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China anti commercial bribery system and lessons learned from GSK scandal

China anti commercial bribery system

China does not have specific anti-commercial bribery laws dealing with domestic business corruption and bribery. Instead, this is provided for under the PRC Anti-Unfair Competition Law (“AUCL”) and PRC Criminal Law, which applies to all Chinese citizens and any persons within China. Both laws also apply to all companies and institutions organized under China’s laws, which include Chinese domestic companies, Sino-foreign joint ventures, wholly foreign-owned enterprises, representative offices and even foreign companies doing unincorporated business in China.

The AUCL prohibits business operators from “giving bribes in the form of property or other means for the purpose of selling or purchasing products.” The PRC Criminal Law, however, criminalizes the act of “giving money or property to any employee of a company or enterprise or other entity for the purpose of seeking illegitimate benefits.” If an entity commits such a crime, it shall be fined, whilst a person who is directly in charge and other persons who are directly responsible for the crime could be sentenced to imprisonment or detention. The PRC Criminal Law also has specific provisions governing governs against bribery to government-related officials.

Chinese government extended the coverage of the Criminal Law in February 2011 to prohibit Chinese nationals and Chinese companies from paying bribes to government officials outside China, a natural development given the magnitude of Chinese companies venturing overseas.

Foreign jurisdictions impacting activities in China

The Foreign Corrupt Practices Act (the “FCPA”) is primarily a US set of regulations governing the bribery of foreign government officials, but it also impacts non-US companies that have a US nexus (such as a Securities and Exchange Commission (SEC) registration) and, hence, will affect certain French businesses. This has become an increasingly key enforcement priority for US regulators, significantly raising the reputational and financial risks to companies within the perimeters of the FCPA.

The offenses set out in the UK Bribery Act, which impacts not only UK incorporated businesses, but potentially the global operations of foreign businesses with UK presence, are seen as even more stringent than the FCPA. In particular, it covers all bribery, regardless of whether it involves a public official, and failing to prevent bribery is also considered an offense.

The US and the UK are not the only countries committed to curbing bribery of foreign officials. France is one of the 38 countries which have signed the 1997 OECD Anti-bribery Convention, aimed at reducing corruption in developing counties by encouraging sanctions against bribery in international business transactions. Countries that have signed the Convention are required to put in place legislation that criminalises the act of bribing a foreign public official.

Lessons learned from GlaxoSmithKline scandal

The recent enforcement of Chinese anti-bribery laws against British pharmaceutical company GlaxoSmithKline (GSK) highlights the compliance challenges faced by foreign companies operating in China. Chinese authorities have detained GSK employees and medical personnel, including four senior Chinese GSK executives, in connection with the scandal.  Among the detained executives is GSK’s Chinese legal director, Zhao Hongyan, also know as April Zhao.

There are two trends shown in this matter:

1. Foreign companies can expect increased enforcement of Chinese anti-corruption laws against them.

2. Local Chinese lawyers, including compliance counsels or compliance specialist, must be able to perform their jobs independently and without fear of retaliation from local management.

 

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