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Orthofix International Resolves FCPA Investigation

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Orthofix International N.V. (“Orthofix”) entered into a consent to final judgment with the SEC and a deferred prosecution agreement with the DOJ to resolve FCPA violations by its Mexican subsidiary. Although the DOJ enforcement action involved a criminal information which remains sealed until a plea is entered in open court, the deferred prosecution agreement indicates that the company was charged with one count of violating the FCPA’s internal controls provisions. The SEC’s civil complaint alleges violations of the FCPA’s books and records and internal controls provisions.

Conduct

  • Orthofix is a Texas-based orthopedic medical device company.
  • Promeca S.A. de C.V. (“Promeca”), Orthofix’s Mexican subsidiary, bribed officials at Mexico’s government health care and social service provider, Instituto Mexicano del Seguro Social (“IMSS”) in order to secure lucrative sales contracts from IMSS hospitals.
  • From 2003 to 2010, Promeca paid bribes totaling approximately $317,000 to Mexican officials. These bribes, internally referred to as “chocolates,” generated a net profit of nearly $5 million. Promeca falsely recorded the bribes as cash advances and falsified its invoices. When the bribes increased, Promeca falsely recorded them as promotional training costs. Some of the gifts intended to influence IMSS employees included vacation packages, laptop computers, televisions, appliances, and in one case, the lease of a Volkswagen Jetta. Eventually, after learning of the bribery, Orthofix self-reported it to the SEC. The company took corrective action including firing the Promeca executives who orchestrated the bribery scheme.
  • The SEC complaint alleged that Orthofix “failed to implement adequate internal control to prevent the bribery or to ensure that transactions were properly recorded. Orthofix failed to implement an FCPA compliance and training program commensurate with the extent of its international operations and particularly its ownership of Promeca… Further, even though Orthofix knew that Promeca’s training and promotional expenses were often over budget, it did nothing to act on the red flag.”

Penalties

  • According to the SEC’s release, Orthofix agreed to pay $4,983,644 in disgorgement of profits and more than $242,000 in prejudgment interest. The final judgment would permanently enjoin the company from violating the books and records and internal control provisions of the FCPA. Under the terms of the agreement, Orthofix also agreed to monitor its FCPA compliance program and issue reports to the SEC over a two-year period.
  • In its deferred prosecution agreement with the DOJ, Orthofix agreed to pay a $2.22 million penalty and to report to the DOJ annually during the term of the agreement regarding remediation and implementation of the compliance measures. The DOJ has agreed not to pursue any criminal charges against the company regarding this matter if the company complies with the terms of the agreement for a period of three years.

Additionally, neither the SEC settlement nor the deferred prosecution agreement require Orthofix to appoint an independent external compliance monitor.

We thank Squire Sanders summer associate Cristina Sanchez for contributing to this post.


The Importance of Bribery and Corruption Due Diligence in Corporate Transactions

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To protect themselves from breaking  the UK Bribery Act and Proceeds of Crime legislation, those involved with corporate transactions (including mergers, acquisitions or investments) need to ensure that transactions do not involve risks of bribery and corruption. The UK’s Serious Fraud Office (SFO), in January 2012, said: “Shareholders and investors in companies are obliged to satisfy themselves with the business practices of the companies they invest in…. It is particularly so for institutional investors who have the knowledge and expertise to do it. The SFO intends to use the civil recovery process to pursue investors who have benefitted from illegal activity. Where issues arise, we will be much less sympathetic to institutional investors whose due diligence has clearly been lax in this respect”.[1]

Guidance

Transparency International UK has published guidance (the “Guidance”) on anti-bribery due diligence for corporate transactions[2]. The Guidance emphasizes a proportionate approach to the anti-bribery due diligence process based around three overarching considerations:

  1. Anti-bribery due diligence should be applied to all investments but on a risk-based approach, with the level of due diligence being proportionate to the investment and the perceived likelihood of risk of bribery.
  2. In many cases the necessary information for due diligence may not be accessible, such as in acquisition of public companies, hostile take-overs, auctions or minority investments. This does not obviate the need for anti-bribery due diligence, but has an effect on the timing – i.e., it may need to be undertaken post-closure.
  3. A good practice approach characterises ethical and responsible businesses, but is also the most effective means for companies to manage bribery risks across multiple jurisdictions and in a changing legal and enforcement environment.

