China question: What is the best way to implement a compliance programme?

One of the common issues that frequently emerges during such a review involves global compliance policies that conflict with local practices for monetary thresholds and business interaction protocols (e.g., meals, travels, gifts and entertainment). Another frequently seen issue is global compliance policies allow certain exceptions and defences that are commonly granted under foreign anti-corruption regimes but these exceptions may not be permitted under Chinese laws.

To address these conflicts, a global company may consider adopting a stand-alone China addendum to its global policies. The addendum allows the company to retain the flexibility to incorporate local rules and regulations and to set forth customised thresholds and procedures without having to alter global policies.

Further, while Chinese laws do not require global companies to provide Chinese translations of policies, I have seen cases where global companies encounter difficulties in enforcing English language versions of their policies against employees (based on the claim that the employee did not understand the policy due to a lack of English proficiency). As such, I also advise clients to prepare a Chinese translation of all the relevant policies.

Implement properly – follow employment related procedures

The second step is to implement the localised compliance policies in a legally proper way. Chinese employment laws are known for being employee-friendly. As such, they set forth requirements and restrictions on the implementation of policies that would likely be considered as having any direct bearing on the immediate rights and interests of employees.

Since much of the content of compliance policies, particularly content dealing with enforcement, such as warning, demotion or termination, would naturally be considered to affect the immediate rights and interests of employees, the implementation of compliance policies is therefore normally subject to the mandatory employment-related procedures and other requirements under Chinese employment laws.

Failure to follow these procedures and requirements when adopting a local compliance policy may make it difficult or even impossible for an employer to enforce the policies against an employee. Terminating an employment relationship, even for cause, is always very difficult in China, so it is imperative to ensure compliance policies are adopted properly through the requisite employment-related procedures.

Train – communicate and response

The third step is to conduct continuous training and effective communication. After setting up the localised compliance policies, providing a training programme on the policies and anti-corruption laws is imperative to ensure that local employees understand the rules and have an enhanced awareness of compliance issues.

Also, periodic audits are important to ensure the compliance policies are properly followed, and to identify any potential weaknesses or loopholes that need to be corrected. Moreover, it is suggested to take proper measures in the event of any breach of the policies to create deterrence.

Michelle Gon,
Baker & McKenzie, Shanghai

The specialist perspective

When I am asked this question by a compliance officer, legal director or general counsel, it is invariably followed by a second question: “should my anti-corruption compliance programme be different in China in order to take the culture into account?” My answer never varies: no, your anti-corruption programme must be the same in all countries including China. However, the implementation of this programme must take into account the specificities of the country of implementation. This includes the unique political, economic and social systems of China.

The anti-corruption programme must be the same because all countries incriminate the offense of corruption of public officials in the same manner. China, which is a signatory country to the United Nation's Convention against Corruption (UNCAC), adheres fully to the definition of corruption as specified in this Convention. In addition, this commitment was reinforced by the Interpretation on Several Issues Concerning the Specific Application of the Law on Handling of Criminal Cases of Bribe Offering (关于办理行贿刑事案件具体应用法律若干问题的解释) on December 26 2012 from the Supreme People's Court and Supreme People's Procuratorate.

The PRC Criminal Law (中华人民共和国刑法) states that corruption is an improper gain which occurs when benefits for the briber are in breach of PRC regulations or when a government official is requested to break PRC regulations to provide assistance in obtaining such improper gains. It should be noted that the concept of improper gain is not limited to illegal profits, but also encompasses illegitimate profits, like any competitive advantages in violation of the principles of justice and fairness.

Consequently, an anti-corruption compliance programme must be applied in the same manner in all countries and based on four pillars.

• First pillar: information and communication. The prohibition of corruption must be clearly stated and endorsed by the highest authorities of the company and then effectively communicated to everyone involved: employees, third parties, but also public and private clients.

• Second pillar: training. It is imperative that employees understand what corruption is as well as the risks they run for themselves and the company if such an act were to occur and they need to have the means to prevent such an eventuality. These two points are crucial to an effective anti-corruption compliance programme.

• Third pillar: tools of prevention. Each company must develop procedures to combat corruption which are adapted to its own specific risks, which vary depending on the sector, organisation and size.

• Fourth pillar: control. Without controls, an anti-corruption compliance programme is non–existent.

Although the structure of an anti-corruption compliance programme should be the same for subsidiaries whether based in China, South America or Africa, the implementation of the programme needs to be adapted to the political, social and economic environment of the target country. Let us take the example of guanxi, which is integral to human relations in China, but which is perhaps difficult to explain or justify to an outside observer. If guanxi is employed as proof of respect and reciprocal confidence in a relationship it creates no difficulties. However, if it is used to obtain something from someone in breach of PRC rules and regulations then it is an act of corruption. Consequently, the anti-corruption compliance programme of a company based in China must integrate this dimension into its procedures. Using the aforementioned four pillars this would mean, for the communication and information stage, that the company should ensure that guanxi is not used for corrupt ends. The training component would explain the limits of guanxi while the tools for the prevention of corruption would be designed in such a way as to ensure that employees and partners be aware of authorised and unauthorised forms of guanxi. Finally, the control phase would involve constant monitoring of the practice of guanxi.

Often, I hear that corruption has a cultural dimension - a comment that after several decades of working on the subject, I feel compelled to refute. No mother in the world, not in China or any other country, would tolerate her child stealing money from the family purse in order to buy sweets. The prohibition of corruption is at the heart of any child's moral education. If corruption appears to be more prevalent in some countries than in others, it is not because of cultural differences, it is simply a distortion of policy organised by a minority and inflicted upon the majority.

Philippe Montigny, President,
ETHIC Intelligence