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The Anticorruption Blog

The UK Bribery Act – what to expect in 2015

Posted in Commercial Bribery, Compliance Program, Courts, UK Bribery Act, United Kingdom

We have reported previously that the UK’s Serious Fraud Office (SFO) has confirmed its commitment to prosecuting bribery and corruption and that although there is yet to be a “big case” under the UK Bribery Act 2010, the SFO are busy investigating companies it suspects may have broken the law. As we approach the end of 2014, it is interesting to reflect on what we can expect over the coming year.

Following a statement made by the UK Home Secretary Theresa May, there has been talk about the responsibilities of the SFO being transferred to the National Crime Agency (NCA), established in October 2013 to target the criminals and groups posing the biggest risks to the UK. This would mean that all white-collar crime was under the same control, removing the split where the budget of the NCA is controlled by the Home Office controls but the budget of the SFO is controlled by the attorney-general’s office. The chairman of the SFO, David Green CB QC’s opinion is that this is “just not sensible”, given the upheaval and uncertainty that this would bring, with no guarantee of better results, and that there is a need for the regulator of top end bribery to remain independent from the government and have these types of offences as its top priority.

There has been some concern that the lack of enforcement under the Bribery Act by the SFO could be due to the fact that the SFO’s budget was cut from £52million in 2008 to £32million in 2014. The SFO have dealt with this by using blockbuster or ring-fenced funding to ensure its most expensive investigations can continue. This allows the SFO to apply for additional funds for a specific investigation if it is likely that the investigation will cost more than 10 per cent of its annual budget. The SFO recently applied for 75% blockbuster funding for 2015, amounting to £26.5 million, so that it can continue probes into key cases including the allegations that Rolls Royce have engaged in corruption overseas.  David Green CB QC says that “this arrangement recognises that the SFO is demand-led and honours the pledge that on my watch the SFO will never turn down any investigation simply on grounds of cost”. Some commentators have taken the view that the SFO having to ask for more money to continue its current investigations may mean that it is going to be difficult for the SFO to take on new work and that Ministers should reconsider the amount of funding provided to the SFO.

There appears to be cross party support for the SFO’s proposals for a similar offence to Section 7 of the Bribery Act (the corporate offence of failing to prevent bribery by associated persons) to be introduced to make it an offence for organisations to fail to prevent “acts of financial crime” by associated persons, including fraud and money laundering, for which it would be a defence to have adequate procedures in place to prevent such crime. Such a provision would make it easier for the SFO to take action against companies, rather than just the individuals committing these crimes, for their failure to prevent such crimes, as it would remove the requirements under the current law for the SFO to prove that the “directing mind and will” of the organisation was involved in the crime, a high test to meet.  Such a provision would require all companies to review and probably enhance the financial crime controls they already have in place, including those implemented to meet the requirements of Section 7 of the Bribery Act. As part of this, David Green CB QC intends to add Section 7 as a mandatory exclusion under public procurement rules, so that companies convicted of failing to prevent financial crime (including bribery) would automatically be prohibited from public procurement, something he hopes will encourage organisations to take steps to implement adequate procedures.

David Green CB QC has said that the SFO is “handling the most demanding caseload [the SFO] has ever shouldered”. We have reported on a number of these ongoing cases previously and have also reported on the introduction of deferred prosecution agreements (DPAs). The SFO have yet to enter into a DPA but it is suspected that they may be used as part of the investigations into overseas corruption by GlaxoSmithKline and Rolls Royce. It will be interesting to see whether the use of DPAs encourages more companies to self-report bribery and corruption to the SFO, something that the SFO encourage but make clear that it will not lead to immunity from prosecution and will only be a “relevant consideration” for the SFO when deciding whether to prosecute.

The years ahead looks set to be an interesting one.

Monthly China Anti-Bribery Update Report — November 2014

Posted in Uncategorized

1. New law or regulation

 

State level: No developments.

 

Local level (Beijing & Shanghai): No developments.

 

Communist Party Rules: No developments.

 

 

 

2. Upcoming law or regulation

 

No developments.

 

3. Government Action

 

(1) On November 4, 2014, Yang Xianjing (“Yang”), the former Inspector of the Department of Land and Resources of Anhui Province, was sentenced by the Intermediate People’s Court of Bengbu City, Anhui Province to life in prison for abuse of power and taking bribes, with confiscation of all his personal property.

 

Yang was accused of taking advantage of his position from 2007 to 2011, illegally separating, renewing, and transferring the exploration rights of several mines, causing the state to suffer economic losses exceeding RMB 189,000 (USD 30,696). Yang was also found guilty of accepting and soliciting during his term in office from 2003 to 2012 bribes totaling RMB 16.53 million (USD 2.68 million) and HKD 300,000 (USD 38,703), and seeking illegal benefits in the auction of exploration rights. After Yang’s retirement in the second half of 2012, Yang was found to have taken advantage of his former position to assist unlawfully a real estate developer with approvals for construction, and accepting RMB 300,000 (USD 48,725) in return. Yang said that he would appeal.