Following the Guidance should mean that companies comply with the legal requirements in the UK, but also any other jurisdiction that the transaction involves.

What level of due diligence is required?

The level of bribery and corruption due diligence required should be determined using a risk based approach as some targets may be judged to present low risks and require lower levels of due diligence whereas others will have higher risks. A proper assessment of what is proportionate can however only be made if the risks are properly understood. The size of investment should not be a determining factor as small investments can carry disproportionate risks and the material risks attached to bribery may not necessarily reflect the size of the bribe.

According to the Guidance, the key things to look for in anti-bribery due diligence are as follows:

  • Has bribery taken place historically?
  • Is it possible or likely that bribery is currently taking place?
  • If so, how widespread is it likely to be?
  • What is the commitment of the board and top management of the target to countering bribery?
  • Does the target have in place an adequate anti-bribery programme to prevent bribery?
  • What would the likely impact be if bribery, historical or current, were discovered after the transaction had completed?

The extent and methodology of the anti-bribery due diligence will depend on the transaction, but could include the following:

  • Discussing the risks of bribery and corruption as well as the measures in place to prevent bribery with management of the target.
  • Visiting and interviewing other actors within the relevant sectors and countries, such as customers, suppliers, industry experts, regulatory authorities, business associations, embassy officials, NGOs. 
  • Completing corporate intelligence and background checks on the target’s business and key owners/directors and management.
  • Examining the target’s anti-bribery programme to assess its adequacy and any risks of bribery.
  • Conducting walk-through tests, carried out to confirm that policies and procedures are effectively implemented. 
  • Reviewing data provided by the target company.
  • Completing a detailed financial review.

It is acknowledged that there are a number of challenges to anti-bribery due diligence. These can include a lack of information being available, time pressure, lack of senior management support and insufficient expertise in the deal team. These challenges must however be overcome if the buyer is to protect itself adequately.

What if bribery or corruption is identified?

If bribery or corruption is identified, this may mean that the target and potentially individuals working for the target, are in breach of the Bribery Act and liable to prosecution and criminal penalties. This liability can pass to the buyer in a corporate transaction. There may also be obligations on the buyer and / or its legal advisors to report such bribery under the Proceeds of Crime Act 2002. If the transaction proceeds and the bribery continues, individuals at the buyer may also become liable.

Identifying acts of bribery through due diligence does not have to be a deal breaker. It however allows investors and purchasers to prepare themselves to deal with it. It may even be possible to agree with the enforcement authorities a grace period, following acquisition, during which agreed mitigation steps are carried out. This may save companies a large amount of money.

Despite the information above, bribery due diligence is often not undertaken, neglected, or allocated insufficient time and resources. Adding bribery and corruption to the scope of due diligence already completed in corporate transactions is relatively simple, quick and inexpensive. It can however reveal significant issues that may otherwise not come to light. 


[1] SFO press release of 13 January 2012 – ‘Shareholder agrees civil recovery by SFO in Mabey & Johnson’

[2] http://www.transparency.org.uk/our-work/publications/227-anti-bribery-due-diligence-for-transactions

Monthly China Anticorruption Update Report-August 2012

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The most recent FCPA and anticorruption enforcement developments involving the People’s Republic of China (PRC) are summarized below. Thanks as always to Squire Sanders Shanghai Office for monitoring these enforcement actions.

Change of Legal Environment

1.     Areas:

New law or regulation

         Update:

State level:  No developments

Local level (Beijing & Shanghai):  No developments

Communist Party Rules: No developments

2.     Areas:

Upcoming law or regulation

Update:

None identified

3.    Areas:

Government Action

Update:

(1)  On August 3, 2012, the report of an internal investigation conducted by the Ministry of Railways revealed that Liu Zhijun (“Liu”), the former minister of railways, committed six disciplinary violations, including taking bribes and sexual misconduct.

