Anti-corruption laws toughen up with stricter legislation from beyond Chinese borders
By Richard Kimber
HE LAST 18 MONTHS TO TWO giving of a bribe or the taking of a bribe. The to make staff aware what type of conduct is
years has seen marked changes in UK act?s jurisdiction extends to UK nationals permissible ? and what is not. Companies
compliance obligations and the or residents, and companies or organisations will have to ensure that they have included
T regulatory landscape for foreign that are established in the UK or that conduct specific terms in employee contracts to cover
invested companies operating in China, and some of their business in the UK. The UK restraint of trade, trade secrets, bribery and
especially for US investors. Bribery Act?s jurisdiction would also extend financial inducement issues.
to prosecution of the UK Head Company
The Foreign Corrupt Practices Act (FCPA) Proper financial records will need to be
for bribery actions committed by its PRC
has been around since the 1970?s; but kept detailing expenditure which is related
subsidiaries, which will cause sleepless nights
2010 saw increased activity in the form to marketing and business development.
for in-house counsel and the head company?s
of prosecutions and enforcement actions, Internal compliance manuals will need to
board of directors.
with fines totaling USD1.7bn, signaling be updated and prepared in order to spell out
an increasing need for companies who are The Bribery Act differentiates from the the limits of authority for each management
operating in China to update and properly FCPA in that it can only bring criminal position in an organisation, as will the
document their operational procedures proceedings; however, an individual found reporting requirements where suspected
or, when looking to acquire or merge with criminally liable can be subjected to up to breaches of the compliance manuals are
Chinese owned businesses, to engage in ten years imprisonment and unlimited fines, discovered.
detailed due diligence. China has began with similar fines levied on the employing
Additional steps, in the form of notices and
to figure more prominently in FCPA corporation.
signed undertakings, should also be obtained
investigations as foreign direct investment
from local third party suppliers who deal with
Prevention is Better?
increased over this period, especially in the
the PRC local operations, so that they are
western provinces. The UK Act also contains a new corporate
fully aware of what conduct is not permissible
offence, failing to prevent bribery by an
The introduction of whistleblower and so that the company concerned can
?associated person? of the company. This
legislation in the United States also increased easily demonstrate that corporate governance
could include employees, subsidiaries, agents,
the need for head offices to conduct on-going procedures, record keeping and reporting
contractors and JV partners. This is akin to
corporate compliance audits of their China systems are in place and can be brought into
a ?strict liability? corporate offence which
operations. The traditions of gift giving, action if there is a suspected breach of the
can only be defended by demonstrating that
incentive payments and Chinese New Year regulations.
?adequate procedures? as outlined below,
year-end bonuses as well as the use of third
Where companies are also considering
were in place to prevent the act of bribery.
party agents could all be problematic and fall
entering into JVs in China, they will need
foul of the new legislation. The UK Ministry of Justice has published
to spell out compliance obligations to their
official guidance on the new Act which is
Chinese partners or insist that the Chinese
Here Come the Brits
divided into six principles or preparations
side give certain specific undertaking in their
With the advent in July 2011 of the UK that a company should put in place to ensure
joint venture agreements. Companies that are
Bribery Act, the need for a general manager compliance with the UK Act: Proportionate
considering M&A transactions in China will
or director of local Chinese operations with Procedures; Top Level Statement of
also have to investigate the principals and
a UK parent company to be pro-active in Commitment (of bribery prevention); Risk
management of the Chinese target company
corporate compliance will also arise. The Assessment; Due Diligence in respect of
to determine if the principals have ties to
Bribery Act comes into force just as this Third Parties; Communication and Training
the Chinese government, and if so in what
article is published on 1 July 2011, and it of Staff; and Monitoring and Review
requires companies to update and audit their Procedures
present internal controls and compliance
The lesson for all companies conducting
operations in China, especially if subsidiaries
About the Author: Richard Kimber is
The UK Act prohibits the giving of bribes or affiliates of US or UK headquartered
Managing Partner at RHK Legal Shanghai.
or financial inducements to a third party - companies, is that detailed compliance
He is currently undertaking a number of
whether a governmental official or a private programmes will need to be instituted.
compliance programmes and audits for
individual. It also focusses on the action Regulatory compliance is here to stay.
companies with operations in China.
itself rather than the intention behind it, by
This will mean that there will be an increased
defining an improper action as being the
need for specific on-going employee training
SHANGHAI BUSINESS REVIEW JUL 2011 www.sbr.net.cn