaped scrutiny from the Chinese government.
A well known case of a Chinese attorney whistleblowing on a major pharmaceutical company’s bribing activities in response to the FCPA investigations in the U.S. also did not result in a Chinese government investigation.
So-called ‘carbon copy prosecutions‘ of FCPA violations aren’t uncommon in European countries. And both the United States and China are party to the United Nations Convention against Corruption, which among other things stipulates legal and investigative cooperation in combating bribery. Thus, the lack of parallel Chinese investigations into FCPA violations is surprising.
But the start of the first such parallel investigation last week may signal that China may be embarking on a more active and cooperative path. The question, then, is whether we are witnessing the first in a series of Chinese cases that will draw on the wealth of bribery evidence and admissions generated in most DOJ and SEC enforcement actions?
As possible parallel investigations unfold, MNCs will have to pay more attention to their bribery risk management under Chinese anti-bribery law, which presents some unique challenges. For example, the threshold under China’s Criminal Law to establish a criminal case for investigation is low — an individual could face criminal charges for bribe(s) he or she pays to one or more persons exceeding RMB 10,000 (approximately $1,600).
A company could face charges for bribe(s) paid exceeding RMB 200,000 (approximately $32,000). If a company knowingly gives cash or some other monetary incentives over this threshold to a state-owned enterprise, and this enterprise keeps the money in its coffers other than truthfully recording it in its accounts, the company could be criminally liable for bribing the state-owned enterprise. If a company is held liable for giving bribes, the responsible individual managers could face criminal punishments as well.
The beginning of Chinese investigations and enforcement that track FCPA offenses would mean that MNCs operating in China must keep a close eye on still unfamiliar risk profiles under China law.