Liu was removed from his position in 2011 on charges of corruption and expelled from the Communist Party of China earlier this year. Reportedly, Liu was charged with helping Ding Shuimiao (“Ding”), a Shanxi business woman, secure railway supply contracts in the amount of RMB 3 billion (USD 470 million) and allowed middlemen to take kickbacks during contract procurement. Ding’s company is alleged to have accepted RMB 10 million (USD1.6 million) from railway construction companies in bribes as sponsorship fees. In addition, Liu is also suspected of receiving bribes from four railway officials, some in the form of calligraphy paintings and other valuable artwork.

(2)  On August 9, 2012, He Fuchang (“He”), the former Deputy Party Secretary and Deputy Chief of the Ningbo Public Security Bureau (“PSB”), was sentenced to death with two years’ reprieve by the Ningbo Intermediate People’s Court for receiving bribes exceeding RMB 16 million (USD 2.6 million) and for abusing his power as a government official. A death sentence with a two-year reprieve is usually reduced to life in prison if the convict behaves well while serving the term.

During his term from 2000 to 2011 as the acting mayor of Yuyao city and the party secretary of Ningbo PSB, He purportedly abused his power by manipulating the process for grant of land use rights and improperly assisting the promotion of certain government officials in exchange for bribes totaling RMB 16 million (USD 2.6 million).

(3)  On August 10, 2012, Li Ji (“Li”), the former mayor of Haitangwan Town, Sanya, was sentenced to death with two years’ reprieve for receiving and seeking bribes in the amount of RMB 14.4 million (USD 2.2 million).

During Li’s term as the Mayor of Haitangwan Town, the Head of Haitangwan Management Committee and the Deputy Secretary of Hitangwan Town, Li was reportedly found guilty for abusing his position to facilitate, for the benefit of others, in the process of approval of land compensation and payment for contract engineering, in exchange for bribes from 2009 to 2011.

According to a spokesperson for the Sanya Discipline Inspection Committee, Li’s case was one of a series of corruption cases in recent years involving Haitangwan Town and there are as many as 104 suspects involved.

(4)  On August 25, 2012, Cai Yabin (“Cai”), the former Deputy Director of the Shaoyang Public Security Bureau, Hunan Province, was sentenced to 12 years’ in prison by Shaoyang City Beita District People’s Court on charges of accepting bribes, providing bribes and failing properly to account for the sources of personal assets.

During Cai’s term from 1997 to 2012, Cai abused his position to seek illegal gains for others in administrative enforcement procedures and infrastructure construction projects and received over RMB2. (USD 7,870) and USD 3,000 to the former Chief of 19 million (USD 344,719) in bribes. In 2006, Cai also provided RMB 50,000 Xiangtan City Public Security Bureau.  In addition, Cai was unable to identify the source of nearly RMB 6 million (USD 944,436) of his personal assets.

(5)  On August 27, 2012, Wang Baojun (“Wang”), the Secretary of Beijing Chaoyang District Agriculture Committee, was reportedly sentenced to ten years in prison for corruption involving RMB260,000 (USD41,000).  Wang’s case is one of a series of corruption prosecutions against the agriculture committee following the arrest of some of the committee’s finance staff. The former Chaoyang District deputy mayor Liu Xiquan is likewise facing charges for accepting bribes totaling RMB 1.8 million (USD284,000) in connection with the case.

(6)  In late August, 2012, Wang Guoqiang (“Wang”), the former Party Chief of Fengcheng City, Liaoning Province, allegedly left China in April or May after transferring more than RMB 200 million (USD 31.4 million) in embezzled funds to the United States on April 24, 2012. Wang was being investigated for taking bribes from a local heating company and some property developers from April 28, 2012 and was removed from his position and expelled from the Communist Party of China on August 15, 2012.

4.    Areas:

Others

Update:

(1)  On August 21, 2012, He Guoqiang (“He”), a member of the Standing Committee of the CPC Political Bureau and Secretary of the Central Commission for Discipline Inspection, said in a meeting that China will implement a five-year plan for eliminating corruption after the upcoming national congress of the Communist Party of China. He stressed the importance of improving anti-corruption efforts and described the improvement as a “dynamic and long-term strategic project”.

