FCPA Compliance and Ethics Blog

October 14, 2013

1066 and All That: Why The International Fight Against Corruption?

Filed under: Corruption in China,FCPA,Financial Times,GlaxoSmithKline — tfoxlaw @ 1:01 am

If there is one event in history of Western Civilization which could be said to be a true turning point, today is the anniversary of one of the very top echelon. On this date in 1066, William the Conqueror defeated Harold II, King of England, near the town of Hastings, on the English south coast. On Christmas Day, 1066, William was crowned the first Norman King of England, in Westminster Abbey, and the Anglo-Saxon phase of English history came to an end. The French language became the dialect of the King’s court and gradually mixed with the Anglo-Saxon tongue to give birth to modern English. This date was the last time that a European Continental power successfully invaded England. Why did William invade England? He claimed he was promised the crown by his cousin, Edward the Confessor.

I was reminded again this weekend that in the arena of the global fight against bribery and corruption, I believe that the GlaxoSmithKline PLC (GSK) matter in China will be a true game changer. An article in the Financial Times (FT), entitled “Net closes of former security chief as China cracks down on corruption”, focused on the tightening circle around Zhou Yongkang, a former member of China’s Politburo Standing Committee (PSC) and Secretary of the Politics and Law Committee. In this role he was “the domestic security tsar, in charge of spy and security agencies, as well as China’s paramilitary forces, police, judges, courts, and lawyers.” In other words, he was about as connected as one could be in China. Yet, he has fallen from the Chinese Communist Party’s top hierarchy.

But, equally importantly for the fight against international bribery and corruption, both close family members of Yongkang and former close associates have been arrested or have come under investigation for bribery and corruption. Yongkang rose to power through China’s petroleum industry, having been the head of the Energy Group of the Chinese National Petroleum Company (CNPC). Officials at CNPC have been arrested or are under investigation. Officials at several other state owned energy concerns, businesses in the travel, telecommunications, real estate and liquor industries have been either arrested, detained or are under investigation for bribery and corruption.

Some have questioned the motives for China’s crackdown against western companies over bribery and corruption, as exemplified by the GSK matter. I believe that the crackdown is a part of the Chinese government’s wider fight against internal corruption, as laid out in the article about the downfall of Yongkang. In another FT article, entitled “China dream sours for foreign companies”, Tom Mitchell wrote that “The “Chinese dream” articulated by China’s new president, Xi Jinping, is fast becoming a nightmare for some of the world’s most powerful corporations.” This is because “since then, government investigations and state media exposés targeting foreign investors have become a regular feature of the country’s business landscape.” Mitchell reported that some western executives “complain that foreign groups appear to be encountering particularly heavy scrutiny under the new leadership.” That complaint might certainly be considered by GSK about now as they have become the poster child for Chinese enforcement of its own internal anti-bribery legislation.

One of the things that compliance practitioners should not lose sight of in the ongoing bribery and corruption investigation of GSK is that the investigation, detentions and arrests all involve allegations of violations of Chinese law, not the US Foreign Corrupt Practices Act (FCPA) or UK Bribery Act. And while prosecution and even indictment or arrest under the FCPA or Bribery Act could not be termed a pleasant experience, I am relatively certain that it would pale in comparison to indictment or arrest under the applicable Chinese law prohibiting bribery of Chinese officials.

I think that this portends a significant shift for US, UK or other western companies doing business in China. In a recent client alert, entitled “Recent Developments in Chinese Antibribery Laws and Enforcement”, the law firm of Akin Gump Strauss Hauer & Feld LLP, wrote that “The recent, very public crackdowns against alleged bribery activities by foreign firms, however, should be seen in a broader historical context and as a manifestation of developments in the legal arena that have been taking place over some time.” This is because Chinese officials had previously focused on prosecution of bribe recipients, not the bribe payers. They noted that “Chinese laws against bribery can be found in the PRC Criminal Law, first promulgated in 1997. Importantly, in contrast to bribery laws in many other jurisdictions, the Chinese law applies only to the actual giving of a bribe, not to the offering of one; there is no law against attempted bribery in China. In contrast to the FCPA, the rules in China apply to bribing private individuals and entities, not just government officials.”

I believe that the Chinese motivation in the GSK matter must been seen as one part of this larger fight against bribery and corruption. This is simply more than one country pointing its finger at the outside business interest and claiming it is the bad western businessmen corrupting the locals through huge bribes. From the information that is coming out of China, it appears that China is using a multi-pronged attack against bribery and corruption and that going after the bribe-payers is but one part, albeit a new part, for China. This does not lessen the message for western companies currently doing business in China to review their own operations to see if they have any problems similar to those which have beset GSK and take remedial action as appropriate. But I do not see this current effort by Chinese authorities as an anti-American, anti-British (GSK is a UK entity) or anti-western backlash. The motivation seems to be the fight against bribery and corruption of which western businesses paying bribes in China is but one component.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

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