China big factor in U.S. probes of graft

PUBLISHED : Wednesday, 26 October, 2011, 12:00am
UPDATED : Wednesday, 26 October, 2011, 12:00am


Some 10 per cent of investigations of companies for breach of the United States' Foreign Corrupt Practices Act (FCPA) in the past five years involve companies doing business in China, international lawyers say.

At least 10 cases concern multinational companies offering bribes in China, said Paul McNulty of Baker & McKenzie, one of the largest global law firms. That means some of the companies' actions suspected of being corrupt, although under investigation in the US, occurred in their dealings with officials in China.

Although no big Chinese firms have been investigated for breach of the legislation, McNulty - a former US deputy attorney general and partner at the Washington office of Baker & McKenzie - said Chinese companies would find themselves in a more rigorous regulatory environment when they expand abroad because of the growing enforcement of laws against corrupt business practices.

McNulty was speaking at the law firm's annual partners' meeting in Beijing. He was joined by Michelle Gon, a Shanghai-based Baker & McKenzie partner who specialises in trade and investment in China.

She said China featured in about 10 per cent of all FCPA probes since 2007. That attests to the high level of business competition in China, which has driven foreign companies to behave corruptly.

Gon said business on the mainland was especially vulnerable to corruption because there were many state-owned companies. The FCPA defines executives of state-owned firms as foreign officials.

Although Chinese officials did not ask for huge kickbacks in cash, in contrast to some of their African counterparts, defining 'hospitality' was a 'significant problem' for companies operating in China, McNulty said. Offering government officials and heads of state-owned firms expensive gifts, travel junkets under 'training' pretexts and other forms of small, ongoing payments, could be regarded as excessive and attract an FCPA investigation.

Certain industries were more likely to attract regulators' attention than others, McNulty said, citing examples such as oil and gas companies in overseas bids for new resources, and drug makers and medical-equipment suppliers bidding for large hospital orders.

To date, no company has successfully fended off an anti-corruption probe by claiming national sovereignty or independence, he said.

Prosecution of corruption had recently gone global, he said. For instance, a new British law covers all companies operating in China, while the FCPA primarily targets American companies and US-listed firms.

Emerging-market countries are also taking similar steps. In February, Beijing made a legal amendment that criminalises attempts to bribe foreign government officials and officials of international organisations.

Gon said it was 'a good start'. 'We call it China's FCPA,' she said. That, she said, paved the way for mainland firms to face probes not just by FCPA officials but also by mainland regulators, if the companies were found to be involved in corruption overseas.

In the past decade, the number of FCPA probes, including those of overseas companies, has risen from between two and three a year to about 50, the international law firm said.

Siemens, Daimler Group (the parent of Mercedes-Benz), IBM and Johnson & Johnson are among the major international firms that have been penalised for FCPA breaches.


The amount of fines, in US dollars, the US imposed on Daimler last year for paying millions of dollars in bribes to foreign officials