Vivvienne Bath writes: The scope of China’s campaign against corruption has been broad, and has swept up officials and businessmen, as well as their assets, both inside and outside China. Foreign owned companies operating in China have also found themselves under official and public scrutiny.
A conviction for bribery or for other white-collar crimes such as embezzlement can result in a substantial penalty, including a lengthy period of imprisonment or even the death penalty.
In September 2014, for example, GSK China, a subsidiary of GlaxoSmithKline. was fined almost US$500 million by the Changsha Intermediate Court in Hunan Province after a one day trial for paying bribes to non-government personnel, while four of its employees were also convicted (although given suspended sentences).
The commitment of the current government to prosecuting corruption has proved to be unexpectedly far-reaching. It has also had a number of economic effects, particularly by reducing gift-giving and hitting the luxury goods market.
Changes to the judicial system are designed to reduce local protectionism by establishing divisional tribunals of the Supreme People’s Court and cross-jurisdictional tribunals; to improve judicial efficiency by establishing a civil service career structure and to discourage judges from avoiding potentially difficult issues by refusing to accept cases.
Does this mean the crackdown on corruption and the plans for judicial reform represent the commitment of Xi Jinping’s government to the implementation of the rule of law through a strong and independent legal and judicial system?
In relation to the reduction of corruption and the creation of a cleaner business environment, the answer to this is “probably not.” Although in January of this year, Xi Jinping ordered Party committees to enable judges and law enforcement departments to exercise their duties independently, he also emphasised the leadership of Party committees in judicial affairs and the importance of judges and procurators being loyal to the Party, the State and the people.
Despite the many improvements in the content of China’s laws and the quality of Chinese lawyers, judges and judicial system, the campaign against corruption, including decisions to investigate and prosecute corruption of officials and, in the case of officials, the entire investigation, is driven and run not by the police, the procuratorate and the courts, but by the leadership of the Communist Party.
In the case of foreign companies, there is a lack of transparency in the decision-making process relating to investigations which makes it easy to attribute political drivers to decisions to pursue foreign multinationals. This does not, however, reduce their potential legal liability.
Waiting until the trial to defend corruption charges would be a very risky strategy. After the verdict relating to GSK China was handed down, GlaxoSmithKline recognised its responsibility by taking steps to rectify the issues with its operations in China, by decoupling sales targets from compensation, reducing and changing engagement with doctors and expanding its control over invoices. Other foreign companies in China would do well to take the same precautions.