 

(2) On November 16, 2014, Yan Xiuyun (“Yan”), the former Chief of Department of Oncology of Liang Xiang Hospital in Fangshan District, Beijing, was sentenced to 10 years and 6 months in prison for taking bribes by the No. 2 Intermediate People’s Court in her second trial.

 

Yan was charged with receiving kickbacks totaling RMB 730,000 (USD 118,564) from July 2007 to September 2012 from a medical representative of Shanxi Zhendong Pharmaceutical Co., Ltd. surnamed Wei (“Wei”). In exchange, Yan dramatically increased the purchase of medicine from Wei. Wei was separately sentenced to one year and eight months in prison for offering bribes.

 

(3) On November 20, 2014, Ma Ji (“Ma”), the former Chairman of the Supervisory Board for Key State-Owned Enterprises of Ningxia Hui Autonomous Region, was sentenced to 9 years in prison for accepting bribes by the Intermediate People’s Court of Shizuishan City.

 

Ma was found to have accepted during his term in office from 2001 to April 2013 RMB 2.82 million (USD 458,015) in the form of cash and real estate. Ma was given a reduced sentence reflecting his confession and return of illegal gains.

 

(4) On November 22, 2014, Feng Kangrui (“Feng”) was sentenced to life imprisonment for embezzlement by the Intermediate People’s Court of Wenzhou City, Zhejiang Province. Feng had served as the former General Manager of Zhejiang Zhongsheng Industry Co., Ltd. (“Zhongsheng”) and Wenzhou Zhongrui Real Estate Co., Ltd. and former Chairman of Wenzhou Zhongchen Industry Co., Ltd. (“Zhongchen”), all of which are state-owned enterprises.

 

Reportedly, from 2007 to 2008, Feng, together with Wang Xin and his son Feng Ju, illegally embezzled the use rights of state-owned land of Zhongchen valued at RMB 4.78 million (USD 776,352). In October 2012, Feng, together with Wang Liping, Ren Linxian, and Feng’s other son, Feng Yi, embezzled RMB 30 million (USD 4.87 million) from Zhongsheng, taking advantage of Feng’s position with the company. All of the above co-conspirators have been sentenced to 8 – 15 years in prison, except for Feng Ju, who will be sentenced separately due to an illness.

 

(5) It was reported on November 26, 2014 that Tai Jianfeng (“Tai”), the former Director of Jinpai Urban Credit Cooperative of Lingao County, Hainan Province (the “Credit Cooperative”), had been sentenced by the No. 2 Intermediate People’s Court of Hainan Province to 18 years in prison for embezzlement and misappropriation of public funds. All his personal property was confiscated.

 

Tai was found to have misappropriated on various occasions the Credit Cooperative’s funds amounting to RMB 49.09 million (USD 7.97 million) by abusing his position from 1997 to 2001. Tai also collected personally but in the name of the Credit Cooperative more than RMB 3.51 million (USD 570,082). Tai absconded on August 3, 2001 and did not surrender to police until April 21, 2013.

 

4. Other

 

(1) On November 9, 2014, the Ministerial Meeting of Asia-Pacific Economic Cooperation (“APEC”) adopted the Beijing Anti-corruption Proclamation (the “Proclamation”), which aims to establish a cooperative network for anti-corruption enforcement and joint crackdown on corruption among the APEC countries. APEC members include the United States, Australia, Canada, Russia, and China. The Proclamation was intended by its authors to strengthen information sharing and judicial cooperation among the countries and increase the efficiency of investigations and recovery in connection with bribery, corruption, and money-laundry crimes.

 

(2) On November 18, 2014, the Central Commission for Discipline Inspection (“CCDI”) of the Communist Party of China announced that CCDI would initiate the third round of inspections by CCDI this year, dispatching 13 teams to conduct inspections into 13 entities, among which 8 entities are state-owned enterprises controlled directly by the central government (the “SOEs”).

 

5. China-related FCPA Action

 

No developments.

 

 

Russia Data Privacy Update – New Regulations

Posted in Russia

In July 2014 Russia enacted Federal Law No. 242-FZ which introduced new requirements for storage of personal data of Russian citizens (the “Amendment”). The Amendment will become effective September 1, 2016. The purpose of the Amendment is two-fold:

No. 1: It amends Federal Law No. 152-FZ “On Personal Data” dated July 27, 2006 (the “Personal Data Law”) by introducing new obligations with regard to the storage of Russian citizens’ personal data.

No. 2: It amends Federal Law No. 149-FZ “On Information, Information Technology and Protection of Information” dated July 27, 2006 (the “Information Law”) by introducing a mechanism for the regulator, i.e. the Federal Service for Supervision of Communications, Information Technology and Mass Media (the “RKN”), to block websites that process personal data of Russian citizens in violation of the Russian data protection laws.

Our findings include, among others, that the Amendment applies to non-Russian companies, regardless of their presence in Russia.

Click here to learn more.

China Data Privacy Update

Posted in Uncategorized

Peter William Humphrey, a British citizen, and his American wife, Yu Yingzeng, were prosecuted on August 8, 2014 in Shanghai No.1 Intermediate People’s Court for illegally obtaining the personal information of Chinese citizens. The court sentenced Mr. Humphrey to a fixed-term imprisonment of two and one-half years, a fine of RMB 200,000, and deportation from China after serving the imprisonment term; and sentenced Yu Yingzeng to a fixed-term imprisonment of two years plus a fine of RMB 150,000.

