China enforcement agencies have recently made headlines in their crackdown on corruption within the several industries. As a result of these high-profile investigations, multinationals are refreshing their current anti-corruption compliance and oversight programs to address China’s bribery laws.

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Doing business in China
Recent anti-corruption and bribery
law enforcement
Original Broadcast Date: September 2013
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2. Today's
Presenters
Allen Liao
Bill Olsen: CFE, CAMS, CIA
Practice Leader, Forensic, Investigative
and Dispute Resolution Services
Grant Thornton China
Presenter
Leader, Global Investigation and
Anti-Corruption Services
Grant Thornton LLP
Moderator
Paul Peterson, CPA, CFE, CIA, CFF
Senior Manager, Forensic, Investigative
and Dispute Resolution Services
Grant Thornton China & member of China
Business Group of Grant Thornton LLP
Presenter
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2

3. Anti-corruption perspective of doing business in China
Learning objectives
• Define People’s Republic of China (PRC) anti-corruption
law from an accounting perspective
• Summarize the latest anti-corruption enforcement actions in
China
• Identify what key risks are likely to impact your business
• Determine what needs to be considered to minimize the
overall corruption risk that inherently exists in China
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3

4. Anti-corruption perspective of doing business in China
Agenda
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Overview of current FCPA enforcement trends
PRC anti-corruption laws
Recent China enforcement actions
Risky business practices in China
Mitigating corruption risks
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5. FCPA enforcement trends
•
•
•
•
•
•
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More Department of Justice (DOJ) Foreign Corrupt Practices Act (FCPA)
enforcement actions in first half of 2013 than in all of 2012
SEC and DOJ joint FCPA settlement of over $398 million against Total –
French oil and gas company (May 2013)
Two foreign defendants in FCPA-related cases unsuccessfully challenged their
indictments from abroad
SEC issues second ever whistleblower program award on Aug. 30, 2013
Approximately 320 investigations are ongoing in 24 states that are parties to
the Anti-Bribery Convention
Continued movement toward self-assessments away from external compliance
monitors
First ever FCPA-related SEC nonprosecution agreement (Ralph Lauren
Corporation, April 22, 2013)
UK authorities released a draft code of practice on deferred prosecution
agreements
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6. Hallmarks of an effective compliance program
• Commitment from senior management and a clearly
articulated policy against corruption
• Code of conduct and compliance policies and
procedures
• Oversight, autonomy and resources
• Risk assessment
• Training and continuing advice
• Incentives and disciplinary measures
• Third-party due diligence and payments
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7. Shift from the FCPA to the local PRC
anti-corruption laws
•
•
Recent uptick in enforcement actions by the Public Security
Bureau, Administration of Industry and Commerce, National Development and
Reform Commission, and multiple other regulatory agencies in China
Focus from bribe recipient to bribe giver
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8. Anti-corruption laws in China
main sources:
Anti-Unfair Competition Law
PRC Criminal Law
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9. Anti-corruption laws in China
1.
Anti-Unfair Competition Law (AUCL)
• Effective in 1993 to “even the playing field in the market”
• Article 8 of the AUCL is comparable to the books and records
provisions of the FCPA
This translates to:
"Companies may offer a discount or pay
commission to a third party in selling or purchasing
commodities; however, they must strictly record
accounting transactions in accordance with the
facts. The company shall be guilty of giving or
taking a bribe if such commissions are not properly
recorded in the accounting records."
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10. Anti-corruption laws in China
1.
2.
A
PRC Criminal Law
• Article 164 makes it unlawful to offer “money or property to the staff
of a company or enterprise for an illegitimate benefit”
• May 2011 – Amendment to article 164 inserts the concept of the
public official
• Law prohibits the act of giving “money or property” (“财物”) to any
foreign government official or official of a public organization to
“obtain an improper commercial benefit” (“为谋取不正当商业利益”)
• Applies to all PRC citizens (even those who are abroad) and all
persons physically in the PRC, even though they may not be of
PRC nationality
• Article 164 is four sentences in length
• No specific books and records provision within the criminal law
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11. Corruption: Current environment in China
• New President Xi Jinping and party leaders
took over in March 2013
• Trial of Bo Xilai, prominent political official,
exposed systemic corruption issues between
businesses and politicians
• Private sectors continue to have extensive
interactions with government agencies and
state-owned enterprises
• Widespread use of third parties
• Multiple industries still developing as economy
transitions to free market
• Transparency International: China CPI = 39
(India = 36, Colombia = 36) (China: 2011 =
3.6, 2010 = 3.5)
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12. China regulators crackdown on the pharma industry
Media outlets reporting alleged bribery at GSK
• Employees were suspected of paying bribes to
doctors, hospitals, medical associations and
government officials
• Use of travel agencies to inflate the cost of various
events to use excess cash to pay bribes to doctors
and third parties
• 30 GSK employees were placed under house arrest
• Several weeks after investigation was
launched, GSK briefed UK’s Serious Fraud Office
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13. Recent pharma projects – Video spectral
comparator is used to detect counterfeit “fapiao”
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14. Sample of a Beijing VAT invoice from travel agency
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15. Sample of a Beijing VAT invoice from travel
agency (cont'd)
GSGSGSGSGSGS
Guo Shui = National Tax
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16. Sample Shanghai meal/entertainment invoice
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17. Restaurant name was reprinted
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18. Amount was reprinted from RMB 330 to RMB 4492
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19. How companies are minimizing corruption risks
Instances of fraud remain a constant threat to management within an
organization. Management is beginning to look for ways to manage fraud
risks inside their organization, which include the following:
• Understand and prioritize fraud risks in China that can have a
negative effect on an organization’s business and reputation.
• Determine what anti-fraud elements can be implemented that are
most effective in China.
• Look for ways that controls can prevent, detect and respond to
an identified fraud risk.
• Determine whether the anti-fraud elements that have been
incorporated are operating effectively and efficiently to reduce
instances of fraud.
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20. Go beyond a normal background check
• Identify credible and relevant independent sources.
• Obtain in-depth information on the backgrounds, operation and actual
relationships of individuals and entities.
• Identify issues and information not reflected in the deal documents, such
as criminal, tax, labor, debt, organized crime issues, suppliers,
shareholder nominees and environmental issues.
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21. Comments?
Questions?
Bill Olsen: CFE, CAMS, CIA
Allen Liao
Leader, Global Investigation and
Anti-Corruption Services
Grant Thornton LLP
T: (703) 847-7519
E: william.olsen@us.gt.com
Practice Leader, Forensic, Investigative
and Dispute Resolution Services
Grant Thornton China
T: +86 (21) 2322 0210
E: allen.liao@cn.gt.com
Paul Peterson, CPA, CFE, CIA, CFF
Senior Manager, Forensic, Investigative
and Dispute Resolution Services
Grant Thornton China & member of China
Business Group of Grant Thornton LLP
T +86 159 2126 2911
E: paul.peterson@cn.gt.com
© Grant Thornton LLP. All rights reserved.
21

22. Disclaimer
This Grant Thornton LLP presentation is not a comprehensive analysis of the
subject matters covered and may include proposed guidance that is subject to
change before it is issued in final form. All relevant facts and circumstances,
including the pertinent authoritative literature, need to be considered to arrive at
conclusions that comply with matters addressed in this presentation. The views
and interpretations expressed in the presentation are those of the presenters and
the presentation is not intended to provide accounting or other advice or guidance
with respect to the matters covered.
For additional information on matters covered in this presentation, contact your
Grant Thornton LLP adviser.
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