Whistleblower complaints seen by China regulators as clues in treasure hunt, reports finds

The vast majority of fraud or corruption crises faced by multinational firms in China over the past year have been sparked by whistleblowers, with regulators increasingly looking on the claims as clues in a treasure hunt, a Shanghai-based risk consultancy chief says.

Disgruntled past and present employees are common sources of complaints, along with suppliers, distributors, consumers and business rivals, says Kent Kedl, the managing director of British advisory Control Risks.

Citing a statement by mainland officials that 80 per cent of corruption investigations are initiated by whistleblowers, Kedl wrote in a report that informers have become emboldened by a changed landscape in which regulators and officials are often under pressure from their peers and the media to deliver results amid Beijing’s anti-graft drive.

“There has been a significant trend towards reporting or threatening to report directly to Chinese regulators,” he said. “Whistleblowers are discovering the power of involving regulatory authorities in China to help them achieve their objectives, which range from rectifying a genuine integrity issue, to extortive attempts to extract monetary or other concessions from management, or simply to take revenge.

“In the new, turbo-charged China environment for regulatory oversight, such whistleblowers represent a significant source of risk for multinationals.”

Domestic firms face similar risks. From 2012 to 2014, 27.5 per cent of Chinese companies have investigated claims by internal whistleblowers, according to a survey by Control Risks in June and July 2014. It polled 638 executives of companies around the world, including 51 in China.