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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.

Monthly China Anti-Bribery Update Report — June 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) The official website of the Central Commission for Discipline Inspection (“CCDI”) of the Communist Party of China (“CPC”) and the Ministry of Supervision (“MOS”) published a report on June 3, 2014, that provides that Zhao Zhiyong (“Zhao”), the former Member of the Standing Committee of CPC Jiangxi Provincial Committee, has been removed from his position for suspected violations of law and discipline. Zhao was the third official at the vice-ministerial level in Jiangxi Province who has been investigated for suspected violation of Party discipline. More details are expected to emerge over the coming months.

(2) On June 5, 2014, the Beijing Higher People’s Court at a second trial affirmed the ruling in the bribery case of Chen Zhubing (“Chen”), the former Director of the Comprehensive Division of Enterprise Department of the Ministry of Finance. At the first trial, Chen was given a life sentence plus confiscation of all personal property for taking bribes.

Together with other individuals, Chen was found guilty of taking and soliciting bribes amounting to RMB 24.544 million (USD 3.95 million) on nine occasions during his term in office from 2001 to 2011. In return, Chen abused his position by seeking illegal benefits for bribe-givers in the form of subsidized loans, special subsidies, and loan approvals for construction projects.

(3) It was reported on June 18, 2014, that Xue Huafeng (“Xue”), the former Chief and Secretary of Xi’an Housing Fund Management Centre, was sentenced to 11 years’ imprisonment by Shanxi Higher People’s Court in his second trial.

Xue was accused of accepting bribes exceeding RMB 1.98 million (USD 318,974) during his term from 2008 to 2012 from the legal representative of a real estate company and senior management personnel of two banks respectively. In exchange, Xue helped the bribe-givers to obtain illegal benefits with respect to real estate developments and bank loans. Xue was sentenced to 11 years in prison in his first trial on November 16, 2013, by the Intermediate People’s Court of Xianyang City, and this judgment was affirmed by Shanxi Higher People’s Court when Xue appealed.

(4) On June 9, 2014, Xu Minjie (“Xu”), the former deputy general manager of China’s state-owned shipping giant China Ocean Shipping Group Co., Ltd. (“COSCO”), was expelled from the Party.

Xu reportedly resigned his post as deputy general manager in November last year for “personal reasons” and then was placed under investigation. Xu was allegedly found guilty of falsely claiming personal expenses from COSCO, including his wife’s beauty salon expenses, thereby abusing his position. The CCDI did not specify how much money Xu fraudulently claimed as expenses. The case has been transferred to the judicial authority.

(5) On June 30, 2014, Xu Caihou (“Xu”), the former Vice President of China’s Military Commission, was expelled from the Party on corruption charges. This decision was made at a conference of the CPC Politburo held by President Xi Jinping. Reportedly, Xu has been under investigation since March 15 and was found to have received bribes, both personally and through family members.

According to Xinhua News Agency, the most prestigious national news agency in China, nearly 30 officials at the provincial government level have been investigated on corruption charges since November, 2012, due to China’s efforts to combat corruption in the government.

 

4. Other

On June 20, 2014, China’s National Audit Office (“NAO”) released a report on 11 state-owned enterprises (“SOEs”) from different industries ranging from oil giants to major power utilities, based on the audits of the financial revenues and expenditures of these SOEs in 2012.

According to the report, these SOEs here found to have violated the rules and regulations on anti-corruption in a number of ways, including the purchase of luxury cars, the payment of improper allowances to employees, and the construction of golf courses, etc. A total of 190 officials at those 11 SOEs have been punished for the breach of the anti-corruption policies. Reportedly, the 11 SOEs have all implemented remedial actions to correct the irregularities discovered by NAO.

 

5. China-related FCPA Action

No developments.

 

UK Serious Fraud Office launches investigation into GlaxoSmithKline in relation to claims of foreign bribery

Posted in China, Commercial Bribery, UK Bribery Act, United Kingdom

The UK’s Serious Fraud Office (“SFO”) has launched a formal criminal investigation into GlaxoSmithKline (GSK) and its “commercial practices”, understood to mean allegations of foreign bribery. David Green CB QC, Director of the SFO, said back in 2012 that only the largest cases, that prevented UK companies from competing for big contracts on a level playing field, would be of interest to him. The current investigation seems to be what the SFO have been waiting for.

