How to Handle 4 Anticorruption Compliance Issues

Melinda Xu

The 2012 launch of China’s anticorruption campaign has renewed US companies’ attention to anti-bribery, competition, and corruption-related policies and regulations. The challenges of compliance have continued to evolve since the US-China Business Council’s (USCBC) 2013 Compliance Best Practices Report, as China has promulgated new local laws and regulations. As USCBC members work to ensure compliance, however, they continue to cite the same four challenges: tracking multiple Chinese laws; adapting global policy to regional issues; managing stricter expense approvals and gift giving thresholds; and building comprehensive compliance training programs. In their efforts to address these challenges, companies have also identified some best practices outlined below.

• Tracking multiple Chinese laws

Foreign Corrupt Practices Act (FCPA) compliance remains a priority for companies, but as domestic antibribery and anticorruption policies become increasingly important, legal and compliance teams must track these laws at multiple levels of government to maintain compliance, as well as key central government laws:

• Anti-Unfair Competition Law   Revised for the first time in 2016, the draft revision clarified the concept of commercial bribery and set a fine of more than 10 percent, but no more than 30 percent, of the illegal sales.
• Anti-Monopoly Law   Implemented in 2008, the law clarifies the definitions of antitrust, abuse of market dominance, horizontal and vertical agreements, and anticompetitive mergers. Illegal gains from monopolies will be confiscated and a fine can range from 1 percent to 10 percent of the previous year’s sales.
• Amendment (IX) to Criminal Law   The Amendment (IX) was revised in 2015 to increase the penalty for individuals or companies offering bribes to officials. Individuals can also be sentenced to prison.

Recommendations

• Be aware of laws and regulations   Some Antitrust and anti-unfair competition regulations lack detail and implementation transparency, so companies should closely monitor changes and take steps to mitigate exposure.

• Follow enforcement trends   Closely follow enforcement trends to be better prepared for possible investigations. Enforcement authorities often focus on certain types of cases, such as price fixing; or certain industries, such as pharmaceutical and healthcare, finance and investment, automotive, FMCG and food.

2. Adapting global policy to regional issues

Most companies adopt a single, global compliance policy and use a semi-autonomous regional compliance team to adapt it to the local market. According to USCBC interviews, this team often directly reports to the corporate compliance head, while some compliance teams directly report to the China/Asia-Pacific leadership.

Because of the increase in local policies and enforcement, as well as growth in business, most companies say their compliance teams have expanded in the past three years, and some expect growth to continue.

Recommendations

• Communicate with headquarters   Face-to-face meetings are invaluable for establishing trust, helping headquarters understand local market conditions, and ensuring active support for local compliance programs.

• Set up strong regional compliance programs   It’s necessary to have a team of dedicated compliance officers, and to design detailed guidelines and procedures for different business units facing antitrust risks. At a minimum, a good compliance program will include employment agreements, company handbooks, and codes of conduct that clearly define prohibited conduct and outline consequences of violating rules.

3. Limiting expenses and gift giving

To ensure compliance with antibribery laws, companies are keeping closer tabs on expenses, especially for entertainment, meals, and gift expenditures. USCBC companies report that fewer officials are requesting special treatment.

Recommendations

• Require pre-approval of expenses Many companies, especially consumer-facing ones, require employees to receive pre-approval for entertainment, meals, and gift expenses.
• Set tougher thresholds for gifts   Some companies, often in the B2B space, require pre-approval of expenses that exceed a specific threshold, often $50. As a whole, companies are setting stricter limits and requiring better internal reporting for gifts and meals.

4. Building a comprehensive training program

Frequent and continuous compliance training—along with top-level management support—is critical for instilling a culture of compliance in China. Compliance training programs are usually conducted in one or more of the following three ways: in-person, online, and with workbooks.

Companies report that JV partners can be a roadblock to implementing a corporate compliance policy. JV partners often lack a  thorough understanding of compliance risks, but US companies nonetheless face the task of ensuring that JV partners adopt and obey their policies.

Recommendations

• Develop and maintain strong staff training programs   As part of an effective compliance program, employees should receive regular training about relevant laws, including FCPA, bribery, and the anti-monopoly law.

• Continuously communicate with JVs Continually discuss compliance to ensure that it is a priority in a JV partnership.