Corruption Risks — China Travel Edition (Part II)

Yesterday’s post addressed abuse of travel agencies. Today’s post addresses “training” trips, factory “inspections,” “study trips,” and other euphemisms for disguised leisure travel.

Companies in China often pay for training trips for their customers.  While many of these are legitimate, many are abused for improper purposes. Some of the common fact patterns include one or more of the following:

• the training trip involves a small portion of training time and a large portion of recreation time;

• the trainings are actually not technical in nature, but are sales promotions for the company’s products or services (often with a healthy helping of leisure/recreation);

• the training is held frequently (quarterly, annually) when the subject matter has not changed since the previous training;

• the training is not reflected in any underlying sales or services agreement;

• the training is held at a resort or tourist location that lends itself to recreation;

• the training is held internationally when the meetings could have been held as effectively (or more effectively) in China; and/or

• the number or rank of people is not appropriate to the purported training.

A variation of the “training” trip risk area above are euphemisms for paid travel that purport to have a business purpose but may be predominantly or exclusively leisure travel. Euphemisms that could be used for either legitimate purposes or to disguise improper travel include “factory tours” or “factory inspections” (工厂参观),” “product demonstrations” (产品推广), “study trips” (考察) “experience exchange seminars” (经验交流会), “technical liaison meeting” (技术联络会议), “academic promotion activities” (学术推广活动).  In addition to the risk areas listed immediately above for training trips, common fact patterns that could indicate abuses in these additional scenarios include:

• the customer already has an adequate knowledge of the technology and does not require a training session;

• the individuals attending are not people with a technical background (e.g., engineers) who would be well-positioned to do a meaningful inspection or to contribute to or benefit from a technical meeting;

• the attendees are selected by the seller paying for the trip rather than the buyer;

• the inspection or demonstration is held on a Friday or Monday or immediately before or after a holiday to ensure a long weekend of recreation before or after the event;

• the company employee pays for shopping trips or other “extra” expenses for the delegation that are reimbursed by the company as something else; and

• a relative (or mistress) of the government official/customer also travels with the group as a temporary company “employee.”

We have worked with clients to structure and modify compliance programs for travel that involve ensuring a true business purpose for all such trainings, robust internal pre-approval, full transparency with the customer’s legal/compliance department, and developing “gray lists” and “black lists” of locations where trainings should not take place.

Tomorrow’s post will address contractual travel and travel required under PRC law.

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Eric Carlson, a contributing editor of the FCPA Blog, is a Beijing-based partner at Covington & Burling LLP. He specializes in anti-corruption compliance and internal investigations, with a particular focus on China and other regions of Asia. He speaks Mandarin and Cantonese and can be contacted here.