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Tuesday
Jul102012

China’s Domestic Bribery Laws Impact Foreign Investors

Many multinationals operating in China focus on compliance with the FCPA -- and rightly so, given the intersection of expanding business opportunities, corruption risks, and the broad range of “foreign officials” present in China. This focus may lead some multinational companies to overlook the risks posed by China’s domestic anti-corruption laws, including the PRC Criminal Law and the PRC Anti-Unfair Competition Law.

The PRC Criminal Law prohibits giving and receiving bribes in both the public and private sectors. The agencies enforcing the PRC Criminal Law -- the Public Security Bureau and the People’s Procuratorate -- historically have focused on demand-side enforcement -- targeting government officials and other recipients of improper payments. As a result, companies, including multinationals, rarely have been investigated or prosecuted for improper payments under the PRC Criminal Law.

Separately, the PRC Anti-Unfair Competition Law includes a prohibition against commercial bribery, which it defines as “a business operator’s behavior of bribing another entity or individual with property or through other means in order to sell or purchase commodities.” The law and its interpretative regulations are broadly drafted (a subject for a later post), resulting in significant enforcement discretion by the Administrations of Industry and Commerce (AICs), the local government agencies tasked with corporate registrations and inspections, certain aspects of China’s antitrust laws, false advertising, and commercial bribery.

In our experience assisting clients facing enforcement actions, AICs at times take a broad view of conduct they deem to be “commercial bribery,” even if such conduct would not implicate the FCPA or other national commercial bribery laws. Further, interpretations of the scope of commercial bribery laws and the aggressiveness of AIC’s enforcement of these laws vary considerably from jurisdiction to jurisdiction within China. In some localities, enforcement is relatively sophisticated and professional; in others, it is somewhat less so and appears potentially motivated by factors other than law enforcement.

The AICs have broad powers to investigate conduct within their jurisdiction, including conducting “dawn raids,” seizing documents, and interviewing employees. In some cases, the AICs merely make copies of electronic and hard-copy documents; in other cases, they take the originals with them for days (or occasionally, weeks) before returning them, which can obviously disrupt operations. While fines under the PRC Anti-Unfair Competition are relatively modest compared to the multimillion-dollar fines under the FCPA, the potential for business disruption and, at times, reputational damage when enforcement actions are publicized can be significant.

Companies operating in China are well advised to understand China’s commercial bribery laws and how they can affect operations, and to integrate these laws into their general anti-corruption policies and procedures.

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Eric Carlson, a contributing editor of the FCPA Blog, is a Beijing-based attorney at Covington & Burling LLP. He specializes in anti-corruption compliance and investigations, with a particular focus on China and other regions of Asia.  He speaks Mandarin and Cantonese.  He has written about last year’s amendment to China’s Criminal Law here and here, and he can be contacted here.

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