Before they were arrested in August 2013, the couple operated a business risk advisory firm in Shanghai known as ChinaWhys. This was only weeks after the firm delivered an investigation report to the British pharmaceutical company GlaxoSmithKline (“GSK”) China. Inevitably, their detention became linked with the GSK China bribery scandal, but the case has implications for China’s emerging data protection and privacy regime.

The PRC criminalized the sale of personal information in the seventh amendment to the PRC Criminal Law on February 28, 2009. According to the amended Article 253 of PRC Criminal Law, where any staff member of a government agency or an entity in such fields as finance, telecommunications, transportation, education, or medical treatment, in violation of state provisions, sells or illegally provides to another personal information about Chinese citizens, which information was obtained during the government agency’s performance of duties or the entity’s provision of services, must, if the circumstances are serious, be sentenced to prison for a fixed-term of not more than 3 years or to criminal detention and/or be fined.

Further, whoever illegally obtains such information by stealing or any other means must, if the circumstances are serious, be subject to the same punishment. If an entity commits either of the crime of selling, illegally providing, stealing or illegally obtaining personal information, that entity must, by PRC law, be fined, and the person with direct responsibility for the act, as well as and any others direct liability must also be subjected to fixed-term imprisonment for not more than three years or criminal detention, and/or fine.

In the case against Mr. Humphrey and Ms. Yu, both the prosecution and the defense focused principally on two issues:

(a) Whether the means used by ChinaWhys to obtain personal information were illegal. The defense argued that the company did not purchase personal information, but purchased investigation services that happened to include the household registration and travel records of PRC citizens. The Prosecutor asserted that such information is private and protected by PRC law and could not legally be purchased or sold as a commodity.

 

(b) Whether the circumstances of this case are serious enough to constitute a criminal violation: The defense argued that the purpose of obtaining the personal information was to enable the client of ChinaWhys to conduct its own internal investigation into possible bribery. ChinaWhys did not re-sell such personal information to its clients, but sold only the analysis and research arising from such information, and this did not cause any personal injury or damage to property. In response, the prosecutor asserted that the couple was using due diligence as a cover for illegally acquiring the personal information of PRC citizens and profiting from the use of that information, which infringed the human rights of such citizens. The prosecutor noted that the couple has for nine years purchased information on the identity and residency of PRC citizens, family members, vehicle registrations, phone records, and overseas travel records. Further, the staff of ChinaWhys had pretended to be employees, investors, clients, and delivery personnel in order to obtain information. They hired agents to tail and monitor citizens to learn about their living habits and movements. According to the prosecution, the couple’s crimes were particularly egregious because they committed them over a period of nine years and because they reaped enormous benefits.

The court found the couple guilty because they intentionally purchased the personal information and conducted investigations for profit, seriously violating the rights of citizens.

The case clarifies that acquiring personal information in China from a third party is illegal, not merely the selling of such information and serves as a warning to all companies, firms, and individuals engaging in due diligence and internal investigations to be cautious in collecting personal information.

 

Co-authors: Daniel Roules and Olivia Zhan

 

 

Monthly China Anti-Bribery Update Report — October 2014

Posted in Uncategorized

1. New law or regulation

 

State level: No developments.

 

Local level (Beijing & Shanghai): No developments.

 

Communist Party Rules: No developments.

 

 

 

2. Upcoming law or regulation

 

(1) It was reported on October 27, 2014 that the Draft Ninth Amendment to Criminal Law (the “Draft Amendment”) was under review by the National People’s Congress Standing Committee. The Draft Amendment proposes to increase the penalties for the crime of bribery and remove the specific monetary criteria for deciding the level of punishment. According to the Draft Amendment, sentencing would be made according to both the amount of money involved and the severity of the crime. The abolition of specific monetary criteria would give the court greater flexibility in sentencing. Although the Draft Amendment would abolish the death penalty for nine specific crimes, the death sentence would still apply to those involved in bribery crimes involving especially large amounts of money and causing large losses to the interests of the country. In addition, the Draft Amendment proposes to criminalize the act of seeking illegal benefits by using the influence of a state-functionary or offering bribes to the relatives of a state-functionary.

 

3. Government Action

 

(1) On October 14, 2014, Li Daqiu (“Li”), the former Deputy Chairman of Chinese People’s Political Consultative Conference of Guangxi Zhuang Autonomous Region, was sentenced to 15 years in prison by the Intermediate People’s Court of Yanbian Korean Autonomous Prefecture, Jilin Province for taking bribes, with personal property of RMB 2 million (USD 327,070) confiscated.

 

Reportedly, Li was found guilty of accepting bribes from 17 entities and individuals amounting to RMB 10.95 million (USD 1.79 million) during his term in office from 2003 to 2013. In exchange, he sought illegal benefits for the bribe givers through enterprise operations and job promotions. Li was given a lighter sentence due to his confession and his return of illegal gains.

