FOCUS on Risks in CHINA

– The Explosion of

Commercial Bribery

Enforcement in the PRC:

What Can Trigger a PSB or

SAIC Probe and What to do if

your Company or Client is the

Next Target

2nd Singapore Summit on Anti-Corruption

Compliance and Risk Management

December 3, 2013

Bingna Guo, O’Melveny & Meyers LLP

Beatrice Schaffrath, United Technologies

Corporation

Bethany Hipp, Maritime Anti-corruption Network

New Dynamic Regulatory Environment in China

Status of GSK case: it has been reported that the official

investigation results are expected to be released around the

end of November

Other anti-corruption enforcement cases that involve

multinationals include: Sanofi, Novartis, Johnson & Johnson, Eli

Lilly, among others

The SAIC Notice Regarding Anti-Unfair Competition Work:

commercial bribery is a main target of this campaign

Joint efforts by other government agencies: Public Security

Bureau, National Development and Reform Commission,

Supreme People’s Procuratorate

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New Dynamic Regulatory Environment in China (cont’d)

Focus on bribe payers and not just recipients

The Interpretations of the Supreme People’s Court and the

Supreme People’s Procuratorate on the Crime of Offering

Bribes (effective as of January 1, 2013)

In 2012, 19,003 suspects were prosecuted for offering bribes

Increased exposure for corporate liability

Information-sharing mechanism between the U.S. and

China regarding anti-corruption cases

China-U.S. Joint Liaison Group on Law Enforcement

Cooperation

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Overview of Chinese Anti-Bribery Laws

It is illegal:

to bribe individual government officials

to bribe government “units”

to bribe non-government employees

to bribe non-government “units”

Relevant legislation

Criminal Law (1997)

the SPC and SPP Opinions on Issues Concerning the Application of Law in the

Handling of Criminal Cases of Commercial Briberies (2008)

Anti-Unfair Competition Law (1993)

Interim Provisions on Prohibiting Commercial Bribery by the SAIC (1996)

Pharmaceutical Administration Law (2001 revision)

Bidding Law (1999)

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Recent Developments in China’s Anti-Bribery Enforcement

From January 2008 to August 2013, the procuratorial organs

handled 56,963 commercial bribery cases involving state

functionaries in the fields of land transfer, property transactions,

pharmaceutical sales and purchases, government procurement, etc.

- Work Report of Supreme People’s Procuratorate on October 22, 2013

Between 2010 and August 5, 2013, more than 120 private-sector

employees in Shenzhen were prosecuted for accepting bribes in

cases involving Huawei, ZTE, Foxconn, BYD, Wal-Mart, and

Skyworth, among others.

- Shenzhen People’s Procuratorate

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Chinese Anti-Bribery Laws vs. FCPA vs. UK Bribery Act

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Chinese Anti Commercial

Bribery Laws FCPA UK Bribery Act

Definition of government official “state functionary” “foreign official” “foreign public official”

Bribery of (foreign) public officials

Bribery in the private sector

Accepting a bribe

Facilitation payment exception

Local law defense

Penalty • Individual:

Non-state-functionary:

life imprisonment (max.),

fine or confiscation of

property

State functionary: death

penalty and confiscation

of property (max.)

• Company: fine

• Individual: 5 years

and/or US$250,000

fine

• Company: fines,

corporate monitors,

probation

• Individual: 10 years or

fine

• Company: unlimited

fine

Risk Areas And Exposure for Companies Operating in China

China ranked 80th out of 180 countries (180 being the most

corrupt) on the 2012 Corruption Perceptions Index by Transparency

International

Expansive foreign officials’ “pool” resulting from the complexity of China’s mixed

economy (e.g., doctors in public hospitals)

Significant barriers (e.g., extensive business licensing and regulatory approval

processes) and the resulting increased interaction with government officials

Considerable discretionary power in the hands of bureaucrats (because Chinese

laws are generally simple and vague)

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Source: Transparency International

Risk Areas And Exposure for Companies Operating in China

(Cont’d)

What to watch for?

Payments to third-party intermediaries who channel the funds to

government officials

Payments to travel agencies: prominent pattern in the GSK case

Abuses of petty cash to “grease the wheels”

Small payments to overlook deficiencies

Payments to shell companies in order to pass money to government

officials

Excessive gifts and entertainment

Slush funds for gifts/entertainment to government officials: Ningbo Keyuan case

Delegation trips and sightseeing not tied to a specific business purpose

Benefits to friends and families of government officials

Payments through fraudulent accounting entries (e.g., falsified fapiao)

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How Do People Get Caught? - Whistleblowers

Whistleblowing is increasingly prevalent

Respond to whistleblower allegations

How to handle protected data and sensitive information

The whistleblower in the Siemens case

Menglin Liu, the former Compliance Officer for Siemens China’s healthcare

division, reported the company’s possible FCPA violations to the SEC and sued

Siemens in the U.S. under the Anti-Retaliation Provision of the Dodd-Frank Act

On October 21, 2013, the court dismissed Liu’s action

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How To Effectively Respond to A Chinese Government

Investigation

Assess the risk and follow a pre-determined plan

(such as a dawn raid plan)

Know who you are dealing with (e.g., authorities or

investigators)

Be courteous to the investigators and show

willingness to cooperate in the investigation

Respond to investigators’ document requests and

other specific requests in a thoughtful way

Coordinate with public relations

Records keeping

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How to mitigate risk of improper payments in China?

Due diligence – but it is not the end of the story

Training

Notification of anti-corruption compliance

requirements/Supplier codes of conduct

Review invoices carefully

Require official receipts or refuse payment

Understand the charges

Be pro-active: Work with others including NGOs to approach

the regulators where regulations are ambiguous or requests

for payments are pervasive

Documentation

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Thank You！