Legislating on Corruption: The Need for Stronger Compliance

The high profile prosecution by Chinese authorities of four Rio Tinto executives in March this year once again highlighted the perils of doing business in a China. Stern Hu, an Australian of Chinese origin, was jailed for ten years in a verdict that appeared unduly harsh and also raised concerns over the fairness and proportionality of China’s judicial system. While Rio Tinto accepted the evidence against their employees and dismissed them for breach of conduct, it is often unclear to outsiders how far foreign businesses are aware of the nature of their employees’ conduct in overseas markets. Facing harsh consequences for involvement in corruption, foreign businesses will need to seriously consider how to overcome the challenges presented by a market where bribery is widely considered a necessary element of successful transactions.

The compliance risks facing firms operating in Asia does not arise only from local authorities, however; the United States’ Foreign Corrupt Practices Act (FCPA) gives broad powers to US authorities to investigate the overseas operations of US companies. Under the FCPA, the broad definition of ‘foreign official’ beyond simply government representatives makes for wide-ranging compliance risks, whilst certain standard practices and cultural traditions, such as gift giving, also demand a cautious, informed approach.

In April, the UK made corporate failure to prevent bribery an offence in its biggest overhaul of bribery laws for over a century. Reflecting the seriousness of the UK Government on this issue, the offence is one of strict liability, with penalties ranging from requisitioned profits arising from illegitimate contracts to possible prison sentences. As a result, British businesses are now required to be much more attentive to their overseas operations.

The multi-layered web of legal requirements and risks, arising from home jurisdictions and target markets alike, gives rise to unprecedented compliance issues. All businesses in the region will need to look at their operations in some detail and iron out irregularities, in order to avoid costly legal battles and damaged reputations that could result from the untoward (or even unwitting) activities of their employees.

With offices in Beijing and Hong Kong, ALS International has an intimate knowledge of the Chinese market across all sectors and industries. For details of our latest China opportunities, please contact Andrew Skinner on +852 2973 0827 or a.skinner@alsrecruit.com.