By Wendy Wysong, Lei Shi and Min He
The Chinese government has embarked on an unprecedented anti-corruption campaign for the past two years. This increase in enforcement activity, coupled with new and amended anti-corruption rules, has led to improved compliance practices for many foreign companies and their affiliates in China (PRC). This article examines the impact of the surge in enforcement actions, particularly the GlaxoSmithKline (GSK) investigation and decision. It also provides a series of steps that can be taken in developing an appropriate corporate compliance strategy in China.
A changed landscape: new norms or old dramas?
The strength of the anti-corruption crackdown in China in the past two years is without precedent. Some commentators question whether the anti-corruption campaign is merely a political purge that will recede once the current leadership consolidates power. Observers have noted the government’s somewhat selective approach to enforcement, as well as its failure to refute criticism of the lack of judicial transparency. However, Chinese president, Xi Jinping, strongly denied this kind of speculation during his visit to the USA in September 2015. The 2014 GSK case, together with various legislative changes, has reinforced the impression that the Chinese government is determined to continue to aggressively prosecuteinstances of public and private sector bribery and corruption. Multinational companies operating in China are particularly concerned by the recent turn of events.
Increased enforcement activity
The seniority of the government officials being targeted for public sector bribery and the breadth of the private sector bribery enforcement programme, sweeping across several different business sectors, have not been seen before. Prominent examples include:
- Zhou Yong Kang, former head of the Political and Legal Committee of the Central Communist Party and a member of the Central Politburo, was found guilty of corruption, intentionally disclosing state secrets and abuse of public powers in June 2015.
- Xi Xiaoming, Vice President of the Supreme People’s Court (SPC), was reportedly detained and put under investigation for “serious violations of discipline and laws”, a common reference to corruption, in July 2015.
- Ling Jihua (Vice Chairman of the National Chinese People’s Political Consultative Conference (CPPCC), and the head of the United Front Work Department of the Communist Party Central Committee), Rong Su (Vice Chairman of the CPPCC) and Xu Caihou (General in the People’s Liberation Army and Vice Chairman of the Central Military Commission) have been targeted in recent months.
- Suppliers, vendors, and business partners of state-owned enterprises have been caught up in the slipstream of public sector bribery enforcement efforts, including the detention of dozens of senior managers of Sinopec and China National Petroleum Corporation.
- The GSK case, which has demonstrated how vulnerable multinationals can be during criminal proceedings in China and how much damage can be caused to business operations as a result of poor corporate compliance practices.
New and amended anti-corruption legislation
The National People’s Congress of China recently passed the ninth amendment to the Criminal Law of the People’s Republic of China 2015 (2015 Criminal Law), making China’s anti-corruption rules among the strictest in the world. In addition, various judicial and administrative authorities have issued other rules to improve government procedures, record- keeping, interagency communications and transparency.