(2) To further clear systemic obstacles to social and economic development and to curb corruption, the State Council of China announced its decision to remove or modify 314 administrative examination and approval items. The decision was made in a statement released after an executive meeting of the State Council that was presided over by Premier Wen Jiabao on August 22, 2012.

 (3) On August 12, China’s supreme procuratorate called for an intensified crackdown on officials abusing positions of power in the railway sector. According to the Supreme People’s Procuratorate, efforts will be centered on crimes involving ticket sales, construction projects, and procurement and supply of materials.

 

 

Monthly China Anticorruption Update Report-September 2012

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The most recent FCPA and anticorruption enforcement developments involving the People’s Republic of China (PRC) are summarized below.  Thanks as always to Squire Sanders Shanghai Office for monitoring these enforcement actions.

 Change of Legal Environment

 1.       Areas:

            New law or regulation

            Update:

            State level: No developments

            Local level (Beijing & Shanghai): No developments

            Communist Party Rules: No developments

 2.        Areas:

            Upcoming law or regulation

            Update:

            None Identified

 3.       Areas:

            Government Action

            Update:

 (1)  On September 18, 2012, Li Bingchun (“Li”), the former Chief of the Liqiao township government in Shunyi District, Beijing City, was sentenced to death with two years’ reprieve by the Second Intermediate People’s Court in Beijing for corruption, taking bribes, and misappropriation of public funds. Such a death sentence with a two-year reprieve is often reduced to life in prison if the convicted person behaves well during the term of imprisonment.  Li was found guilty of receiving more than RMB 38 million (USD 6.03 million) from 2006 to 2007 from a demolition compensation fund that had been established for use in connection with the construction of two highways. He also accepted a bank card giving access to an account containing RMB 80,000 and a gold bar valued at RMB 153,000 (USD 24,280) from two companies whom he helped to win bids and land use rights. In addition, Li was accused of lending more than RMB 178 million (USD 28.25 million) of public funds to several real estate developers between 2006 and 2010. All of his private assets were confiscated.

(2)  On September 17 and 18, Wang Lijun (“Wang”), the former Vice Mayor and former Police Chief of Chongqing, was tried in the Intermediate People’s Court in Chengdu, Sichuan Province for attempted defection, abuse of power, bribe-taking, and bending the law for selfish ends. On September 24, Wang was sentenced to 15 years in prison.

Wang was charged with neglecting his duty to investigate and suppress criminal acts and bending the law for personal gain. He also violated relevant laws and regulations by using technical eavesdropping measures against many people on various occasions. Wang purportedly took advantage of his position and illegally accepted money and property worth more than RMB 3.05 million (USD 484,127), in return for securing benefits for other individuals.

(3)  On September 21, 2012, Wu Zhiming (“Wu”), the former Deputy Secretary General of Jiangxi Provincial Government, went to trial in the Intermediate People’s Court in Jiujiang City, Jiangxi Province for allegedly taking bribes according to a court statement.

Wu was prosecuted for accepting cash and properties valued at RMB 47.48 million (USD 7.53 million) during his term as Head of Xihu District, Nanchang City, Sectary of Commission of Qingshanhu District, Nanchang City, Mayor Assistant of Nanchang Government and Deputy Secretary General of Jiangxi Provincial Government from 2002 to 2011, and, in return, helping the bribe-givers seek benefits in projects and helping them with job transfers and promotions through the misuse of his post.

(4)  On September 23, 2012, Liu Xiquan (“Liu”), the former Deputy Head of Choyang District, Beijing City, was sentenced to 13 years in prison by the First Intermediate People’s Court in Beijing for taking bribes. Liu’s personal assets of RMB 100,000 have been confiscated.

Liu was convicted of involvement in six cases of bribery, receiving in the aggregate RMB 1.85 million (USD 300,000) from 2008 to 2010 by taking advantage of his position as Member of the Standing Committee of the Party Committee and Deputy Head of Choyang District.