 

(2) On October 17, 2014, Zhang Shuguang (“Zhang”), the former Director and Deputy General Engineer of the then Transportation Bureau of Ministry of Railway, was sentenced to death with a two-year reprieve by the No. 2 Intermediate People’s Court of Beijing, with confiscation of all his personal property.

 

Zhang was accused of taking bribes exceeding RMB 47 million (USD 7.68 million) on 13 occasions from 2000 to 2011, among which RMB 16 million (USD 2.61 million) was solicited by Zhang in the name of funds for his attempts to get himself a fellowship in the Chinese Academy of Sciences in 2007 and 2009, which were unsuccessful. In exchange, Zhang extended favors to 14 entities in relation to sales of trains, technique applications and project tenders. Zhang was given a lighter sentence due to his confession.

 

On the same day, the No. 2 Intermediate People’s Court of Beijing also sentenced Su Shunhu, the former Deputy Chief of the then Transportation Bureau of Ministry of Railway, to life imprisonment for taking bribes exceeding RMB 24 million (USD 3.92 million).

 

(3) On October 21, 2014, Li Zhujiang (“Li”), the former Deputy General Secretary of the Standing Committee of Guangdong Provincial People’s Congress and former Party Secretary and Director of Guangdong Oceanic and Fishery Administration, was sentenced to life in prison for taking bribes by the Intermediate People’s Court of Shanwei City, Guangdong Province, with all his personal property confiscated.

 

Reportedly, Li was found to have taken bribes including RMB 5.07 million (USD 829,122), HKD 1.31 million (USD 168,925) and USD 10,000 from seven individuals from 2005 to 2012. In return, Li took advantage of his position and power to grant favors to these individuals in respect to issuance and extension of Ocean Use License, exploitation of sea sand, fishing harbor project, etc.

 

(4) On October 27, 2014, the Military Procuratorates completed the investigation into the case of Xu Caihou (“Xu”), the former Vice President of China’s Military Commission, who was found to have received bribes, both personally and through family member. The Military Procuratorates will file the case with judicial authority. Xu was expelled from the Party earlier in June, 2014.

 

4. Other

 

No developments.

 

5. China-related FCPA Action

 

No developments.

 

 

GSK BRIBERY CASE – END OF THE MATTER?

Posted in China, Commercial Bribery, Compliance Program, Courts, FCPA Jurisdiction, Foreign Corrupt Practices Act, UK Bribery Act, United Kingdom

This article was originally published by LexisNexis and is reproduced with permission.

GlaxoSmithKline (GSK) has been fined £300 million and five of its employees given suspended prison sentences in China for bribery – but is this the end of the matter? What impact will the verdicts have on other multinational companies conducting business in China?

Proceedings Against GSK and its Employees in China

On September 19 the Changsha Intermediate People’s Court in Hunan province found that GSK had “offered money or property to non-government personnel in order to obtain improper commercial gains” by paying hundreds of millions of pounds worth of bribes, via travel agencies, to doctors, health officials and hospitals in order to use GSK’s products.

At the start of the investigation last year, Gao Feng, the head of China’s fraud unit, reportedly said: “We found that bribery is a core part of the activities of the company. To boost their share prices and sales, the company performed illegal actions.” It was alleged that pay/bonus packages focused too heavily on sales performance, which reportedly encouraged people to engage in bribery, and that knowledge of the bribery that was occurring was widespread across the organization (with departments beyond the sales teams having some level of involvement). GSK employee Mark Reilly (who we understand returned to China to assist Chinese authorities with their investigation) was given a three-year suspended sentence and a deportation order. Four Chinese GSK defendants – Liang Hong (Head of Operations), Zhao Hongyan (Legal Counsel), Zhang Guowei (Head of Human Resources) and Huang Hong (Head of Business Development) – were also given suspended sentences. All five individuals had entered guilty pleas.

Following the verdict, GSK’s Chief Executive, Sir Andrew Witty, reportedly said that: “Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK. We have and will continue to learn from this. GSK has been in China for close to a hundred years and we remain fully committed to the country and its people. GSK fully accepts the facts and evidence of the investigation, and the verdict of the Chinese judicial authorities. Furthermore, GSK sincerely apologizes to the Chinese patients, doctors and hospitals and to the Chinese government and the Chinese people. GSK deeply regrets the damage caused.”

GSK has stated that it has taken steps to improve its processes and working arrangements in China. These include changes to the pay/bonus package for sales staff so that they do not encourage bribery, changing the ways in which staff engages with healthcare professionals, and implementing improved systems for monitoring and reviewing invoices and payments. Despite this, GSK’s management has asserted that it had “all the necessary checks and balances in place to prevent such activities” and in doing so suggested that the blame lies with rogue local executives for breaching them”.

Action to Follow in the UK and/or US?

The proceedings in China may not be the end of the matter. Both the UK’s Serious Fraud Office (SFO) and the US Department of Justice (DOJ) have powers to bring enforcement proceedings in relation to bribery abroad. Both the SFO and DOJ are in the middle of ongoing investigations into bribery allegations involving GSK and its associated persons not only in China but also elsewhere in the world.