GSK is already being investigated in a number of other countries. On 14 May 2014, Chinese police announced that they had charged the former British boss of GSK’s China business and other colleagues with corruption, after an investigation found evidence of an elaborate scheme to bribe doctors and hospitals. Authorities in China had first accused GSK in July 2013 of funnelling up to 3 billion yuan (£285 million) in bribes to encourage doctors to use its medicines.

GSK are also facing a criminal investigation in Poland for allegedly bribing doctors after a former sales representative said that doctors were paid to promote GSK’s asthma drug Seretide and although the payments were disguised as being for educational services (lectures that were never actually given), in his opinion they were really a bribe, with doctors knowing that they have to produce a certain number of prescriptions in return for the payment. Other investigations are thought to be taking place in Iraq, Jordan and Lebanon.

Given the wide territorial scope of the UK Bribery Act 2010, it is not surprising that the SFO has started its own investigation. It is also possible that investigations could be commenced in the US, as it is illegal under the US Foreign Corrupt Practices Act to bribe government employees abroad.

In response to these reports, GSK has insisted it does not have a “systemic issue with unethical behaviour” and says it has a clear system for dealing with violations, which resulted in 48 dismissals and 113 written warnings last year.

In order to improve it anti-bribery compliance, GSK is implementing a new sales model designed to eliminate sharp marketing practices. It aims to become the first in its industry to stop paying outside doctors to promote its products, end payments for medics to attend conferences and delink incentives for sales representatives from individual sales targets. These measures may act as good mitigation and reduce any fine should a successful prosecution follow, however the actual success of these measures and the impact they may have on the current investigations remains to be seen.

Monthly China Anti-Bribery Update Report — May 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 May 13, 2014 that three cadres from the Office of Civil Air Defense of Dandong City, Liaoning Province have been sentenced for abuse of power and bribe-taking. The three cadres are Song Deming (“Song”), the former Chief of Audit and Finance Department, Guo Hongfu (“Guo”), the former Chief of Engineering Department, and Liu Hong (“Liu”), the former Chief of Fortifications Management Department. The prison sentences were 13-years, 4-years, and 13-years respectively.

 

Reportedly, the three people were charged with abusing power during various three phases of activity, i.e., construction approval, administrative enforcement, and settlement of construction approval expenses. These caused economic losses to the state calculated at more than RMB 57.99 million (USD 9.27 million). Song, Guo and Liu were also accused of accepting bribes of RMB 200,000 (USD 31,983), RMB 40,000 (USD 6,396) and RMB 110,000 (USD 17,590) respectively.

 

(2) The Supreme People’s Procuratorate of the People’s Republic of China (the “SPP”) published a report on its official website on May 23, 2014 that Xu Yongsheng, the former Deputy Director of National Energy Administration (the “NEA”) and Wang Jun, the former Chief of the New Energy & Renewable Energy Department of NEA, had been placed under investigation for suspected acceptance of bribes. This announcement was published only two days following the report published by SPP on May 21, 2014 that the other two leaders of NEA, i.e., Hao Weiping, the former Chief of Nuclear Power Department, and Wei Pengyuan, the former Deputy Chief of Coal Department, were also under investigation. These cases have been interpreted as a signal that China’s central government is focusing on the bribery in the energy sector following the removal of Liu Tienan, the former director of NEA and Deputy Director of National Development and Reform Commission.

 

(3) On May 28, 2014, Lu Mouhai (“Lu”), the former Chairman of Guangxi Yugang Expressway Co., Ltd., was sentenced to 13 years in prison by the Intermediate People’s Court of Yulin City, Guangxi Province, with confiscation of his personal assets in the amount of RMB 1 million (USD 159,916).

 

Lu was found guilty of accepting bribes totaling RMB 5.12 million (USD 818,769) and EUR 5,000 (USD 6,799) during his term in office from 2011 to 2013 by taking advantage of his position. In return, Lu sought illegal benefits for bribe-givers in the form of personnel appointments and promotions.

 

(4) On May 29, 2014, Wang Suyi (“Wang”), a former Member of the Standing Committee of the Communist Party (“CPC”) of China, Inner Mongolia Autonomous Region Committee, was placed on trial at the No. 1 Intermediate Court of Beijing Municipality for taking bribes.

