China big factor in U.S. probes of graft

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.