USCBC Standards Industry Update - February 14, 2018

Will ISO Standards Transform Compliance in China?

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.

USCBC 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 in a briefing for USCBC members.

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, and it is a standard 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.

There are four key reasons for companies to pursue ISO 37001 certification:

  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. 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.

There are several China-specific elements to ISO 37001. China was a key member of the project committee that developed the standard, and it has some buy-in from Chinese enforcement bodies. But 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 in that demonstrating a strong corporate compliance program does not mitigate the consequences of being found in violation.

For Chinese companies expanding outward or that are 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
ISO 19600 guidelines on compliance management systems released in 2014. The guidelines are different from ISO 37001 because 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. That said, it makes it is a more flexible benchmarking 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” 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.