Cracking down on corporate cheats

PUBLISHED : Saturday, 14 July, 2007, 12:00am
UPDATED : Saturday, 14 July, 2007, 12:00am

Companies in the region could find themselves in hot water if they are unaware of strict US anti-corruption laws

Hong Kong companies that comply with local laws on bribery and corruption may still be at risk of prosecution by merely having peripheral dealings with American businesses, which are subject to much tougher laws.

The Foreign Corrupt Practices Act (FCPA) is US legislation that criminalises the bribery of foreign government officials. US companies are prohibited from offering or paying bribes, either directly or through commercial intermediaries, to obtain or retain business. Under the act, American companies listed in Hong Kong or vice versa are liable to prosecution if caught.

'The big focus is on anti-bribery and anti-corruption laws. The FCPA has been around since the 1970s, but the level of enforcement has increased. Violations are tied to money laundering, which is tied to the war on terror,' according to Scott Lane, chairman of the Red Flag Group, an anti-bribery consultancy.

'The US law is very powerful. A Norwegian company paid a bribe in Norway, but wired the money through a US bank. They were caught. Other countries are now starting to crack down on corporate bribery,' he added.

Based in Hong Kong, the Red Flag Group advises companies about anti-bribery compliance programmes, undertakes due diligence, conducts audits and investigations, and provides training and conferences.

Meanwhile, Alexandra Wrage, president of TRACE International, a non-profit association specialising in anti-bribery due diligence reviews and compliance training for international companies, said the US Department of Justice had investigated more cases of foreign bribery in the past few years than it had in the previous 20.

US authorities are pursuing companies and their staff who violate anti-bribery laws. In response, multinational companies are developing creative anti-bribery programmes to reduce the risk of their employees or intermediaries paying bribes.

Recently, the FBI had set up a separate unit focused on anti-bribery cases, Ms Wrage said. She attributed the crackdown on foreign bribery to the implementation of the Sarbanes-Oxley Act in 2002, which had made it easy for enforcement agencies to detect wrongdoing because of the additional disclosure required under the new US laws.

On a recent visit to Shanghai, Ms Wrage said that people should stop looking at bribes as a necessary cost of doing business or a victimless crime.

'Very often, American companies operating in China don't even know if they are paying bribes and whether payments are official or unofficial fees,' she said.

'US companies have enough fear of prosecution back home, but when an American employee sets up an office in [mainland] China with a Mandarin-speaking staff, with the best possible intentions, he may not realise that his staff may be making payments that are termed as 'licensing fees' and the guy from America may not even know what they are about.

'It is necessary to educate the business community and convince them that no matter which country you're in, it is possible to do business without paying bribes,' Ms Wrage said.

Mr Lane said that bribery was a worldwide problem and that many were countries lacking serious enforcement regimes.

When conducting business in certain countries, multinational corporations sometimes followed local rules. This could mean offering gifts and payments to local officials to help secure contracts.

A recent survey by accounting firm KPMG found that 43 per cent of respondents that had operations in the mainland claimed to have suffered fraud in connection with their China operations.

The most common types of fraud on the mainland were payroll tampering, theft of plant and equipment, giving kickbacks, false invoicing and accounts receivable fraud, the survey of nearly 2,000 private companies found.

Some executives may consider it acceptable to offer kickbacks when conducting business in the mainland. But this has resulted in foreign firms coming into conflict with US anti-bribery laws.

According to Chinese laws, corruption and bribery are different offences. Anti-bribery laws in the mainland target public officials, and cases are taken to court only if a bribe exceeds a certain amount.

Recently, China ratified the United Nations Convention Against Corruption, the first global legal instrument on anti-corruption.

'The Chinese government is cracking down on corruption, and the recent scandal of the indictment of a chairman of a Chinese bank clearly shows that the government wants to clean up its act,' said Mr Lane.

He said he had continuing high-level discussions on anti-bribery compliance with government officials.

Mr Lane said he believed that a culture of compliance could not be adopted overnight. 'Companies run on ethical leadership, which develops into good corporate social responsibility, resulting in good customer relationships.'

The Red Flag Group is looking to hire anti-corruption lawyers, investigators and those who have experience in forensic accountancy.

Jack Maisano, president of the American Chamber of Commerce in Hong Kong, said American firms had operated for many years under the guidance of the Foreign Corrupt Practices Act.

'Should companies from other parts of the world where standards are lower be required to match us, then that would level the playing field for business, and result in better products and services,' Mr Maisano said.

'Markets will become open that previously had been reserved for only companies with special relationships. AmCham applauds all attempts to prevent bribery and corruption in business, and achieve a more transparent environment.'