A briefing for compliance officers about China enforcement

Chinese regulators are stepping up anti-corruption enforcement, putting Western and local executives and the companies they work for at greater risk. So it’s important to know which laws in China are most relevant and what preventive action should be taken in response to the increased enforcement.

Although China has several anti-corruption laws, the two main statutes are 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), according to one section of a comprehensive mid-year FCPA update from law firm Baker Hostetler.

The AUCL discusses commercial bribery while the CL addresses two forms of bribery: official bribery and commercial bribery.

Official bribery involves bribery of a government official, while commercial bribery is offering a bribe to a representative of a private organization.

Many of China’s businesses are state-owned enterprises (SOEs). Although some SOEs have been privatized, state entities often own a minority interest in the privatized companies and exercise varying degrees of control over them. The SOE’s directors and officers are often government appointees and may therefore be covered by China’s Criminal Law provisions. And depending on how much ownership and control are held and exerted by the government, everyone at an SOE could be a “foreign official” under the FCPA.

Another challenge compliance professionals face in China is the lack of open access to corporate records, often hindering due diligence efforts, the Baker Hostetler report says.

Among the steps compliance officers can take are:

•     Teaching U.S.-based executives and local employees about the FCPA and Chinese anti-corruption laws as part of their ongoing compliance training

•     Fostering open and widespread communication about the company’s anti-fraud programs

•     Requiring the periodic vetting of partners and vendors

•     Reviewing both repetitive and one-time payments, and

•     An enhanced review of accounts featuring politically exposed persons or other high-risk customers.

Baker Hostetler’s 2014 Foreign Corrupt Practices Act mid-year review is here (in pdf).
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Julie DiMauro is a regulatory intelligence and elearning specialist in the governance, risk and compliance department of Thomson Reuters in New York. She can be reached here.