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« Are compliance officers crazy? | Main | How much money do compliance officers make? »
Wednesday
Oct282015

Is China doubting the value of foreign bribes?

For about three years now, the world has witnessed an historic anti-corruption campaign in China. Sure, it’s political in no small part, a tool that President Xi Jinping has used to control his enemies. But the crackdown is also serving to deter public corruption generally to a remarkable degree.  
 
But this crackdown has been confined to domestic corruption. The world -- myself included -- has generally believed that China is not concerned with foreign bribery and is unlikely to enforce its prohibition on foreign bribery anytime soon. But this may be changing.
 
The Wall Street Journal recently reported that Chinese enforcement authorities are investigating oil deals by China’s state-owned oil company, Sinpoec, in Angola. Sinopec allegedly overpaid to tap offshore fields, and we all know what that likely means. So too are transactions by various Chinese oil companies in Canada, Sudan and elsewhere under investigation.
 
And this is not the only indicator. Indeed, in May of 2014 we reported on the FCPA Blog that China had announced an historic $2 billion investment in the African Development Bank. Why was this historic? Because China’s previous strategy for infrastructure development in Africa was to invest directly through national governments, in all likelihood relying heavily on bribery. But in announcing the ADB investment, Chinese officials remarked that “there may have been some phenomenon of Chinese investors [in African deals] that were not so good.” In other words, they were starting to doubt the long-term efficacy of their bribery strategy.
 
Connect these two dots, and something significant is going on. Indeed, there have been, and remain, several substantial reasons why China has been slow to address foreign bribery. I can think of at least five:
 
1. The domestic pressure does not extend to foreign bribery. Polls of the Chinese people consistently find that corruption is among the people’s top political concerns -- ranking much higher than rights that westerners hold dear, such as freedom of speech, or religion, or the right to political representation. And the Communist Party knows that to preserve its power, it must placate the people. In this regard, the Chinese government is more responsive to the people than many westerners recognize. But the Chinese people’s corruption concerns are focused on domestic corruption. The same people who are outraged by domestic corruption are largely apathetic about the participation of Chinese companies in foreign corruption. And this brings me to my second point.
 
2. China is not trying to spread principles of justice throughout the world. Unlike the U.S., which has always felt a special mission to export liberal democratic principles (what Jefferson called “self-evident truths”), Chinese culture simply does not have a messianic strand. Sure, they’re the Middle Kingdom, but unlike the U.S., that does not translate into any kind of manifest destiny. Quite the contrary; it translates into a kind of aloofness, or indifference. We’re the Middle Kingdom, and you’re not.
 
3. China is not trying to court the OECD, as Russia is (albeit half-heartedly). Russia has adopted the OECD Convention Against Bribery and is making other efforts to become a full member in the OECD (meaningful anti-bribery enforcement, domestic or foreign, not being among them). China, by contrast, has largely snubbed its nose at the OECD. It’s not trying to impress anybody there, so far as we can tell. Its adoption of a foreign bribery prohibition in 2011 looked much like the vague UNCAC provision, and nothing like the OECD Convention.
 
4. China needs natural resources, which are often concentrated in relatively high-bribery environments. China’s landmass, though great, lacks the natural resources sufficient to support its population. This is why – or at least, one of the reasons why -- it is investing so aggressively in Central Asia, Africa, and South America. It needs the resources. And corruption tends to follow.
 
5. In such markets, China likely believes that bribing is to its competitive advantage. Economists may dispute whether this premise is sound. But China may very well believe that it has an advantage in these regions of the world because so many of its developed-country competitors are bound by aggressively enforced anti-bribery laws. As enforcement among OECD nations goes up, China’s competitive advantage also goes up. Or so the thinking likely goes.
 
However, despite these very formidable obstacles, indicators now suggest that China is beginning to think that foreign bribery is not always in its national interest. Why? We cannot know for sure. But I suspect it has not ceased to believe any of the above. Instead, I suspect (and let me emphasize, are only suspicions) it has discovered a countervailing fact: bribery is not a dependable way to build alliances. Transactions formed by bribery are famously unreliable.

But if China wants secure, long-term access to natural resources or domestic consumer markets, and secure, long-term support of foreign political leaders, it needs to form deals that are transparent and enforceable. And shoot, if that’s true, might China actually believe that it needs to help build more effective institutions? Wouldn’t that be an irony? And one that I most certainly did not see coming.
 
Sometimes, it’s great to be wrong.

But even as I write this, I don’t quite believe it. Additional insights from our readers are most welcome.

_____

Andy Spalding is a Senior Editor of the FCPA Blog and Associate Professor at the University of Richmond School of Law.

Reader Comments (2)

I agree completely with your article! Having worked in China to establish a global compliance platform at a Joint Venture, it was always clear to me that our Chinese counterparts were only offering lip service by "allowing" my company to make these proposals regarding Compliance policies, procedures, a whistleblower line, etc. Now when I make presentations to employees describing the different anti-bribery laws in each country, I always highlight the length of each document as one barometer of that country's intent regarding anti-bribery efforts. While most countries have several paragraphs to several pages worth of text, China merely offers several lines. How serious is that?!? But in the past two years, like you, I've notices a slight trend toward trying to do more than placate us risk-adverse Westerners. I am hopeful that one day China will be there, but I think it's going to take a market advantage to most Chinese companies to implement stronger compliance. Otherwise, they remain the Middle Kingdom. And we're not.
October 28, 2015 | Unregistered CommenterBeth Colling
While my cases docketed in U.S. and German authorities ( Meng-Lin Liu V. Siemens AG) without further progress for more than 3 years, I do have a strong doubt the validness of argument in the article and comment. U.S. and Germany might have detailed anti-graft process and regulation, however, the implementation and effectiveness remain even less than Middle Kingdom level when the issues occurred extraterritorial.
No matter how long or thick in presentation material, it is meaningless if it remains on perpar only. If the compliance in Middle Kingdom can be more professional than not Middle Kingdom, I don't feel we are talking about a High Kingdom at all.
October 28, 2015 | Unregistered CommenterLouis Liu

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