China Bribery

Introduction

Corruption respects no borders, knows no economic distinctions and infects all forms of government. In the long run, no country can afford the social, political or economic costs that corruption entails. In recent years with the increased awareness of global commerce, there is increased scrutiny over the questionable practices of executives of multinational corporations. In an effort to establish leverage in developing nations, may company representatives have resulted in the use of practices such as bribery with the understanding of it "being the ways are done" in various regions of the country. Recent investigations into bribery charges in nations such as China, with companies such as Lucent Technologies, forces the governments engaged in international commerce, to enact practices, laws and procedures to create a more ethical global economic environment.

Legal Section

Governing Laws

United States

Prohibitions against official bribery are by no means unique to the United States. What is unique to the United States is that its concern with corruption does not stop with its own officials but extends to the corruption of foreign officials as well. By far the most important, and certainly the best known, reflection of this concern is the Foreign Corrupt Practices Act of 1977 (FCPA), which imposes criminal penalties on American enterprises that bribe officials of foreign governments. There are several federal statutes that preceded the FCPA, however, and that bear on the behavior of American enterprises abroad. Although these statutes have largely been eclipsed by the FCPA, at least insofar as they might apply to the bribery of foreign officials, they are part of the legal context within which the FCPA is enforced, and from which the FCPA arose. Moreover, any American enterprise charged with a violation of the FCPA may also be charged with violations of one or more of these other provisions.

The FCPA deals with two separate, but related subjects: payments to government officials and corporate accounting and control practices. These subjects are related because, in the past, payments made by U.S. companies to government officials often were made out of funds that were not recorded on the company's books or, if made from recorded funds, were inaccurately described. Thus, the FCPA makes it a crime not only to bribe a foreign official, but also to make false or misleading entries on a company's books for any purpose whatsoever.

Violation of the FCPA's anti-bribery provisions requires: (1) use of the "mails or any means of instrumentality of interstate commerce"; (2) "corruptly in furtherance of"; (3) offer or payment of money or a "thing of value"; (4) to a foreign official or to a third party while "knowing" that some of the pay will be shared with a foreign official; (5) for the purpose of inducing the foreign official to help the company in "obtaining or retaining business."

China

Since foreign investment in China began, and indeed since international strategies became necessities, multinationals have been advised to understand and incorporate local business tactics. Such advice should generally be heeded, but in doing so, companies must not allow Chinese idiosyncrasies and practices to become an excuse for violating local regulations and general business ethics. Foreign companies must be particularly wary, as they are often perceived as deep-pocketed and eager entrants to the lucrative China market and are seen to be easy targets for those who want to pick up a supplementary bribe.

Although many countries have laws focusing on foreign bribery that would affect foreign-invested enterprises (FIE) in China, such as the United States' Foreign Corrupt Practices Act, the primary Chinese regulations on commercial bribery are: PRC Anti-unfair Competition Law (December 1993); Tentative Provisions for the Prohibition of Acts of Commercial Bribery (November 1996); PRC Criminal Code (October 1997); Opinions on the Launch of Dedicated Work to Tackle Commercial Bribery (February 2006)

Commercial bribery can be a complex issue, particularly in China where the practice is widespread and prevailing attitudes may be at odds with the letter of the law. To combat commercial bribery, companies would be well-advised to create their own company policy outlining practices regarding gift-giving, entertainment and other situations, which can give rise to commercial bribery.

Social Responsibility

For multinational companies grappling with stagnant sales, China has become a magnet for investment and a huge potential market beckoning with growth. Yet the lure of China profits combined with pervasive local corruption is tempting foreign companies and managers and bringing them into conflict with U.S. anti-bribery laws.

In interviews, China-based executives, sales agents and distributors acknowledge that their firms routinely win sales by paying what could be considered bribes or kickbacks -- often in the form of extravagant entertainment and travel expenses -- to purchasing agents at government offices and state-owned businesses. These sources indicate that such payments are usually funneled through distribution companies or public-relations firms to minimize the chance of prosecution by the Justice Department and the Securities and Exchange Commission, which enforce the U.S. Foreign Corrupt Practices Act.

American business leaders often describe their China operations idealistically, suggesting that their presence here will compel Chinese competitors to adopt more ethical business practices. But in one key regard, the dynamic operates in reverse, with U.S. companies adopting Chinese-style tactics to secure sales, as they compete in a market in which Communist Party officials routinely control businesses, and purchasing agents consider kickbacks part of their salary.

Last year, Lucent Technologies Inc., the giant telecommunications firm, terminated its China president and chief operating officer along with a marketing executive and finance officer after what the company described as "internal control deficiencies" that could violate the Foreign Corrupt Practices Act. Chinese media reported that the executives were found by internal auditors to have bribed officials at state-owned telecommunications companies. Lucent declined to furnish details, asserting that it is cooperating with federal investigators.

The Lucent case is considered hardly unusual. Most companies that engage in such practices limit their exposure to prosecution by cutting intermediary firms into their sales,