Shanghai Business Review - July 2011

An Expert's View about Business Administration in China

Last updated: 24 Aug 2011

Stricter Compliance Legislation to affect PRC business operations

PROFESSIONAL OPINION Remote Control 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 form. requires companies to update and audit their Procedures present internal controls and compliance The lesson for all companies conducting procedures. 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 42
Posted: 22 August 2011, last updated 24 August 2011

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