doing business in china – recent anti-corruption and bribery

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Doing business in China Recent anti-corruption and bribery law enforcement

Original Broadcast Date: September 2013

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Today'sPresenters

Bill Olsen: CFE, CAMS, CIALeader, Global Investigation and Anti-Corruption ServicesGrant Thornton LLPModerator

Allen Liao Practice Leader, Forensic, Investigative and Dispute Resolution ServicesGrant Thornton ChinaPresenter

Paul Peterson, CPA, CFE, CIA, CFFSenior Manager, Forensic, Investigative and Dispute Resolution ServicesGrant Thornton China & member of ChinaBusiness Group of Grant Thornton LLPPresenter


Anti-corruption perspective of doing business in China

Learning objectives

• Define People’s Republic of China (PRC) anti-corruption law from an accounting perspective

• Summarize the latest anti-corruption enforcement actions in China

• Identify what key risks are likely to impact your business

• Determine what needs to be considered to minimize the overall corruption risk that inherently exists in China


Anti-corruption perspective of doing business in China

Agenda

• Overview of current FCPA enforcement trends • PRC anti-corruption laws• Recent China enforcement actions • Risky business practices in China• Mitigating corruption risks


FCPA enforcement trends

• More Department of Justice (DOJ) Foreign Corrupt Practices Act (FCPA) enforcement actions in first half of 2013 than in all of 2012

• SEC and DOJ joint FCPA settlement of over $398 million against Total – French oil and gas company (May 2013)

• Two foreign defendants in FCPA-related cases unsuccessfully challenged their indictments from abroad

• SEC issues second ever whistleblower program award on Aug. 30, 2013• Approximately 320 investigations are ongoing in 24 states that are parties to

the Anti-Bribery Convention• Continued movement toward self-assessments away from external compliance

monitors• First ever FCPA-related SEC nonprosecution agreement (Ralph Lauren

Corporation, April 22, 2013)• UK authorities released a draft code of practice on deferred prosecution

agreements


Hallmarks of an effective compliance program

• Commitment from senior management and a clearly articulated policy against corruption

• Code of conduct and compliance policies and procedures

• Oversight, autonomy and resources• Risk assessment• Training and continuing advice• Incentives and disciplinary measures• Third-party due diligence and payments


Shift from the FCPA to the local PRC anti-corruption laws

• Recent uptick in enforcement actions by the Public Security Bureau, Administration of Industry and Commerce, National Development and Reform Commission, and multiple other regulatory agencies in China

• Focus from bribe recipient to bribe giver


Anti-corruption laws in China

main sources:

Anti-Unfair Competition LawPRC Criminal Law



1. Anti-Unfair Competition Law (AUCL)

• Effective in 1993 to “even the playing field in the market”

• Article 8 of the AUCL is comparable to the books and records provisions of the FCPA

"Companies may offer a discount or pay commission to a third party in selling or

purchasing commodities; however, they must strictly record accounting transactions in

accordance with the facts. The company shall be guilty of giving or taking a bribe if such

commissions are not properly recorded in the accounting records."

This translates to:


1. A2. PRC Criminal Law

• Article 164 makes it unlawful to offer “money or property to the staff of a company or enterprise for an illegitimate benefit”

• May 2011 – Amendment to article 164 inserts the concept of the public official

• Law prohibits the act of giving “money or property” (“财物” ) to any foreign government official or official of a public organization to “obtain an improper commercial benefit” (“为谋取不正当商业利益” )

• Applies to all PRC citizens (even those who are abroad) and all persons physically in the PRC, even though they may not be of PRC nationality

• Article 164 is four sentences in length• No specific books and records provision within the criminal law



• New President Xi Jinping and party leaders took over in March 2013

• Trial of Bo Xilai, prominent political official, exposed systemic corruption issues between businesses and politicians

• Private sectors continue to have extensive interactions with government agencies and state-owned enterprises

• Widespread use of third parties• Multiple industries still developing as economy

transitions to free market • Transparency International: China CPI = 39

(India = 36, Colombia = 36) (China: 2011 = 3.6, 2010 = 3.5)

Corruption: Current environment in China


China regulators crackdown on the pharma industry

Media outlets reporting alleged bribery at GSK

• Employees were suspected of paying bribes to doctors, hospitals, medical associations and government officials

• Use of travel agencies to inflate the cost of various events to use excess cash to pay bribes to doctors and third parties

• 30 GSK employees were placed under house arrest

• Several weeks after investigation was launched, GSK briefed UK’s Serious Fraud Office


Recent pharma projects – Video spectral comparator is used to detect counterfeit “fapiao”


Sample of a Beijing VAT invoice from travel agency


GSGSGSGSGSGSGuo Shui = National Tax

Sample of a Beijing VAT invoice from travel agency (cont'd)


Sample Shanghai meal/entertainment invoice


Restaurant name was reprinted


Amount was reprinted from RMB 330 to RMB 4492


How companies are minimizing corruption risks

Instances of fraud remain a constant threat to management within an organization. Management is beginning to look for ways to manage fraud risks inside their organization, which include the following:

• Understand and prioritize fraud risks in China that can have a negative effect on an organization’s business and reputation.

• Determine what anti-fraud elements can be implemented that are most effective in China.

• Look for ways that controls can prevent, detect and respond to an identified fraud risk.

• Determine whether the anti-fraud elements that have been incorporated are operating effectively and efficiently to reduce instances of fraud.


Go beyond a normal background check

• Identify credible and relevant independent sources.

• Obtain in-depth information on the backgrounds, operation and actual relationships of individuals and entities.

• Identify issues and information not reflected in the deal documents, such as criminal, tax, labor, debt, organized crime issues, suppliers, shareholder nominees and environmental issues.


Bill Olsen: CFE, CAMS, CIALeader, Global Investigation and Anti-Corruption ServicesGrant Thornton LLPT: (703) 847-7519E: [email protected]

Allen Liao Practice Leader, Forensic, Investigative and Dispute Resolution ServicesGrant Thornton ChinaT: +86 (21) 2322 0210E: [email protected]

Paul Peterson, CPA, CFE, CIA, CFFSenior Manager, Forensic, Investigative and Dispute Resolution ServicesGrant Thornton China & member of ChinaBusiness Group of Grant Thornton LLPT +86 159 2126 2911 E: [email protected]

Comments?Questions?


Disclaimer

This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered.

For additional information on matters covered in this presentation, contact your Grant Thornton LLP adviser.


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