(5)  On September 25, 2012, Ren Jie (“Ren”), the former Party Secretary and Chairman of Jiangxi Phoenix Optical Instruments Group Corporation and Wang Xiyan (“Wang”), the former Party Secretary and General Manager of Jiangxi Phoenix Optical Instruments Group Corporation, were sentenced to 14 years and 14.5 years in prison respectively by the Intermediate People’s Court in Xinyu City, Jiangxi Province.

Ren was alleged to have received RMB 464,000 (USD 73,637) and USD 80,000 during his term with Phoenix Optical Instruments Group Corporation from 1993 to 2008 in return for helping others to undertake businesses and real estate development and other activities. Wang was accused of accepting bribes totaling RMB 876,940 (USD 139,170) for benefiting others during his time with Phoenix Optical Instruments Group Corporation from 2001 to 2008. Ren and Wang violated relevant laws and regulations by taking advantage of their positions with Phoenix Optical Corporation Ltd. to accept compensation amounts of more than RMB 9 million.

4.         Areas:

            Others

            Update:

 On September 20, the State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”) organized a video training for state- owned enterprises on anti-corruption management. Qiang Weidong, the Member of SASAC CPC Committee and Secretary of the Discipline Inspection Committee, pointed out that SASAC was researching on the standard and method of evaluating the anti-corruption activities and will include democratic meetings, anti-corruption institutional improvement, complainant processing and so on into the scope of the evaluation.

Bribery fears increase as UK businesses encouraged to boost export performance

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As part of the UK government’s remodelling of the British economy, UK businesses are being encouraged to widen their export base. Given the intransigent economic problems in the Eurozone, traditionally the UK’s biggest export market, there are sound economic reasons for doing so.

George Osborne, the Chancellor of the Exchequer, has championed the role of British manufacturers and, in the 2011 annual budget speech, envisaged a Britain “borne aloft by the march of the makers”. This would mean re-focussing efforts on high-growth export markets, such as the BRIC countries of Brazil, Russia, India and China, along with what the Confederation of British Industry identified as the “Next Eleven” in its November 2011 report “Winning overseas: boosting business export performance”.  Namely Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam.

Yet this re-focussing of UK exports could lead to companies being exposed to increased levels of corruption. Andrew Kakabadse, a professor of international management development at Cranfield University, has claimed that in two-thirds of the world, what are euphemistically called “transactional costs”, would need to be incurred in order to obtain and do business. Professor Kakabadse estimates that approximately 80% of deals outside of Europe and the US encounter instances of corruption and bribery.

Ernest & Young’s 12th Global Fraud Survey lends some weight to these claims. The survey found that bribery and corruption was more pervasive in rapid-growth markets. For example, in Brazil, 84% of respondents reported that corruption was widespread. The findings for the Far East also gave cause for concern. In Indonesia, 60% of respondents considered the making of cash payments to secure business as acceptable, whilst in Vietnam, 36% of respondents felt it was acceptable to misstate a company’s financial performance.

Europe has also been proven to be far from corruption free. Recently, Siemens signed a £261.4 million settlement with the Greek Government, in relation to allegations that Siemens bribed public officials to obtain a number of communications and security contracts.

The Ernst & Young survey also found that the current economic climate has weakened compliance with the anti-bribery legislation that is in place. The responses revealed, after years of cost-cutting, relatively labour-intensive measures were less frequently cited as anti-bribery and anti-corruption (“ABAC”) controls in the respondents’ businesses, This perception of ABAC controls weakening because of the global economic recession is further strengthened by another Ernst & Young report, seen and reported on, by Construction News. This found that half of financial workers and executives in the UK real estate and construction industries stated that their firms were willing to cut corners on ABAC controls because of the economic climate. This was exacerbated by construction companies often bidding on large state-run infrastructure projects in high-risk economies. These are areas which are particularly susceptible to instances of what Professor Kakabadse refers to as “transactional costs”.

