Uncovering Corruption

Investigating Foreign Investors

Two senior officials of the State Power Corporation, have reportedly been arrested for taking bribes from foreign investors (or their PRC partners) in connection with two projects.

The significance of the arrests is that several foreign companies have been questioned in relation to bids for contracts to build power plants, for which they allegedly bribed one of the arrested officials. In the past, foreign companies have generally been spared investigative scrutiny due to the government's reluctance to create international incidents and/or deter foreign investment. During the 1980s to early 1990s when the domestic power sector was in need of funding and energy, the government had an incentive to shield foreign investors from anti-corruption probes. Such immunity is fading as the political and economic costs of corruption continue to rise and gain exposure.

Black-listing Measure

Following the recent massive five-year infrastructure building program and the subsequent investigations, Huang Zhengdong, Minister of the Ministry of Communications (MOC) reported stated that the MOC will "black-list" companies engaging in bribery, gift-giving or other anti-competitive behaviour. On March 29 2001, Hu Xijie, Vice Minister of the MOC elaborated that the MOC will monitor companies in the design, construction and supervision stages of transport projects. Companies engaging in illegal conduct, including rebates, will be black-listed, have their names disclosed to the public, and will be prohibited from tendering or bidding on new projects for three years.

Anti-corruption Regulatory Overview

While anti-corruption legislation in the PRC is not new, it has been somewhat neglected by foreign investors in the past. Given recent developments, this area merits review, and some rules relevant to foreign investors are discussed briefly below.

Bribes

PRC law defines bribery as the giving of moneys or goods to personnel of State organizations or public servants for improper benefits. Although "improper benefits" is not defined, excessive amounts of money or gifts, and payment of rebates or fees contrary to law, are considered bribes.2

Criminal sanctions include the following:

(a) Individuals may be subject to detention or imprisonment for a term less than five years. For cases which are "serious", or result in substantial damage to State interests, the offender may be punished by imprisonment for a term between five and ten years. For cases which are "extremely serious", a term of over ten years to life imprisonment, as well as confiscation of property.3

(b) Legal persons may be subject to fines for "serious" cases, and management personnel as well as those directly responsible for the bribe are subject to imprisonment for a term of less than five years.4 PRC law also stipulates that business operators giving bribes, including unaccounted rebates, to any entity or individuals in order to advance sales or purchases, are subject to fines and the confiscation of illegal gains, as well as criminal sanctions where such bribery constitutes a criminal offence.5

Gifts

PRC law does not explicitly distinguish between bribery and gift-giving, but suggests that the intent of the parties is one important factor (bribery defined as requiring the intent to gain "improper benefit"). Under PRC law, government administrative personnel may:

(a) not receive gifts while discharging official duty within the PRC. Gifts are gift articles, gift money, vouchers or goods purchased with nominal costs, whether given outright or in the name of or in the form of receptions, seminars, weddings and funerals;6 (b) receive gifts in performing official duties relating to foreign parties only. Such gifts are gift articles, gift money or vouchers, and must be reported according to value.7
Leading cadres are prohibited from accepting overseas travel offers or support from foreign investors or overseas PRC enterprises.8

Loose Ends

Although the recent campaign against corruption may be seen as a political move to push economic reforms, the mounting pressure against corruption has scaled back foreign investors' prior immunity to corruption investigations. In addition to anti-corruption regulations of their home jurisdictions (for example the US Foreign Corrupt Practices Act and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions), foreign investors must now also contend with PRC laws. Given the ambiguous distinction between gifts and bribes, foreign investors should exercise caution when presenting individuals or government officials with gifts, and maintain records thereof.

By C. F. Pan,
Freshfields Bruckhaus Deringer,
Hong Kong

Endnotes:

1 See PRC, Tendering and Bidding Law.(《中华人民共和国招标投标法》)
2 PRC, Criminal Law (《中华人民共和国刑法》), art. 389; Supplemental Provisions Regarding Punishment of Corruption and Bribery Crimes (《关于惩治贪污罪贿赂罪的补充规定》), art. 7.
3 Criminal Law, art. 390.
4 Id., art. 393; Provisions, art. 9.
5 PRC, Anti-unfair Competition Law (《中华人民共和国反不正当竞争法》), art. 8, 22.
6 Provisions Against Offering and Accepting Gifts by State Administrative Organs or Personnel in Performing Official Duties within the PRC (《国家行政机关及其工作人员在国内公务活动中不得赠送和接受礼品的规定》), art. 2-4.
7 State Council Provisions Regarding Offering and Accepting Gifts in Performing Official Foreign-related Duties (《国务院关于在对外公务活动中赠送和接受礼品的规定》), art. 2, 7.
8 Provisions of the General Office the CCP and the General Office of the State Council Regarding Strict Control of Overseas Travels by Leading Cadres (《国务院关于在对外公务活动中赠送和接受礼品的规定》), art. 1.