Law Amendment and the FCPA Best Practices for Responding to a Chinese Government Commercial Bribery Investigation

Transcription

1 Presenting a live 90 minute webinar with interactive Q&A New Chinese Anti Corruption Law Amendment and the FCPA Best Practices for THURSDAY, AUGUST 25, pm Eastern 12pm Central 11am Mountain 10am Pacific Td Today s faculty features: Amy L. Sommers, Partner, K&L Gates, Shanghai John Auerbach, Greater China Practice Leader, Fraud Investigation & Dispute Services, Ernst & Young (China) Advisory Limited, Shanghai, China The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 Chinese Anti-Corruption Law Amendment and the FCPA Responding to a Chinese Government Commercial Bribery Investigation August 25, 2011 Amy Sommers John Auerbach

6 Topics 1. China s new anti-corruption amendment 2. Interplay with the FCPA 3. Chinese enforcement 4. Responding to Chinese government commercial bribery investigation: practical considerations Page 6

7 I. CHINA S NEW ANTI- CORRUPTION AMENDMENT Page 7

8 Bribery of Foreign Officials under PRC Law Previously, PRC law did not address cross-border bribery. Article 164 of the PRC Criminal Law dealt with bribes paid to employees of enterprises who are not government officials (i.e., bribes payable in a commercial context); As amended, Art 164 now provides for the Crime of Offering Bribes to Officials of Foreign Countries and International Public Organizations Part of China s effort to comply with the United Nations Convention Against Corruption, to which the PRC is a signatory. Prohibits entities and individuals from offering bribes to officials of fforeign countries ti and dinternational ti public organizations to secure illegitimate business benefits Page 8

9 Penalties Where payor is an individual, depending on the value of the bribes, s/he may be subject to imprisonment up to 10 years; Where the payor is an entity, criminal penalties will be imposed against the violating entity; Additionally, the supervisor chiefly responsible and other directly responsible personnel may also face imprisonment of up to 10 years; Where the violating individual or entity discloses the crime before being charged, penalties may be reduced or waived. Page 9

10 Open Questions What constitutes illegitimate business benefits? Includes reference to "officials of foreign countries and international public organizations," but does not define these terms. Does international public organization include foreign nongovernmental organizations? Will China take an expansive view of who is a foreign official for purposes of Art. 164? Foreign invested companies formed under PRC law would be subject to this prohibition >If a foreign company had a China rep office, could the foreign parent be liable? Page 10

11 Interpretations? The Supreme People s Court and the Procurator s Office will from time to time issue an interpretative release to resolve open questions associated with application of statutes or regulations. This has previously happened in the compliance field, such as in 2008 with the Opinion on Several Issues regarding Application of Laws in Respect of Commercial Bribery Criminal Cases. Some of the open questions around amended Art. 164 may be similarly addressed. Page 11

12 II. INTERPLAY WITH THE FCPA Page 12

13 FCPA and PRC Antibribery FCPA bribery of foreign officials China: bribery of officials in business outside of China China: bribery in commercial transactions China: bribery of officials in China Page 13

14 What is commercial bribery? PRC Criminal Law and PRC Anti-Unfair Competition Law both prohibit kickbacks, giving property in any form or providing other types of benefits or interests to the employees of another enterprise as commercial bribery Gifts/property to state employee official bribery Gifts/property to non-state employee commercial bribery Page 14

15 One case/two Views: PRC and United States From a commercial bribery perspective, pharma/health care a focus of concern Difference between US and PRC: improper benefits to employees of SOE hospitals/clinics US official i bribery PRC Comm l bribery Could be FCPA case under US law and commercial bribery case under PRC law Page 15

16 III. CHINESE ENFORCEMENT: CASE STUDIES Page 16

17 Commercial Bribery Enforcement 2011: Employee of Zhousan IMC-Yongyue Shipyard & Engineering Co., Ltd., a foreign-invested invested joint venture, convicted of receiving bribes from several other private companies to retain business; sentenced to 6 and a half years imprisonment and fined criminally 2010: Four Rio Tinto employees, including the General Manager a naturalized Australian citizen found guilty of accepting commercial bribes from local companies; sentenced up to 14 years imprisonment and criminal fines up to RMB 5 million Page 17

18 Enforcement Under PRC Law (cont.) 2009: Guangzhou Pepsi Cola Beverage Company, a subsidiary of PepsiCo, was fined RMB 700, for giving bribes to 47 retailers and supermarkets in Foshan to display its products following certain requirements 2009: Two employees of Shenmei Beverage and Food Co., Ltd., partly owned subsidiary of Coca-Cola, arrested by police for receiving over $1.5 million in kickbacks from suppliers 2009: Employee of N.B.A. China arrested by police in bribery and kickback investigation Page 18