Given that it is an offence for British firms to offer bribes whilst operating abroad, or to bribe a foreign public official, under the UK Bribery Act 2010, these indications of ABAC controls weakening are worrying. If George Osborne’s “march of the makers” is not only to be successful but also legal, UK manufacturers and exporters will need to ensure robust ABAC controls are in place to avoid convictions under the UK Bribery Act.

Judge Hands Down Sentences on Former CCI CEO, Sales Director

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On November 8, 2012, Judge James Selna (C.D. Cal.) sentenced Stuart Carson, former CEO of Control Components Inc. (“CCI”), and his wife, Hong Rose Carson, the company’s former sales director, for their roles in the company’s violation of the FCPA and Travel Act.

In 2009, CCI pleaded guilty to a three-count criminal information that charged two counts of violating the anti-bribery provisions of the FCPA and one count of conspiracy to violate the FCPA and Travel Act. CCI violated the FCPA by making corrupt payments totaling approximately US$4.9 million to officers and employees of state-owned enterprises (SOEs) – “foreign officials” under the FCPA – in China, South Korea, UAE and Malaysia for the purpose of obtaining or retaining business. CCI generated approximately US$31.7 million in net profits as a result of these corrupt payments.

In April 2012, the Carsons in turn pleaded guilty to separate one-count superseding informations charging them with violating the anti-bribery provisions of the FCPA.

Mr. Carson was sentenced to four months in prison to be followed by eight months of home detention and was ordered to pay a $20,000 fine.

Ms. Carson received no prison time but was sentenced to three years probation, to include six months home confinement, was ordered to pay a $20,000 fine, and was ordered to complete 200 hours of community service. In its sentencing memorandum, the Court notably rejected the Department of Justice’s argument that Ms. Carson’s Chinese upbringing entitled her to a downward variance, observing that “[t]here is no cultural defense to the present crime or any other under black letter law.”

Report shows that compliance with OECD Anti-Bribery Convention remains inadequate

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Transparency International has recently published its 8th annual progress report on compliance with the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, adopted in 1997, which requires each signatory country to make foreign bribery a crime.

In relation to enforcement, of the 37 signatory countries included in the report, (which does not cover Russia and Iceland), only 7 countries (which cover 28% of world exports), have been categorised as an ‘active enforcer’ of the Bribery Convention. These 7 countries are Denmark, Germany, Italy, Norway, Switzerland, United Kingdom and United States. The definition of ‘Active enforcer’ differs depending on the size of a country’s exports. If a Country has a share of world exports of 2 per cent or more, to be an ‘Active Enforcer’ it must have at least 10 major bribery cases on a cumulative basis (of which at least three were initiated in the last three years and at least three concluded with substantial sanctions). If a Country has a share of world exports of less than 2 per cent, to be an ‘Active Enforcer’ it must have at least three major bribery cases (including at least one concluded with substantial sanctions and at least one pending case which has been initiated in the last three years).

In 2011/12, the UK had 23 cases and 29 investigations (some under the old law rather than the Bribery Act 2010). According to Transparency International, the other 30 signatory countries fail to show adequate deterrence and fall within the categories of, “moderate enforcement”, “little enforcement” and “no enforcement”, as follows:

  • Moderate Enforcement: Twelve countries with 25 per cent of world exports: Argentina, Australia, Austria, Belgium, Canada, Finland, France, Japan, Korea (South), Netherlands, Spain and Sweden
  • Little Enforcement: Ten countries with 6 per cent of world exports: Brazil, Bulgaria, Chile, Hungary, Luxembourg, Mexico, Portugal, Slovak Republic, Slovenia and Turkey
  • No Enforcement: Eight countries with 4 per cent of world exports: Czech Republic, Estonia, Greece, Ireland, Israel, New Zealand, Poland and South Africa

As only Active Enforcement provides an effective deterrent to foreign bribery, these figures arguably show that the overall level of enforcement remains inadequate. This is not always the case however. New Zealand is categorised as ‘No Enforcement’, however is perceived to have one of the lowest levels of corruption in the world (see Transparency International’s Corruptions Perceptions Index, available at http://cpi.transparency.org/cpi2012/results/#myAnchor1).