In May 2014, the UK SFO announced that it was investigating GSK’s sales practices. The SFO is likely to be focusing on whether GSK breached section 7 of the UK Bribery Act (which came into force in July 2011) by not having ‘adequate procedures’ in place to prevent bribery, an offence for which no prosecutions have yet been brought by the SFO against any company.

The US DOJ is also investigating GSK for bribing foreign officials, which is prohibited under the US Foreign Corrupt Practices Act. The potential for further enforcement action in the US and UK must be of concern for GSK, particularly as the company is arguably one of the first large multinational organizations to be investigated under the UK Bribery Act , and because penalties in the UK and US have historically been much higher than those imposed in China. Given the findings and evidence produced in China, it is possible that the UK and US authorities could initiate successful proceedings against GSK.

Implications for Other Multinational Corporations Doing Business in China

The GSK case shows how seriously the Chinese authorities are cracking down on bribery, pursuing not just those who accept bribes but also those who offer them. Most multinational companies (MNCs) have had compliance programs in China for many years. Often such a program is substantially identical to those developed for other jurisdictions for compliance with the US Foreign Corrupt Practices Act or the UK Bribery Act. Too often what is missing is any particular tailoring to the laws and practices of China. Compliance programs rolled out in China need to be carefully adapted for this market and designed for effective implementation.

Compliance programs in China tend to be accepted more readily when they can be seen to have the full support of the local leadership team. Too often there are mixed signals, creating the impression that the compliance program was developed in the UK or US and forced on the local affiliate, whose managers and management are compensated based on sales and profit. Instead, local executives must show evidence of their commitment to a culture of compliance.

Two steps that GSK suggests an MNC may want to take are including a compliance assessment as part of each manager’s performance review, and making certain that compensation arrangements do not emphasize sales volumes without due consideration for compliance. Many MNCs in China today would benefit from ensuring that compliance is part of the local compensation calculus.

If the MNC remains non-compliant notwithstanding such steps, the company needs to explore why the compliance program is ineffective and promptly take the actions necessary to remedy the situation. GSK itself does not appear to have suffered from any lack of compliance personnel, but from a failure of such personnel to effectively enforce the compliance programs they had in their computers.

Many of the companies we work with in China have graduated approval programs for entertainment expenses, such that the higher the expense or the greater the risk of apparent impropriety due to the particular person being entertained, the higher the level of internal approval required before the expense can be incurred. The GSK case should prompt companies to consider whether such approval standards are set at high enough levels to ensure the involvement of disinterested judgment.

Not all the actions suggested by GSK are internally-focused. The GSK case may be most remembered for the dangers it reveals from reliance on intermediaries that are not subject to the same ethical or compliance standards as the MNC. Any use of intermediaries in China should be subject to a process of careful vetting and thoughtful authorization, with appropriate contractual restraints imposed on the actions of such intermediaries, and with a system for monitoring and auditing their conduct.

Lastly, local management should be trained to take the right steps in the event the authorities in China come knocking.

Compliance officers at multinational corporations have long talked about the risks posed by corrupt practices in China. The GSK case confirms in the clearest terms how serious such risks may be. GSK should not become a watchword for corrupt behaviour. Rather, through its fines and the damage to reputation it has suffered, GSK may now serve as a warning to other MNCs, and, if it can be effective in implementing its new programs, a demonstration of how to respond to the challenges of doing business in China today.

Daniel F. Roules – Partner, Shanghai

Louise Roberts – Associate, Manchester

Monthly China Anti-Bribery Update Report — August 2014

Posted in Uncategorized

1. New law or regulation

 

State level: No developments.

 

Local level (Beijing & Shanghai): No developments.

 

Communist Party Rules: No developments.

 

 

 

2. Upcoming law or regulation

 

No developments.

 

3. Government Action

 

(1) It was reported on August 2, 2014 that Zou Heping (“Zou”), the former Deputy Chief of Transport Department of Hunan Province, was sentenced on July 29, 2014 by the Intermediate People’s Court of Changde City, Hunan Province to life imprisonment for accepting bribes.

 

Allegedly, Zou abused his position to extend favors to 16 entities and individuals involved in bidding for construction projects, insurance matters, and job arrangements. In exchange for such favors, Zou accepted either independently or in collaboration with his son, bribes amounting to RMB 21.47 million (USD 3.49 million).

 

(2) On August 8, 2014, Cao Pusheng (“Cao”), the former Chief of Grain Bureau of Nanyang City, Henan Province, was sentenced to 19 years’ imprisonment by the Intermediate People’s Court of Nanyang City for accepting bribes and embezzlement, with confiscation of personal property totaling RMB 1 million (USD 164,000).

 

Cao was charged with taking advantage of his position during 2004 to 2011 to seek illegal benefits for bribe-givers and with accepting bribes in excess of RMB 2.89 million (USD 470,431). Reportedly, Cao embezzled RMB 400,000 (USD 65,111) in 2008 by awarding business contracts for the manufacturing of rice packaging to his relatives. It was also reported that in March 2011, Cao paid RMB 4 million (USD 651,115) to Deng Long, who had blackmailed him with threats of disclosing his corruption during that year’s National People’s Congress (“NPC”) and the Chinese People’s Political Consultative Conference (“CPPCC”).