 

Allegedly, during Wang’s term as the government head of Bayannur City from 2005 to 2013, Wang accepted bribes from seven enterprises and two individuals amounting to RMB 10.73 million (USD 1.73 million). In exchange, Wang sought illegal benefits for the bribe-givers in the form of job promotion and company operations. A judgment is expected to be announced in a matter of days.

 

4. Other

 

(1) On May 14, 2014, the SPP reported in a press conference that during the first quarter of 2014, the procuratorate agencies nation-wide had investigated 8,222 cases relating to embezzlement and bribery and involving 10,840 individuals, and, of these, 661 were at the county level. There were also 2,245 cases involving dereliction of duties and involving 3,073 individuals, 137 of whom were at the county level. The number of investigated cases relating to embezzlement, bribery and dereliction increased by 24%, 19.8% and 10.2% respectively, compared to the number of such cases in the same period of the prior year. According to Xu Jinhui, the Director of the General Bureau of Anti- Embezzlement and Bribery of SPP, while SPP previously focused on crimes of taking bribes, it will, in the future, pay more attention to crimes of offering bribes.

 

5. China-related FCPA Action

 

No developments.

 

 

Monthly China Anti-Bribery Update Report — April 2014

Posted in Uncategorized

1. New law or regulation

State level: No developments.

Local level (Beijing & Shanghai):

(1) It was reported on April 27, 2014 that the Shanghai government recently issued the Provisions on Strengthening the Supervision of Vertical Concurrent Position of the Leaders in State Owned Enterprises Directly Managed by Shanghai People’s Government (“Provisions”), which restrict the leaders of state owned enterprises (“SOEs”) from taking leadership positions in affiliated enterprises. Only under certain circumstances may such leaders concurrently hold positions in affiliated enterprises, and in such cases, they cannot hold more than two positions, and neither position is permitted to pay compensation. These Provisions were issued as a result of a survey taken last year that found that over two thirds of leaders in SOEs act as leaders or officers in affiliates.

Communist Party Rules: No developments.

 

2. Upcoming law or regulation

No developments.

 

3. Government Action

(1) It was reported on April 1, 2014 that Gu Junshan, the former Deputy Chief of General Logistics Department of the Chinese People’s Liberation Army (the “PLA”) was prosecuted on March 31, 2014 for embezzlement, taking bribes, misappropriation of public funds, and abuse of power by the PLA Military Procuratorate at the PLA Military Court. No details of the alleged violations were disclosed.

(2) On April 1, 2014, Li Tianfu (“Li”), the former Deputy Director of the Public Security Bureau of Maoming City, Guangdong Province, was sentenced to 16 years in prison by the Higher People’s Court of Guangdong Province in his second trial for taking and offering bribes, with confiscation of personal property amounting to RMB 5.6 million (USD 894,639). Li was sentenced in his first trial to 20 years’ imprisonment in November, 2012.

Li was found guilty of taking bribes during his term in office from 2002 to 2011. Such bribes included RMB 4.12 million (USD 658,198), USD 150,000, HKD 150,000 (USD 19,348), and a vehicle. In return, he sought illegal benefits for the bribe-givers in the form of job promotions, project construction, and administrative enforcement. Li was also charged with offering bribes totaling RMB 200,000 (USD 31,951) and HKD (USD 12,898) to Ni Junxiong, the former Member of the Standing Committee of the Communist Party of China (“CPC”) Maoming Committee, who was sentenced to 15 years in prison in 2012.

(3) The official website of the Central Commission for Discipline Inspection (“CCDI”) of the CPC and the Ministry of Supervision (“MOS”) published a report on April 11, 2014 that Yao Mugen (“Yao”), the former Deputy Governor of Jiangxi Province, had been removed from his position and placed under investigation for severe violation of laws and discipline. Later on April 22, 2014, the CCDI website announced that another provincial-level official, Guo Youming (“Guo”), the former Deputy Governor of Hubei Province, had also been expelled from the Party and will be transferred to judicial authorities for accepting bribes.

(4) On April 14, 2014, CCDI published on its official website that Shen Weichen (“Shen”), the former Secretary and Deputy Chairman of China Association for Science and Technology, was under investigation by the Party for suspected serious violation of discipline and law. Shen is the first ministerial-level official to be placed under investigation this year.

(5) On April 28, Ren Lianjun (“Ren”), the former Deputy Chairman of Chinese People’s Political Consultative Conference (“CPPCC”) in Zhoukou city, Henan Province, was sentenced to death with a two-year reprieve by the Intermediate People’s Court of Pingdingshan City, Henan Province with deprivation of political rights for life and confiscation of all his personal property for embezzlement and taking bribery.