It is likely therefore that the OECD will exert pressure on a number of signatory countries to improve its enforcement, that rigorous OECD monitoring will continue and perhaps that other nations with a significant share of world exports (such as China, India, Indonesia, Malaysia, Saudi Arabia, Singapore and Taiwan) will be encouraged to join the OECD Convention.

The full report, entitled “Exporting Corruption? Country Enforcement of the OECD Anti-Bribery Convention Progress Report 2012” is available at http://www.transparency.org/whatwedo/pub/exporting_corruption_country_enforcement_of_the_oecd_anti_bribery_conventio

Bribery Act Investigations at Rolls Royce

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Rolls-Royce, the world’s second largest aircraft engine maker, made a public announcement on the 6 December 2012 that it has provided information to the Serious Fraud Office (SFO) in relation to bribery and corruption activities that have taken place in Indonesia, China and other undisclosed overseas markets involving its intermediaries.

 In a statement released through its website (http://www.rolls-royce.com/news/press_releases/2012/121206_reports_sfo.jsp), Rolls-Royce stated, “It is too early to predict the outcomes, but these could include the prosecution of individuals and the company.  We will cooperate fully”.

The UK Bribery Act, which was implemented in July 2011, claims jurisdiction over corrupt payments occurring anywhere in the world, if they are made by or on behalf of an organisation that “carries on a business or part of a business” in the UK.  The extent of its reach covers not only those who engage in bribery, but also companies who fail to implement adequate procedures and compliance controls to prevent it.

The Financial Times reported last week that the SFO approached Rolls-Royce earlier this year following allegations made by a whistleblower (a former employee) that the company had paid bribes to secure business for its civil aircraft engines in Indonesia.  These allegations dated back to 2006.  Rolls-Royce investigated and the results of their investigation were sent to the SFO, who have also informed and shared the information with the US Department of Justice.  Rolls-Royce could also be liable for acts by intermediaries under the US Foreign Corrupt Practices Act if it had “reason to know of any bribes”.

The SFO has yet to confirm whether it has or will launch a formal investigation, but given recent comments by its new Director, David Green, there is a feeling by some commentators that the SFO are keen to signal an end to the perception they prefer civil settlements over criminal prosecutions.  Interestingly, many of the alleged transgressions predate July 2011, when the new tougher Bribery Act 2010 came into force in the UK, which will clearly impact on the SFO’s decision. 

Rolls-Royce has taken recent steps to strengthen its compliance system, and in a statement pointed to its new “Global Ethics Code” and a new “Intermediaries Policy”.  It also intends to “appoint an independent senior figure who will lead a review of current procedures and report to the Ethics Committee of the Board” (quotes taken from the Rolls-Royce statement on the 6 December 2012).  The recent steps taken by Rolls-Royce to implement effective compliance measures may suggest the company were concerned they might incur liability for failing to establish “adequate procedures” to prevent bribery under the UK Bribery Act.

Whilst it is not clear what measures the SFO will take against Rolls-Royce, the company’s approach to its compliance program and willingness to cooperate with the SFO and its investigations, are strong examples of proactive management, which may lead to a better outcome for the business.


M&S strengthens its anti-bribery controls in India

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British retail giant Marks & Spencer (M&S) is attaching strict anti-bribery clauses to agreements in India as the company moves ahead with its expansion plans in the country.

M&S currently operates 25 stores in India through a 51:49 joint venture agreement with Reliance Retail Limited, a subsidiary of Reliance Industries.  The retail giant is also planning to open ten new outlets in India over the next six to eight months period.

Jan Heere, International Director for M&S, told the Time of India on the 14 December 2012, “There will be no compromise with regards to compliance… we attach clauses related to UK’s anti-bribery act in all contracts that we enter, including with vendors” (http://timesofindia.indiatimes.com/business/india-business/MS-adds-anti-bribery-clause-in-Indian-contracts/articleshow/17606735.cms).