 

(3) It was reported on August 10, 2014 that Wang Teiniu (“Wang”), the former Deputy Secretary and Party Member of CPPCC Henan Provincial Committee, was sentenced to 11 years in prison by the People’s Court of Shancheng District, Hebi City, Henan Province, with confiscation of personal property valued at RMB 100,000 (USD 16,277).

 

Reportedly, Wang was found guilty of accepting bribes from one of his subordinates and from three construction companies, totaling RMB 1.21 million (USD 197,613) and USD 1,000 during his term in office from 2001 to 2008. In return, Wang sought illegal benefits for the bribe-givers in government-related projects, the issuance of a water safety certificate, and a construction-related lawsuit.

 

(4) On August 19, 2014, Earl Dun Cang (“Cang”), the former Deputy Chief of the NPC Standing Committee of Ordos, Inner Mongolia Autonomous Region, was sentenced by the Intermediate Railroad Transportation Court of Hohhot to life in prison with the confiscation of all personal property for taking bribes, embezzlement, and the holding a large amount of property from unidentified sources.

 

Cang was accused of accepting bribes from 2001 to 2013 amounting to RMB 20.53 million (USD 3.34 million) from 47 individuals and entities. In exchange, Cang abused his position by seeking illegal benefits for the bribe-givers in construction-related contracts, construction payment settlement, project approval, land grant approval, and job promotion. During his term in office from 2007 to 2011, Cang embezzled public funds totaling RMB 3.5 million (USD 569,726). In addition, Cang was unable to explain the sources of his personal property valued at RMB 715,000 (USD 116,386). Cang was given a lighter sentence due to his confession.

 

(5) On August 20, 2014, Wen Qingliang (“Wen”), the former Deputy Director of the Railroad Administration of Taiyuan City, Shanxi Province, was sentenced by the No. 2 Intermediate People’s Court of Beijing to death with a two-year reprieve, plus confiscation of all personal property.

 

Wen was found to have accepted, together with his mistress Zhong Hua, bribes exceeding RMB 20 million (USD 3.25 million) from six companies in the coal industry. In exchange, Wen granted favors to those companies with respect to the rail transportation of goods. Wen was given a light sentence due to his return of most of the illegal gains.

 

4. Other

 

No developments.

 

5. China-related FCPA Action

 

No developments.

 

 

Monthly China Anti-Bribery Update Report — July 2014

Posted in Uncategorized

1. New law or regulation

 

State level:

 

(1) On July 16, 2014, the General Office of the Communist Party of China (“CPC”) Central Committee and the State Council jointly issued the Guiding Opinions on Comprehensively Promoting the Reform of Official Vehicles System and the Reform Scheme of the Official Vehicles System in Central and State Organs (collectively, the “Directives”) to restrict the use of official cars by government officials. According to the Directives, officials below the vice-ministerial level will not be provided with cars or drivers any more, and general official cars will be canceled except for special purpose vehicles and emergency vehicles. Instead, the central government will provide transportation subsidies to public servants at different levels ranging from RMB 500 (USD 81) to RMB 1300 (USD 210) per month. This reform at the level of the central and state organs is expected to be completed by the end of 2014 and then implemented with respect to local governments and state-owned enterprises (“SOEs”).

 

(2) On July 27, 2014, the Central Commission for Discipline Inspection (“CCDI”) of the CPC, the Organization Department of the CPC Committee, the State Commission Office of Public Sectors Reform, the Ministry of Supervision (“MOS”), the Ministry of Human Resources and Social Security, the National Audit Office and the National Development and Reform Commission jointly issued the Rules for Implementation of the Stipulations in Respect of the Auditing of Economic Liabilities of Leading Government and Party Cadres and Leaders of State Owned Enterprises (the “Implementation Rules”), which took effect the same day. The Implementation Rules aim to further refine and improve the procedures of auditing officials and leaders of SOEs. According to the Implementation Rules, the audit will constitute the principal evaluation for such leaders, and each leader holding a key position will be audited at least once during her/his term of office.

 

Local level (Beijing & Shanghai): No developments.

 

Communist Party Rules: No developments.

 

 

 

2. Upcoming law or regulation

 

No developments.

 

3. Government Action

 

(1) On July 2, 2014, Wang Yingfu (“Wang”), the former Director and Party Secretary of the Administration of Work Safety of Hainan Province, was sentenced by the Intermediate People’s Court of Haikou City to 12 years in prison for taking bribes.

 

During his term from 2005 to 2013, Wang allegedly accepted bribes totaling RMB 2.05 million (USD 332,260). In return, he abused his positions in Yangpu Economic Development Zone and Administration of Work Safety of Hainan Province to seek illegal benefits in the form of construction bidding, project contracts, and job promotion. Wang said he planned to appeal the judgment.

 

(2) On July 3, 2014, Yang Lin (“Yang”), the former Chairman of the Chinese People’s Political Consultative Conference of Jiuquan, Gansu Province, was sentenced by the Intermediate People’s Court of Lanzhou, Gansu Province to life in prison with all personal property confiscated.

