Multinationals caught in web of corruption

PUBLISHED : Monday, 08 October, 2007, 12:00am
UPDATED : Monday, 08 October, 2007, 12:00am

Practising what one preaches isn't always easy. Multinational companies in the mainland have by and large worked hard to distinguish themselves from their local counterparts by stressing integrity and ethics.

But now, the multinational firms have become targets of Beijing's anti-corruption drive alongside domestic companies as increasing commercial bribery cases become a staple by-product of economic reform. State prosecutors say they handled 8,040 commercial bribery cases involving more than one billion yuan in the first eight months of the year, up 20 per cent year on year.

'Cases of corrupt practices in multinational companies should not come as a surprise,' consulting firm Apco's mainland managing director Patrick Horgan said. Still, 'anyone with exposure to business practice would be able to state that it is significantly lower than among Chinese companies'.

It is unclear how widespread bribery is among multinational companies, but there have been no lack of high-profile scandals lately. Last month, Beijing police detained eight purchasing managers from French supermarket chain Carrefour on suspicion of taking bribes from food suppliers.

Then reports emerged that German engineering group Siemens was being investigated over the role of its mainland medical technology division in a corruption case at a hospital in Songyuan city. About 20 staff of Siemens' mainland subsidiary had lost their jobs on suspicions of corruption.

When it comes to compliance, multinational firms differed from mainland firms because they were also subject to laws in their home countries, said Ben Miao, Clifford Chance's senior associate in Shanghai. He said there were legal risks companies could avoid by understanding the system, such as what constituted illicit gains.

'The crackdown has accelerated in the past two years and compliance is stricter,' Mr Miao added. Until then, mainland authorities apparently displayed relative passiveness towards multinational firms.

One of the main reasons was that much of the corrupt practices take place abroad, complicating investigations. Mainland official media have also said the tactics adopted by multinational firms were sophisticated, such as arranging overseas education and training for children of mainland partners or bureaucrats.

The Legal Daily recently quoted Ren Jianming, associate professor at Tsinghua University's School of Public Policy and Management, as saying authorities had to date not acted harshly against multinational firms that had helped bring in more than US$750 billion of foreign investment since China began opening up its economy in 1978.

Based on estimates, the newspaper reported an increasing trend of corruption among multinational firms; about 64 per cent of mainland corruption in the past 10 years involved multinationals or foreign trade. Moreover, a study by Tianjin's Nankai University showed that more than 50 per cent of the companies interviewed said they had paid bribes, a 'magic weapon' to compete in the marketplace.

Ironically, as more foreign firms raise the country's importance in their global strategies, they get more accustomed to the Chinese culture. Like it or not, bribery is a key component that has been institutionalised in Chinese society. Many firms have thus factored in bribes as inevitable business costs.

To combat graft, Beijing last month established the National Bureau of Corruption Prevention to develop preventive policies for private companies and non-governmental agencies.

Multinationals named for graft have included McDonald's, Whirlpool, McKinsey and ABB. The likes of McDonald's, KFC and Pizza Hut have been criticised for underpaying staff.

Analysts say it is time for multinationals to do more than public relations stunts. 'Multinationals are still trying to promote high ethical standards but it is one of the hazards of doing business in any market, certainly in emerging markets,' said Mr Horgan.