Given the UK Bribery Act claims jurisdiction over corrupt payments anywhere in the world, it is important that multi-national corporations such as M&S, who carry on a “business or part of a business” in the UK, are seen to exercise vigilance with regard to possible corrupt activity, and establish adequate procedures and compliance controls to prevent it.

First self-report settlement in Scotland

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The Scottish Civil Recovery Unit is to recover £5.6 million under Proceeds of Crime legislation after a Scottish drilling company, Abbot Group Limited (“Abbot”), admitted it had benefited from corrupt payments made in connection with a contract entered into by one of its overseas subsidiaries and an overseas oil and gas company.

The contract was entered into in 2006 and the payments were made in 2007.  The £5.6 million to be paid by Abbot represents the profit made by the company under the contract, and is to be paid in three stages by 31 March 2015.  Since the corrupt payments were made, the ownership and structure of Abbot has changed significantly.

The corrupt payments had been brought to light in May 2011, following enquiries by an overseas tax authority.  Abbot subsequently employed a firm of solicitors and accountants to investigate, and reported the results of the investigation to the Crown Office and Procurator Fiscal Service (the “Crown”) in July 2012 under the Scottish self-reporting initiative (which runs to June 2013).

The Scottish self-reporting initiative had been approved and introduced by the Crown to mark the commencement of the Bribery Act 2010 (the “Act”). Under the initiative the Crown will accept reports from businesses (meaning bodies corporate or partnerships as referred to in Section 14(1) of the Bribery Act) who wish to report the discovery by them of conduct within their organisation which may amount to an offence under the Act, with a view to consideration being given by the Crown to refraining from prosecuting the business and referring the case to the Civil Recovery Unit (“CRU”) for civil settlement.

Further information on the Scottish self-reporting initiative and guidance on the approach of the Crown to reporting by businesses of bribery offences, is contained at http://www.copfs.gov.uk/Publications/2012/11/Guidance-Approach-Crown-Office-and-Procurator-Service-Reporting-Businesses-Bribery-Offences.

Following a self-report by Abbot to the Crown, the case was referred to the Scottish Civil Recovery Unit with a view to a civil settlement being agreed.

Following the outcome of the case, Ruaraidh Macniven, Head of the Civil Recovery Unit said, “Self-reporting is an important way to ensure that corruption is exposed and that companies put in place effective systems to prevent it”. 

The Abbot settlement is the first reported outcome of the Scottish self-reporting initiative (introduced on the 1 June 2011), and legal commentators have suggested that the case represents another encouraging example of a business taking corruption prevention seriously. 

It is interesting that the self-reporting friendly approach in Scotland, which is of course a separate jurisdiction, now no longer exists in England and Wales; the Government is instead proceeding with its plans to introduce deferred prosecution agreements (discussed in my article of 17 January 2013, below).

SEC Adopts Final Rules Providing for Cash Award Payments to Whistleblowers

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On May 25, 2011, the Securities and Exchange Commission (SEC) adopted final rules implementing the controversial “whistleblower” provisions of the Dodd-Frank Act, which provide for the payment of monetary awards to individuals who report possible violations of the federal securities laws to the SEC.  Under Section 922 of the Dodd-Frank Act, if a whistleblower provides original information to the SEC that results in a fine of more than $1 million, he or she may receive between 10 and 30% of such fine.

One of the more controversial aspects of the new rules is the SEC’s rejection of strenuous comments from the business community requesting that whistleblowers be required to report their information through a company’s internal compliance procedures prior to making a report to the SEC.  The SEC did, however, make some adjustments in the final rules to incentivize whistleblowers to use internal compliance processes before making a whistleblower submission to the SEC.

The new whistleblower rules and guidance on what companies should do to mitigate whistleblower risks are explored in more detail here (PDF).

Monthly China Anti-Bribery Update Report — March 2014

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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.

Monthly China Anti-Bribery Update Report — April 2014

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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.

Monthly China Anti-Bribery Update Report — May 2014

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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 — June 2014

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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.

 


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

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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 — July 2014

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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.

 

 

Monthly China Anti-Bribery Update Report — August 2014

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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 — October 2014

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0

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.

 

 

China Data Privacy Update

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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

 

 

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