 

Yang was charged with taking advantage of his position from 1997 to 2013 to seek illegal benefits for 33 individuals. Reportedly, Yang solicited and accepted bribes exceeding RMB 13.5 million (USD 2.18 million), including RMB 9.41 million (USD 1.52 million), USD 13,000, EUR 2,000 (USD 2,673), plus an apartment in Lanzhou, an off-road vehicle, 2 gold bars, etc. Yang was given a relatively light sentence due to his confession.

 

(3) On July 17, 2014, Ren Gongli (“Ren”), the former Deputy Investigator of the Nantong Land Resources Bureau and former Chief of Nantong Land Market Service Centre of Jiangsu Province was sentenced by the Intermediate People’s Court of Nantong City to 7 years’ imprisonment for accepting bribes, with personal property valued at RMB 400,000 (USD 64,831) confiscated.

 

Ren was found guilty of taking bribes on 22 occasions from several real estate developers and individuals. These bribes aggregated to RMB 1.24 million (USD 200,977). In exchange, Ren helped the bribe givers obtain illegal gains in auctions and bidding for land use right, the issuance of land use rights certificates and governmental construction projects.

 

(4) On July 17, 2014, Wang Suyi (“Wang”), a former Member of the Standing Committee of CPC and the former Minister of the United Front Work Department of Inner Mongolia Autonomous Region Committee, was sentenced to life in prison for accepting bribes by the No. 1 Intermediate People’s Court of Beijing, with his all personal property confiscated.

 

Wang was found guilty of taking bribes from nine entities and individuals totaling more than RMB 10.73 million (USD 1.73 million) during his term in office from 2005 to 2013, and of seeking illegal benefits for the bribe givers through enterprise operations and job promotions. Wang was one of the 37 provincial and ministerial-level officials removed since the 18th National Congress of CPC.

 

(5) On July 18, 2014, Wang Jianbin (“Wang”), the former Chairman of Shenzhen Kehuitong Investment Holding Co., Ltd., Shenzhen Shennan Petroleum (Group) Co., Ltd. and Shenzhen Guangju Energy Co., Ltd., was sentenced to 15 years in prison for taking bribes by the Intermediate People’s Court of Shenzhen City with personal property of RMB 100,000 (USD 1,620) confiscated. The above three companies are all SOEs.

 

Wang was accused of accepting bribes between 2010 and 2012 amounting to HKD 300,000 (USD 38,707) from a man surnamed Lin who was the chairman of a catering company, and accepting bribes totaling RMB 3 million (USD 486,235) and HKD 5 million (USD 645,121) from a man surnamed Chen (“Chen”), who was the chairman of an energy company. In return, Wang helped Lin to lease certain real estate owned by Shenzhen Shennan Petroleum (Group) Co., Ltd., and provided Chen with assistance in subscribing to a capital increase by a Shenzhen gas company. Wang claimed that the money taken from Chen were “gifts”, not “bribes” and said he would appeal the decision.

 

(6) The official website of CCDI of the CPC and the MOS published a report on July 29, 2014 that CCDI has decided to launch an investigation of Zhou Yongkang (“Zhou”), a former member of the Standing Committee of Political Bureau of the CPC Central Committee and former Secretary of the Committee of Political Science and Law under the CPC Central Committee and, until recently, one of the most powerful men in the country. Zhou is accused of severe violation of discipline. More details are expected over the coming months.

 

4. Other

 

(1) On July 31, 2014, the CCDI was reported to have dispatched 13 teams to conduct inspections in the provinces of Guangxi, Qinghai, Xizang, Zhejiang, Hebai, Shanxi, Heilongjiang, Sichuan and Jiangsu, Shanghai Municipality, as well as General Administration of Sport of China, Chinese Academy of Sciences and China FAW Group Corporation, which will constitute the second round of inspections by CCDI this year and the fourth round of inspections since the 18th National Congress of CPC. The first three rounds have found evidence of large numbers of violation of both laws and disciplinary rules.

 

5. China-related FCPA Action

 

No developments.

 

 

Real, honest cooperative action – the key to obtaining a Deferred Prosecution Agreement in the UK

Posted in Commercial Bribery, Compliance Program, Courts, UK Bribery Act, United Kingdom

In a July 1 speech to the UK Aerospace and Defence Industry Seminar, Ben Morgan of the Serious Fraud Office (SFO) discussed his recommendations for how companies seeking Deferred Prosecution Agreements (DPAs) should interact with the SFO. His resounding message was cooperation on the part of the company, not just “the impression of cooperation” but real, honest cooperative action.

As we reported in February of this year, DPAs allow companies to settle allegations of criminal economic activity without being prosecuted and without any formal admission of guilt. The use of DPAs is at the discretion of prosecutors and is only available after a formal invitation to enter into negotiations has been extended to the company. Subject to the corporate agreeing to and complying with a number of terms and conditions agreed with the prosecutor, the prosecutor will suspend the prosecution. If the company does not honour these terms and conditions, the prosecutor may resume.

Although Mr. Morgan acknowledged that the decision to finalise a DPA ultimately rests with a judge, he declared “I certainly won’t be inviting any corporate into the process who I do not honestly believe is being fully frank with us”.

