Will ISO Standards Transform Compliance in China?

By Patrick Lozada, Manager of Business Advisory Services, US-China Business Council

As China pushes forward with its national anti-corruption campaign, companies are considering standards released by the International Standards Organization (ISO) to improve anti-bribery and corporate compliance programs.

The new standards released by the International Standards Organization (ISO) aim to comprehensively improve and unify anti-bribery and corporate compliance programs in companies around the world. ISO 37001 and ISO 19600 in particular are increasingly of interest to companies operating in China, as the central and local governments continue to move forward with the national anti-corruption campaign.

International standards provide requirements, specifications, guidelines, or characteristics to follow consistently. This applies both to technical processes, such as in the shape of a screw or a plug, or more broadly to business activity. Standards policies can help facilitate trade or act as a barrier, depending on whether their provisions alter the efficiency of processes or change the configuration of products.

The US-China Business Council issued a report on anti-bribery compliance in December of 2017 that discussed briefly the incorporation of ISO standards into Chinese government documents. During a February 1 USCBC briefing in Shanghai, Tim Klatte and Susan Munro, Partners at USCBC member law firms Grant Thornton and Steptoe & Johnson, provided more detail.

ISO 37001
ISO 37001, an anti-bribery and anti-corruption compliance standard issued in October of 2016, lays out a framework for establishing anti-bribery programs, one that can be certified by a qualified certification body that follows the requirements of ISO 17021-01 and 17021-09. Certification is not awarded to the company at the corporate level, but rather given to specific functions or areas of a company.

US companies operating in China should consider four key reasons to pursue ISO 37001 certification. Companies can:

1. Fulfill corporate commitments to good governance: ISO 37001 can be a valuable benchmarking tool, and can help identify and address issues in corporate compliance programs.
2. Gain competitive advantage: Companies want to engage with ethical third parties. The ISO 37001 certification will be one mechanism for third parties to demonstrate that they operate with integrity.
3. Demonstrate proactive commitment to governments: Presenting an ISO 37001 certification to enforcement agencies demonstrates a proactive commitment to compliance.
4. Create structures that rein in emerging market risks: The process of getting certified will provide assurances to HQs that controls are being implemented in emerging markets, where the bribery risks are highest.

ISO 37001 includes several China-specific elements. Because China was a key member of the project committee that developed the standard, it has some buy-in from Chinese enforcement bodies. The new version of the Anti-Unfair Competition Law in China is out of step with the US Foreign Corrupt Practices Act and UK Anti-Bribery Act, however, stating that a strong corporate compliance program does not mitigate the consequences of being found in violation.

For Chinese companies expanding outward or those supplying multinational companies subject to global compliance rules, ISO 37001 certification may help overcome perceptions that Chinese companies are corrupt or will be an integrity risk. Although only one Chinese company — China International Marine Containers Co., Ltd. — has obtained ISO 37001 certification, local governments have shown an interest in the standard. In June 2017, the Shenzhen Market and Quality Supervision and Administration Committee issued China’s first official voluntary standard SZDB /Z 245—2017: Anti-bribery Management System, which is based on and incorporates many provisions of ISO 37001.

ISO 19600
Released in 2014, ISO 19600 offers guidelines on compliance management systems. These standards differ from ISO 37001 in that they are not certifiable. The lack of procedures for formal certification may limit the value to companies seeking to tout it as a competitive advantage in international markets. ISO 19600, however, serves as a more flexible bench-marking tool, less onerous to comply with, and more easy to incorporate into national and local standards.

ISO 19600 has been more rapidly adopted on the national level. In February of 2017, the Standardization Administration of China (SAC) issued China’s first compliance-related voluntary standard: Compliance Management System Guidelines, explicitly based on ISO 19600. The State-owned Assets Supervision and Administration Commission of the State Council (SASAC) has also drafted Compliance Management Guidelines for centrally governed “core” State-Owned Enterprises (SOEs) that are influenced by ISO 19600. Five SOEs, including China Petroleum and China Mobile, have been conducting pilot programs leveraging these guidelines since 2016.