19 Enforcement Under PRC Law (cont.) 2009: Employee of Ying Zhi Jian ( 英之建公司 ), a Chinese company, convicted of giving benefits to Amway (China) Co., Ltd., subsidiary of Amway, to secure its position as a supplier; sentenced to 3 years imprisonment and criminally fined [Note: case did not reveal Amway (China) was investigated for receiving benefits] 2007: Eight managers of Carrefour s Beijing division were investigated and detained for receiving over RMB 1 million in bribes from suppliers 2007 report from Anbound Group, a Beijing-based consultant, estimates that over 60% of the 500,000 corruption investigations in the past decade involved foreign companies Page 19

20 IV. RESPONDING TO CHINESE GOVERNMENT COMMERCIAL BRIBERY INVESTIGATION: PRACTICAL CONSIDERATIONS Page 20

21 Enforcement Action Scenarios Modes of Contact Initial contact Inquiry Raid &Seizure Arrest / Detention ti Penalty / Negotiation Modes of Government Investigation Whistleblower initiated (former employees, competitors) Supply chain driven (customer intermediary company) Sector oriented sweeps Multi-departmental actions (AIC, PSB, Tax, Customs) Page 21

22 Enforcement Catalyst 1: Customer Kickback / Bribery Example 1: T&E Driven Kickback Company Contract / Sale Customer Falsified Sales Expense Relationship Claim Buying Influence Cash Gift Sales Rep Purchasing Mgr Page 22

23 Enforcement Catalyst 2: Intermediary - driven bribery Company Contract / sale Customer Fees Bogus service contract Buying influence Intermediary Shareholder Purchasing mgr Page 23

24 Types of Bribes Supreme People's Court and the Supreme People's Procuratorate 2007 interpretation spells out expanded modes of bribery: Receiving stocks and shares as gifts; Buying property such as houses or automobiles at ridiculously low prices from those seeking favors; Making money in fixed gambling games or cooperating with others to run a company; Misusing a post to make profit for others and getting money or gifts after their official tenures; Making gprofit with the help of family members, relatives or close associates. Recent government focus stored value cards People who help officials get bribes covertly can be convicted as "collaborators". The same applies to those who arrange for people ready to bribe an official to get a job done illegally. Page 24

25 Typical Enforcement Life Cycle Complaint / Investigation Initial Contact Penalty No further contact Fact Finding Penalty No Penalty Penalty Negotiation Settlement / Resolution Page 25

26 Common Operational Concerns What is the nature of the issue / allegation? How specific are the claims? Who are the entities / individuals implicated? What type of information is needed to verify and what is the availability/format of data? How much time provided between initial and subsequent contact with the government? Are there personal privacy or commercial confidentiality concerns? Page 26

27 Common Approaches Key Operational Question: What is our potential exposure? Is there factual basis to the allegation? If so, what is the potential scope and depth of exposure? Qualitative ti fact finding Interviews External verification Computer forensics Transactional review Quantitative Analysis Quantification of questionable payments Estimated proceeds of illicit activity Page 27

28 Questions

29 Amy L. Sommers Amy L. Sommers strong skills in corporate structuring, governance and operations issues in China make her a valued resource to the clients she counsels. A former Chair of the China Committee of the American Bar Association s Section of International Law, Ms. Sommers is a frequent speaker and commentator on China issues. Her involvement in China goes back over 25 years, when she first started studying Mandarin, later developing deep appreciation of China s history, politics, culture and legal system. Her clients benefit from her ability to bring these insights to bear on their strategic China projects. Ms. Sommers is the recipient of the 2007 award for Professional Excellence from the Expatriate Professional Women s Society of Shanghai. She is a Vice Chair of the International Anticorruption Committee of the ABA s Section of International Law. K&L Gates is the China partner firm for TRACE International and Ms. Sommers is responsible for managing that commitment. Copyright: K&L Gates The information in this presentation is not intended as legal advice; please consult your legal counsel for guidance. Page 29

30 John C. Auerbach John is Managing Partner for Greater China of Ernst & Young s Fraud Investigation & Dispute Services practice. He specializes in fraud investigations and risk management consulting for businesses operating in the People s Republic of China and throughout East and Southeast Asia. He is a fluent speaker of Mandarin Chinese. John has led a broad range of forensic, pre-transactional due diligence and risk management consulting assignments in Hong Kong, China and the rest of Asia. He has assisted a wide variety of multinational companies in investigating fraud and irregularities in their Asia operations, frequently with the involvement of U.S. law enforcement and regulatory authorities. He has a particular focus on conducting Foreign Corrupt Practices Act (FCPA) investigations and risk assessments in China. John has also led a number of business intelligence projects for multinational companies focused on the competitive and strategic environment in China and other Asian emerging markets. He has also overseen numerous pre-transactional due diligence reviews for private equity investors throughout Asia. Page 30