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Corruption and compliance investigated at the British Business Centre

BritCham / CBBC
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Corruption and compliance were on the agenda at the British Business Centre in Beijing on 11 November, when John Macpherson, deputy managing director of Control Risks for China and North Asia, gave a briefing on 'Anti-Corruption and Compliance Oversight for Foreign Businesses in China', in which he outlined the current state of bribery and anti-trust investigations and how foreign companies might prepare for the worst, should it arise.

The headline case of GlaxoSmithKline was presented to highlight the damage that can be done. GSK's revenue took an initial hit of 60 per cent after the case was exposed, and continued to slide away thereafter. The company received a fine of £300 million and its share price dropped around 10 per cent.

Mr Macpherson explained the conflict faced by many foreign multinationals in China, whereby there are demands from head office for continuous fast growth in China at the same time as strict regulatory compliance. For some companies this proves a tricky balance and one in which, if it comes down to it, strong growth figures tend to have a greater lure than regulatory probity.

Not only foreign companies are at risk of a knock on the door. It was emphasised that the current campaign extends to both domestic and overseas firms. The investigations are also reaching nationwide and industry-wide. Drugs and cars may have made the front pages, but other sectors have also come under scrutiny - not just for corruption, but for lack of regulatory enforcement, too. 

Moreover, a certain spirit of competition has entered into the work of the investigators, as regional offices seem to push to see who can mete out the highest fines.

Mr Macpherson told attendees that the "adequate" compliance strategies that foreign executives often claim to have in place are unlikely to be sufficient. Corruption, in particular, comes about through active collusion, more often than not involving third parties, which by its nature puts a certain amount of key evidence beyond the scope of companies' internal compliance systems. This goes to explain the significance of whistleblowers.

In the event of a dawn (or dusk) raid, companies should expect all documentation to be seized and to have to prepare their case without it. Raids in the most serious cases are also likely to be highly coordinated across different offices. The detention of key employees (not necessarily suspects), as well as travel bans for directors and legal or financial officers, may also be expected. And there is likely to be significant pressure to confess: the case was cited of one company that received a (more) lenient punishment - in accordance with Chinese law - thanks to having coughed up immediately and rectified its wrongs before the process could be formally documented in the judicial system. The company suffered, but averted the lengthy and public exposure of a trial.

The advice to chief executives was: consider now the triggers that would make you pack your bags and leave China - and, if those triggers currently exist in any shape or form, to act upon them.

Thank you to Control Risks for the presentation and to the Confederation of British Industry for jointly organising this event with BritCham and CBBC.

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