Navigating the Tricky Issue of Corruption in China
From his perch in Hogan Lovells Beijing office, partner Eugene Chen described the debilitating pollution enveloping the city to the worldwide audience of a Monday morning webcast. The smog is not unlike another problem in China, he added: corruption.
Its a huge problem. Its very apparent to everybody. You can see it in the air, Chen said.
Chen, who is normally based out of Hogans Shanghai office, joined colleagues in Washington, D.C., and the U.K. for the webcast called Are you Exposed? Global Bribery and Corruption: 2012 Lessons and 2013 Predictions, hosted by the firms International Bribery and Corruption Task Force.
In China, 2012 was a relatively quiet year in the legislative and regulatory arenas. But enforcement activity increased across multiple fronts, from data privacy to labor issues.
Commercial antibribery enforcement proved no exception, Chen said, and businesses experienced a dramatic ramp up in enforcement, as carried out by Chinas Administration of Industry and Commerce. The agency has focused in particular on the life sciences and energy sectors, and on multinational companies.
Chen described the governments enforcement tack as a fairly unprincipled approach. Rather, he said, the primary approach seems to be revenue generation.
By way of example, Chen said Chinese authorities have turned the investigative process on its head. Instead of investigating a possible offense, developing evidence, and then penalizing a company for wrongdoing, Chen said the government is identifying supposed offenses and then compelling companies to reach a monetary settlement to resolve the case.
Companies wind up wrestling with the problem of admitting to liability when there is no clear evidence of wrongdoing, Chen said, as well as questions over their reporting obligations and reputational harm.
Businesses involved in antibribery investigations in China face a thicket of additional logistical, procedural, and legal challenges.
For starters, there is no legal privilege in China, Chen said. (Yes, try to ponder that.)
Chinas state secrets law presents another chief concern. The law is extremely broad, said Chen. Its extremely vague in terms of the definition of what is a state secret. And it carries enormous penalties to boot. That will matter to any company considering whether it can present in another country evidence that was produced in the course of an investigation in China. Are you potentially at risk of violating the state secrets law in China in the course of an international investigation, Chen asked.
The labor regime in the Peoples Republic also makes it extremely difficult to penalize or terminate employees, even in the face of evidence of wrongdoing, Chen said. And, not surprisingly, Chinas political dealings with rest of the world add to the complexities of an investigation.
But, Chen warned the audience, dont shy away from broaching the topic of corruption in China-based business dealingsno matter how impolite it may seem. Chen recalled one instance in which he was given only four hours to perform due diligence on a deal that two other major law firms had worked on for months.
Before time was up, Chens team had uncovered enough information to torpedo the transaction. Despite the sensitivities, and despite the fear of offense, you defer these topics at your detriment, he said.
See also: "Cybersecurity Report Spotlights Risks to U.S. Business from China," CorpCounsel, February 2013.