China’s Evolving Risk Calculus
By Raymond Barrett, Global Managing Editor of PaRR
When it comes to anti-corruption compliance in China, the risk calculus for foreign companies is evolving.
With the long reach of the Foreign Corrupt Practices Act (FCPA) expected to recede somewhat, domestic enforcement targeting commercial bribery is set to pick up pace as the Chinese economy moves to another stage of its development.
The reasons behind this shift are manifold and can be traced to changes on both sides of the Pacific.
In the US, the Department of Justice is coming to terms with life as an arm of the Trump administration. The president is no fan of the extra-territorial anti-graft statute having decried the FCPA as both “horrible” and “outrageous” prior to taking the Oval Office. Ultimately, the DoJ, like other government agencies, is led by a Trump appointee whose job is to make the president’s policy priorities a reality.
In practical terms, the DoJ has issued new guidelines—the FCPA Corporate Enforcement Policy—which encourages companies to self-disclose potential violations while providing “a presumption that the company will receive a declination”—i.e. that there will be no prosecution. Other “pro-business” aspects of the move include a greater assurance of reduced fines and that companies can escape having a monitor imposed. In addition, hiring freezes across the federal government will also impact enforcement, as agencies such as the DoJ and the Securities and Exchange Commission are asked to do more with less.
Finally, a US federal appeals court recently issued a landmark ruling limiting the parameters whereby a non-US national can be targeted in an FCPA case. The matter involved a UK national employed by the French rail giant Alstom and an alleged plot to bribe government officials to win contacts in Indonesia.
Together, these factors point towards a world where the FCPA is no longer the only game in town when it comes to anti-corruption risk.
Meanwhile, Beijing is restructuring its regulatory environment. Firstly, a modified version of the rather awkwardly named Anti-Unfair Competition (AUCL) came into force this year. One of the AUCL’s prime targets is commercial bribery and the Chinese government continues to draft rules to give companies guidance in this matter.
There has also been institutional change, with the creation of a new government entity—the State Administration for Market Regulation (SAMR)—which will be tasked with policing commercial bribery along with other issues such as monitoring anti-competitive practices and protecting intellectual property and trade secrets.
To this end, SAMR recently announced a crackdown on bribery in the medical sector as it looks to control costs in the sector.
This shifting compliance environment is in keeping with the way the Chinese economy has evolved. Over the last decade, China has been the “workshop of the world” with foreign companies establishing production facilities there. Therefore, it was only natural that the FCPA would come into play, be it having difficulty with goods clearings customs or issues getting the necessary permits for one’s factory to remain operational.
But with trade tensions between the US and China boiling over and protectionism on the rise globally, domestic commerce in China will only grow in importance.
If the past was dominated by China selling goods to the world, a defining commercial reality for the next decade will be the rest of the world trying to sell its wares to China—and all the associated risks that come with it.
Raymond Barrett is the Global Managing Editor of PaRR, an Acuris Group publication providing readers with news, data and analysis on competition law, anti-corruption, data privacy and sector-specific regulatory change. Based in Hong Kong, he was previously PaRR’s Washington Bureau Chief. He is the author of Dubai Dreams: Inside the Kingdom of Bling.