Foreign Firms’ Bribery Outlawed

The Chinese government should strengthen its law enforcement for eradication of foreign companies’bribery

The bribery case of IBM in China was finally settled down. On March 18, IBM and the US Securities Exchange Commission (SEC) reached reconciliation about the bribery case. IBM was fined of 10 million US dollars for its violation of the US Foreign Corrupt Practices Act by offering bribes to the government officials in China and Korea.

When the bribery case of IBM was reported one year ago, the Chinese government immediately launched an investigation into IBM China. More than 120 employees of IBM China were involved in that case. 100 of them were downgraded in their posts and 20 of them were fired, including two senior vice presidents of IBM China.

IBM China boasted its “complete and flawless” supervision system against the bribery. However, the exposure of the bribery case reflects the inefficiency of this system.

IBM is not the only multinational that has been involved in bribery in China. At the beginning of April, a report that unveiled Johnson & Johnson’s bribery in the foreign countries was published in the USA, which lists the details of how Johnson & Johnson offer bribes to the government officials and business dealers in China and the other countries.

According to a report from China Central Television, from 2000 to 2010 China has found 500 thousand corruption cases that were related with foreign companies. In 2003, more than 1,500 cases about foreign companies’ bribery cases were unveiled in China. In recent years, Alcatel-Lucent, Ericsson, Siemens, Daimler Benz and Rio Tinto were involved in the bribery cases in China.

“Spoiled” Multinationals

Strangely, these multinationals that committed bribery in China seldom do this in their own countries. What leads to this situation?

“These multinationals are spoiled in China,” said an expert. “When the multinationals entered China, they were usually given a lot of favorable conditions not only in the taxation, but also in the rules and regulations.”

In August 2009, a new rule was carried out in Beijing. According to the rule, multinationals that set up their regional headquarters in Beijing can get the subsidies amounting to 10 million yuan (USD 1.53 million). The executives of these regional headquarters can get the resident permits in Beijing regardless of their ages and academic degrees. This measure is to help multinationals recruit high-level talents with the resident permit in Beijing which a lot of Chinese people long for. Many people thought it unfair that the multinationals’ staff can get the resident permit so easily.

In 2006, Huangshan, Anhui published a notice, saying that the foreign companies that paid the tax of 5 million yuan (USD 765.5 thousand) were free the fine of traffic violation.

The “super-national treatment” for foreign companies aims at “recruiting foreign investment” or “having more multinationals’ headquarters”. However, these favorable conditions spoil the multinational by making them think that they are above the laws and regulations in China and can not be punished for the violation.

China does not have efficient supervision systems to detect the bribery cases of multinationals. There are no special departments in the government. Most of the bribery cases in China are found by the headquarters of the companies or the foreign governments. IBM found its China branch illegally offering bribes to the Chinese government officials and unveiled it. The US Ministry of Justice found Siemens’ bribery in China and then EU and Germany severely punished this German company. The bribery cases of Johnson & Johnson and Alcatel-Lucent were also discovered by unveiled by themselves.

“China usually does not apply strict supervision over the multinationals, leaving loopholes for them to violate the law,” said Dr. Dong Chao from the Multinational Research Center of the Ministry of Commerce. “Even though the multinational were found to be guilty in China, the punishment from the Chinese government is very light.” When Siemens was found to be offer bribes in China, it was fined of 1.6 billion US dollars in the USA and Europe. However, it was not fined of even a penny in China.

“The Chinese culture highlights the tolerance. But the tolerance really spoiled the multinationals,” said Dr. Dong Chao.

Legal Defect as the Core

Liu Yunlei, a lawyer from China Fada Lawyer Firm, contributed the frequent bribery cases of multinationals in China to the legal defect. “The Chinese laws do not make clear of the difference between commercial bribe and ordinary PR measures.” The Anti-unfair Competition Law of the PRC has the clause stipulating that business dealers can not offer bribes in cash or other methods for their own goods. The Rule about Prohibiting the Commercial Bribes defines the commercial bribe as business dealers’ offering cashes, commodities and other things to organizations (government departments and enterprises) and individuals to achieve the goal of earning profits for themselves. However, there another sentence following the previous one: “the gifts with small value sent according to the business convention are excluded”.

“The last sentence leads to the ambiguous definition of commercial bribes,” said Liu Yunlei. “There is no definite border between commercial bribe and normal PR measures. How much should the gift be to make sending it to the government department or enterprise a bribe instead of a PR measure?”

There is no special anti-commercial bribe law in China. The Anti-unfair Competition Law and the Criminal Law have some clauses about this matter. But the effect is not good.

In comparison, the foreign countries have complete and special laws against the commercial bribes. Japan was hit by bribery cases in the 1970s before the issuance of its anti-commercial law. According to this law Japan gradually extinguished the bribery, securing its economic system. The USA has not only special laws to deal with domestic commercial bribes but also the Foreign Corrupt Practice Act to prevent the US companies’ bribery in the foreign countries.

More than Legislation

Fortunately, the Chinese government has already realized the frequent bribery cases of multinationals are related with the lack of the special law and made some modifications.

On February 25, 2011, the National People’s Congress passed the modified Criminal Law of the PRC, in which the clauses about foreign bribery are included. The details are as follows:

According to the 146^th clause of the Criminal Law, anyone giving the other organizations or individuals cashes or commodities to earn illegal profits shall be sentenced to three-year imprisonment. If the bribery is large in amount, he/she shall be sentenced to three-to-ten-year imprisonment and all his/her illegal profits shall be confiscated.

The sub-clause, which is newly added, highlights that the clause can apply those who bribe the foreign government officials and enterprises as well.

The new content of the 146^th clause of the Criminal Law targets the overseas bribery. This is the first time that China defines the overseas bribery as a criminal offense.

Liu Yunlei said that the legislation is a milestone for China to beat the multinationals’ bribery in China. But whether this clause can work or not depend on the enforcement of the law. “The legislation department has finished its job. Now it is time for the law enforcement department to act according to the new rule. Actually, the legislation is just a start. Whether China could extinguish the bribery of foreign firms depend on will and ability of its law enforcement department, as well as whether China is willing to cooperate with foreign countries and international organizations,” said Liu Yunlei.

According to Jiang Yuan, a professor of law in People’s University, though previously there were no special laws against multinationals’ bribery in China, the Chinese law enforcement can still restrain this activity according to the clauses in the Anti-unfair Competition Law and Corporate Law.

However, China did not take actions against multinationals’ bribery. The law enforcement department only punished the government officials or executives of state-owned enterprises who accepted the bribes and “forgave” these foreign companies that offer the bribes. Zhang Jingli, former deputy director of the State Food and Drug Administration, was arrested and sent behind the bar for accepting bribes from Johnson & Johnson. But the Johnson & Johnson escaped from the punishment. It was not fined and its business in China remains unaffected.

In 2009, China launched an investigation into the bribery of Rio Tinto China’s employees. This is the first and only case that China openly investigated a foreign company’s bribery. However, only the employees of Rio Tinto that accepted bribes were punished while those who offered bribed were free of investigation and punishment. Some experts said that the investigation stated at the “superficial level” and only happened because Rio Tinto was going to increase the iron ore prices for China’s steel companies at that time. “It was more like revenge than punishment,” said a lawyer.

“China still needs to do a lot of things to get rid of the foreign firm’s bribery case,” said Liu Yunlei. “We should change our minds and stop considering the multinationals as ‘nobles that cannot be touched by law’. We have already canceled the super national treatment for foreign companies in taxation. Why can’t we treat them fairly in law and punish their illegal activities?”