If laws defined a country’s attitude to bribery and corruption, China would be a world leader. The offering and receiving of bribes is illegal. There is corporate as well as individual liability. Penalties include confiscation of assets and even capital punishment for officials when corrupt actions are severe enough and affect the public interest.
”The trouble is that the law is still ambiguous and misunderstood and investigations by authorities are not always made public” says Grant Jamieson, Head of KPMG’s China Forensic practice.
“Nonetheless, the government is very serious about cleaning up corruption and has been diligently investigating and prosecuting allegations of corruption by its own employees, many of which have resulted in former officials receiving the death penalty as punishment.” Jamieson says that people here grasp the moral and practical arguments for anti-bribery and corruption (AB&C) policies. But the Western mindset cannot be easily applied in this environment.
Business outside of China is conducted with a fair amount of transparency and in many cases is regulated by government regulation or commercial norms, but personal relationships are paramount here. This in turn is governed by highly formal, albeit unwritten, rules of practice.
Making relationships the foundation of business means showing respect for the people you deal with and, in China, cash and gifts are the primary means to show respect. Those famous ‘red packets’ of cash, for example, are given not only to customers and associates but to family members and friends as well.
In business relationships, you are expected to provide regular and sometimes even generous amounts of entertainment. None of this is seen as wrong. It is a custom rooted in traditional ethics and the notion of guanxi – deepening your relationships to expand your personal network.’ The lack of transparency in business transactions makes these waters harder to navigate. Conflicts of interest are rarely identified and deals, large and small, are sealed over dinner and fine bottle of bai jiu (Chinese white wine). This makes it essential to discover whether business partners or acquisitions are dependent on political influence or corruption and therefore may fail if they fall from favour or corrupt activity ceases.
There are signs of real change. Many Chinese think new wealth and business opportunities have led to a perversion of old customs. Company chairmen (who usually possess great power here) are starting to appreciate that AB&C programmes can mean bigger profits because less will be spent on hand-outs. In large part due to the government’s recent prosecutions of some of the most influential businessmen in China, many Chinese businesses are looking for ways to maintain their profitability and relationships without running afoul of the local AB&C laws lest they end up in jail with assets confiscated, or worse.
The post-2007 wave of FCPA prosecutions helps, as does concern about violating the UK’s 2010 Bribery Act. In that regard, gifts are the front line issue. “We are called frequently by clients asking how they should handle transactions in this culture, especially mergers and acquisitions. They want to comply with the law while doing business in an acceptable Chinese way. Our advice is to establish robust compliance policies and procedures and proactively monitor them while showing respect for reasonable Chinese culture and customs”.
Jamieson believes strongly that western companies need to invest in changing mindsets while accepting that it will take years to effect a full transformation. A dogmatic adherence to western assumptions - as distinct from western laws - will be counterproductive. He illustrates the point by reference to corporate codes. “Many words and concepts do not translate one-for-one into Mandarin. Translators and subject matter experts need to work together in order to convey underlying ideas and principals and ensure understanding of the concepts”.