Ren allegedly took advantage of his position from 2003 to May 2012, embezzling public funds amounting to RMB 12.29 million (USD 1.96 million), which were documented as debt repayment, office expenses, and the purchase of calligraphy and paintings. Ren was also found guilty of accepting bribes including cash, bank cards, an apartment, and watches totaling RMB 22.93 million (USD 3.66 million) over more than 500 separate occasions, including New Year’s Day and other festivals, as well as on the occasion of job promotions, marriages and funerals of relatives, constructions projects, etc.

 

4. Other

It was reported on April 28, 2014 that the “Weekly Briefing” column of the official website of CCDI and MOS had reported during the prior four weeks 719 cases of violations of the eight-point code issued by the central government to cut bureaucracy and maintain close ties with the public. This column was opened to reveal cases involving violations of disciplinary rules and to encourage the public to provide clues and offer comments on such cases.

 

5. China-related FCPA Action

No developments.

Continuing Development of Fiduciary Duty Standard Under Russian Law: Civil Damages Assessed Against Director Accused of Bribery

Posted in Russia

In Lee v. Lukshin (Case No. А12-6860/2013, February 20, 2014), the plaintiff, a minority shareholder (holding 16.59% shares) of OJSC “Meat Plant Filonovskiy” (the Company) successfully pursued a derivative action for damages against the former general director (the Executive) of the Company, who was convicted under Article 291(2) of the Criminal Code in an earlier criminal trial for making a bribe.

In the wake of the Executive’s conviction the Company was fined and paid 1,000,000 Rubles (approx. US$28,000) for committing an administrative offence, namely “conferring an unlawful benefit on behalf of a legal entity” under Article 19.28 of the Code of Administrative Offences of the Russian Federation.

The claimant argued that the illegal actions of the Executive caused damages to the Company in the amount of the administrative fine. The court agreed and awarded damages to the Company equal to the amount of the fine. The court reasoned that by committing a crime the defendant acted in bad faith and unreasonably which resulted in losses to the Company in the amount of the administrative fine. The court supported its conclusion based on Clause 4 of the Resolution of the Plenary Session of the Supreme Commercial Court of the Russian Federation No. 62 dated 30 July 2013 “On Certain Matters of Compensation of Losses by Members of a Company’s Governing Bodies” (the Resolution) which provides that:

  • a reasonable executive shall ensure that the company fulfills its public law obligations; and
  • if a company breaches its public law obligations due to an executive’s bad faith and/or unreasonable actions or omissions which result in losses by the company, such losses may be recovered from the director.

While the court’s conclusion seems inescapable, to our knowledge this is the first case in Russia where an individual, in addition to being convicted criminally for committing bribery, was also held civilly liable to pay damages to his employer in the amount of administrative fines imposed on the company. It is notable that the action was a derivative action initiated by a minority investor.

While the case does not constitute precedence under Russian civil procedure, we believe that it would be exceedingly difficult for a court in Russia to reach a different conclusion in light of the Resolution underpinning the decision which does have precedential effect.

Stricter Anti-Corruption laws by implementation of a corporate criminal law in Germany?

Posted in Germany

Criminal proceedings against entities under German law only are possible under provisions of the Code of Administrative Offences (Gesetz über Ordnungswidrigkeiten). The applicable provisions have recently been tightened and now provide the imposition of a fine of up to ten million Euros upon an entity that has failed to perform its duties regarding the prevention of criminal conduct of employees.

However, this punishment is still not grave enough a threat to make companies set up compliance systems suited to fight misconduct of employees effectively, says Mr Thomas Kutschaty, Minister of Justice of North Rhine-Westphalia. Furthermore, the classification of such misdemeanors as Administrative offences does not do justice to the immense implications of many such proceedings, especially since in public perception typical Administrative offences are of subordinate importance, such as traffic offences or noise nuisance. Also, since structures in companies are often inscrutable it is at times rather difficult to attribute a certain offence to a particular employee. Difficulties of proof could be avoided if the focus of a criminal investigation would shift to the company.