In an effort to clarify what the SFO requires from corporates seeking a DPA, Mr. Morgan detailed the four behaviours crucial to convincing the SFO of their “genuine cooperation”, one of the SFO’s stipulations before they will begin DPA negotiations:

1)      Tell the SFO something they don’t know and tell them promptly. Gather enough knowledge to necessitate speaking to the SFO, but don’t wait long enough for the SFO to find out for themselves.

2)      Provide the SFO with the best possible information about what happened, including actual first witness accounts.

3)      Communicate with the SFO respectfully and simply. Avoid behaviours that undermine the investigating officer and would destroy any trust between the company and the SFO.

4)      Take a number of other cooperative steps expected by the SFO. These include information sharing and engagement with the SFO on issues such as the scope of the investigation.

In response to questions over the likelihood of the SFO finding out about a potential criminal incident, Mr. Morgan described the SFO’s expanding intelligence capability and ongoing investment into investigative tools, albeit he didn’t specify what these tools were.

Whilst claiming not to be persuading companies to seek DPA’s, Mr. Morgan was seeking to enlighten companies on the potential for cooperation with the SFO as an alternative to defending a prosecution.   

Although Mr. Morgan admitted that DPAs are not always an option and that adherence to his recommendations would not guarantee a finalised DPA, his speech made it clear that ignoring this advice could quickly rule out a DPA as a potential resolution.

New Guidance published in the UK on Countering Small Bribes in Business

Posted in Uncategorized

Transparency International UK (“TIUK”), the UK Chapter of the world’s leading non-governmental anti-corruption organisation, has recently published guidance (the “Guidance”) advising businesses on good practice in countering small bribes, including facilitation payments or ‘grease payments’, and also payments made to induce improper action, including cash or vouchers and benefits in-kind, such as tickets for a sporting event, pre-paid phone cards and alcohol. What constitutes ‘small’ is clearly relative – a bribe of £20 to a customs officer may be considered insignificant to a business traveller, but in a country where the average daily wage is £2, this would be a considerable sum of money. Such bribes may be small but they are often made regularly, so easily amount to millions of dollars in bribes every year for a single company.

Small bribes are manifold within businesses across the world – the scale of the problem is highlighted in the statistic from TIUK that globally, more than 1 in 4 people paid a bribe in a recent 12 month period. One of the major issues facing companies affected by small bribes, particularly those operating abroad, is the notion that in some parts of the world, it can be difficult to trade without bribes being frequently demanded. Resisting such demands can have substantial costs for business (such as goods being withheld at customs) and can be difficult for companies to detect if hidden in expense claims or invoices.

The Guidance refers to an ‘ever-increasing spiral of demand’ which can be instigated if a company continually responds to demands. Such payments can lead to a ‘climate of corruption’, with social in addition to economic impacts, as bribery and corruption ‘destroy trust in government and public administration, undermine the rule of law, damage human rights and distort business transactions’ as well as creating an ‘unstable operating environment’ for the company in question. The Guidance instead suggests that companies should establish a no-bribe culture which would lead to fewer demands in the long run and a decrease in bribery overall, thus increasing company credibility.

In order to counter small bribes, the Guidance’s practical advice focuses on 10 principles: 

  1. Ensure a supporting corporate culture – A corporate commitment to ethics and integrity provides an enabling environment for countering small bribes and will include integrity expressed in ‘tone-from-the-top’, a policy of prohibition of bribery in any form and an effective over-arching anti-bribery programme.
  2. Commit to eliminating small bribes – The company commits to a policy of prohibition of small bribes and a strategy for their elimination through a programme of internal controls and collaborative action.
  3. Assess the risks of small bribes – The company identifies and assesses the risks that small bribes are demanded or paid in its activities and operations, and the factors that cause them.
  4. Implement the programme to counter small bribes – A programme of internal controls is implemented comprising detailed policies and procedures to counter small bribes.
  5. Communication and training to employees – As part of the programme, communications and training make clear the company’s policy of prohibition of small bribes and give requisite information and advice to employees on how to anticipate and resist demands, seek advice and to report concerns or instances of small bribes.
  6. Attention to countering third party risks – As part of the programme, the company has in place appropriate procedures for third parties including due diligence, contract terms, communication, training and monitoring.
  7. Ensure internal accounting controls are designed specifically to counter small bribes – As part of the programme, the company’s internal accounting controls are modified and extended to counter small bribes.
  8. Take appropriate actions if small bribes are detected – The company has a procedure to deal with any incidents including investigation and review, disciplinary action and consideration of reporting the incident to the relevant authorities.
  9. Monitor the effectiveness of its programme to counter small bribes – The programme for countering small bribes is regularly monitored and reviewed.
  10. Act strategically to influence the corruption environment – The company accepts responsibility for addressing entrenched factors that lead to demands for small bribe, for example by collaborative working and investing in communities.

Helpfully, the guidance contains practical examples and case studies, a model of negotiation steps for resisting demands and a self-assessment checklist aligned to the ten principles and good practice set out in the guidance.

Overall this advice is intended to help businesses and communities in the face of a substantial problem. By following the advice provided, businesses should be able to stay within the law, save costs, and protect their reputation.