Decoded: The nuances of anti-corruption in China

“The impact of local authorities' enforcement actions on MNCs is significantly different than that on domestic enterprises,” said Tianfu Liu, Asia-Pacific counsel at Cabot Corporation, an American chemicals and materials company.

Firstly, the public and media attention paid to misconduct by MNCs is greater. Second, MNCs may not have the channels or relationships to minimize the impact of being penalized, as they have greater risk exposure and may be subject to investigations or filings in other jurisdictions. Third, the price paid by MNCs to remedy the issues can be much higher.

“MNCs tend to hold a higher standard in terms of transparency and compliance, and usually take costly measures after government enforcement actions,” said Liu. Liu and Hu were speaking as part of a panel on tackling corruption at the U.S.-China Legal Summit hosted by The American Lawyer and The Asian Lawyer in Shanghai on November 25.

Compliance and monitoring

Designing an internal compliance program that can be implemented across the entire chain of business is critical. Consolidating the resources of various functions is often the first step.

“A good strategy is to always team up with powerful departments like finance or HR for better results,” said Liu, adding that regional and global compliance teams should involve leaders from both the business and functional sides of the company, so that investigations for internal misconduct can be carried out swiftly and efficiently.

Companies should build a long-term and company-wide compliance culture, as even solid programs inevitably have loopholes. Instilling values that last means legal counsel must take a strong position and make the seriousness of the problem clear, Liu said.

“This mindset needs to be carried through to business partners as they should value the work you do,” said Daimler's Hu. “That said, monitor the risk behavior of all third parties and audit properly,” he advised.

This involves conducting thorough due diligence and back ground checks of not just distributors and sales representatives but anyone the company engages in business with, including tax consultants and advisers, the speakers said.

Industry insight: auto and chemicals

Liu outlined the major areas in the chemicals industry most vulnerable to corruption:

“Distribution channels and third parties are traditionally very high-risk. We also need to be careful when managing capital-intensive construction projects and dealing with SOE [state-owned enterprise] partners and suppliers.”

As for the automotive sector, Hu shared the same views on distributors, as the investment involved is huge – at least Rmb100 million goes into a typical Mercedes-Benz dealership, he said. The sum includes the cost of land, construction and initial stock.

Hu flagged events such as car launches as requiring extra attention as they involve a wide range of partners and marketing activities. Any deals involving big contracts, such as fleet sales, need caution as well.

Accessing data

Businesses need to take control of employees' communication and data as much as possible, and be on top of all new trends in communication patterns like social media among vendors and suppliers, said Kate Chan, regional managing director of legal technologies at Kroll Ontrack, who was also on the panel.

“eDiscovery review tools are necessary to filter and analyze data when needed,” Chan said. “It is important to set and clarify internal policies regarding access to – and ownership of – company-owned technology devices, and comply with Chinese regulations regarding personal information,” she added.

By Katherine Jo

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