Therefore in September 2013 the government of North Rhine-Westphalia introduced a legislative proposal designed to implement provisions of a corporate criminal law into the federal penal law. The intended penalties are significant. The presented bill provides for fines of up to 10% of the average annual turnover of a company. In addition, the draft makes provisions for affected companies to be excluded from being awarded public contracts for at least a period of one year which in fact might constitute a severe punishment for many companies.

Yet, the probability of the implementation of such legal provisions cannot be foreseen, although the German Governments coalition agreement provides that the topic shall be further developed.  The legislative draft has been praised by organizations such as Transparency International Germany, yet also strong criticism has been issued. Especially company associations such as the Chamber of Industry and Commerce have expressed concerns with regard to the extent of the punitive measures awardable.

It should be a matter of fact that not least with regard to anti-corruption measures the discussed provisions could be of utmost importance. An effective compliance would become even more important for companies, in particular since not only severe monetary fines are possible but also the loss of contracts and public humiliation in court are a threat.

Monthly China Anti-Bribery Update Report — March 2014

Posted in Uncategorized

1. New law or regulation

State level:

(1) On March 18, 2014, the General Office of the Communist Party of China (“CPC”) Central Committee and the General Office of the State Council jointly issued the Opinions on Practicing Conservation of Food and Combating Waste of Food (the “Opinions”), which target food excesses in the official activities of the Party, government agencies, and state-owned enterprises. The Opinions encourage simple and healthy meals and prohibit extravagant meals. All Party and government agencies as well as state-owned enterprises are required to include meal expenses in their “Three Public Expenditures,” and any significant catering expenses might be subject to spot-checks by departments of supervision.

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 March 3, 2014 that Du Bidong (“Du”), the former Inspector of Transportation Department of Shanxi Province, was sentenced by the Intermediate People’s Court of Xi’an City, Shanxi Province to 15 years in prison for taking bribes.

Du was found guilty of soliciting and accepting bribes during his term in office from September 2008 to February 2012, and such bribes were determined to amount to RMB 4.51 million (USD 725,992) from various construction enterprises, construction supervision companies and equipment suppliers by taking advantage of his position. Du was given a light sentence because he confessed his crimes and returned the illegal gains.

(2) The official website of the Central Commission for Discipline Inspection (“CCDI”) of the CPC on March 7, 2014 reported that Chen Baihuai (“Chen”), the former Deputy Chairman of Chinese People’s Political Consultative Committee (“CPPCC”) of Hubei Province, was being placed under investigation for abuse of power and taking bribes. Later, on March 9, 2014, CCDI announced on its official website that Shen Peiping (“Shen”), the Deputy Governor of Yunnan Province was under investigation for serious violation of Party discipline. Subsequently, on March 22, 2014, the CCDI announced again that Yao Mugen (“Yao”), the former Deputy Governor of Jiangxi Province, was under investigation for suspected violation of Party discipline. These three announcements did not disclose any details of the alleged violations, but it was noteworthy that the three are provincial and ministerial-level officials. More details are expected to emerge over the coming months.

(3) On March 19, 2014, Dai Xingnong (“Dai”), the former Deputy Chairman of CPPCC of Gangzha District, Nantong City, Jiangsu Province, was sentenced to 10 years and 6 months in prison by the Intermediate People’s Court of Nantong City for embezzlement and accepting bribes.

Dai allegedly embezzled public funds totaling RMB 229,901 (USD 37,008) by taking advantage of his position from 2011 to 2013. Dai was also found guilty of accepting bribes amounting to RMB 787,717 (USD 130,000) from 10 individuals. Dai was given a reduced sentence because he confessed his crimes.

(4) On March 19, 2014, Ma Guoqiang (“Ma”), the former Deputy Secretary of Zhoukou Depot of China Grain Reserves Corporation (“SinoGrain”), was sentenced to 15 years’ imprisonment by the Intermediate People’s Court of Anyang City in his second trial for embezzlement and taking bribes.

Ma was accused of taking advantage of his position during his term as Deputy Chief of Xuchang Depot of SinoGrain to embezzle public funds totaling RMB 181,760 (USD 29,198) and accept bribes amounting to RMB 484,000 (USD 777,52). Ma was sentenced to 15 years in prison in his first trial on November 11, 2013 by the People’s Court of Wenfeng District, Anyang City, and this judgment was affirmed by the Intermediate People’s Court of Anyang City after which Ma filed an appeal.

 

4. Other

No developments.

 

5. China-related FCPA Action

No developments.