© Copyright 2014 by K&L Gates LLP. All rights reserved.

Amy L. Sommers, K&L Gates Shanghai

Compliance and China’s Anticorruption

Campaign: Insider Advice from

Industry Experts

US-China Business Council, Washington DC, March 2015

TOPICS:

Anticorruption enforcement in China since 2013

What about cross-border anticorruption

enforcement?

What learnings can be extracted from these

events?

Looking ahead: what should your company be

doing?

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China 2013 - 2015

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WHAT’S HAPPENED IN CHINA IN LAST 2

YEARS?

At the most senior levels and with an urgent

sense of priority, in 2013, the Chinese

Communist Party’s new Chairman launched a

‘healthy work styles’ campaign

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MID-2013: GSK CASE BROKE

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Sept 2014:

Convicted

MNC’S ARE INTIMIDATED AND

BEWILDERED BY EVENTS IN CHINA

As of 2/15, 78 ‘tigers’ at provincial level or higher have been removed

As of 12/14, 232,000 total tigers & flies punished (27.5% increase over 2013)

2013: NDRC, PSB and AIC lead a range of price-related enforcement actions

Brought on both antimonopoly and

anticorruption grounds

GSK case led to industry sweep

against pharmas

2014: AIC (gov’t) announces plan to implement Party’s healthy workstyle campaign

Will last 3 years and target unfair market practices

Target industries for ’14 named: ecommerce, building

materials/furniture, public utilities

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2014: INDUSTRY SWEEPS WERE COMMON

At the provincial level and also at the municipal level, the

Administration for Industry & Commerce was active in

conducting industry-focused enforcement.

For example, in early 2014, the Hunan AIC

commenced a province-wide action against

medical/pharma sector commercial bribery.

This resulted in the commencement of 68 cases in

Hunan, 49 of which have already been resolved.

A total of RMB 1,567,000 (US$248K) in penalties

were imposed >> so, low penalties, but likely high

level of disruption, advisor fees and angst

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AND FOR 2015?

AIC announces that for 2015, the second year of the

healthy work style campaign, it will continue to strike out

against unfair competition problems

The same industries will remain areas of focus

e.g.,

e-commerce,

building materials,

Furniture, and

public utilities

So, will 2015 be more of the same?

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2015 PRIORITY: STRENGTHENING INTERNAL

MANAGEMENT WITHIN PARTY/SOE’S

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WHAT DO OTHER STAKEHOLDERS SAY?

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Toughen sanctions

such that ‘officials

dare not…be

corrupt’

Heavier

penalties for

offerors of

bribes

STAY THE COURSE OR EASE UP?

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SOE’S ON THE HOT SEAT

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26 centrally-owned

SOEs to be on the hot

seat, starting with

China Mobile & China

Telecom…

GAZING INTO THE CRYSTAL BALL:

These developments suggest the following:

The Party is anxious to consolidate internal reform and ensure

loyalty to its senior leadership

The urgency of these concerns are likely to lead to extensive

intra-Party engagement on anticorruption grounds, which will

include SOE management.

Probably less bandwidth to continue industry-focused sweeps

with the degree of intensity seen in ’13 & ’14

But…where regulators receive intel on a case (say from a

whistleblower), they are likely to be very tough as a means of

showing their loyalty/commitment to Party aims

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Recent Cross-Border Enforcement Efforts

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GSK: CHINA SHARED INFO WITH SFO

"Certainly, so far as I am

aware it is the first time

we have had cooperation

with the Chinese on an

SFO case," David Green, the head of the

Serious Fraud Office (SFO)

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APEC has also launched the APEC Network of Anti-Corruption

Authorities and Law Enforcement Agencies (ACT-NET) to facilitate

greater information sharing and cooperation in enforcement efforts

in the region:

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Learnings?

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IMPLICATIONS: ASIAN JURISDICTIONS

BECOMING ACTIVE

Switzer-land

United States

Now…

Taiwan

WHAT ARE IMPLICATIONS OF RECENT

DEVELOPMENTS?

Not just a work-shop

China as market

Private sector bribery

Fast growing

Local regu-lation

Excessive focus on public sector bribery risk?

Looking ahead…

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DOES YOUR COMPLIANCE PROGRAM

FIT THE RISKS YOU FACE IN CHINA?

Business model drives risk

Focus on gov’t touch-points?

What about comm’ltouch-points?

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