What Blocks the Enforcement of Chinese Foreign Anti-Bribery Law?
Alvis Xiong
Introduction
In 1977, U.S. Congress enacted the Foreign Corrupt Practices Act of 1977 (FCPA), the first law specifically targeting at extraterritorial briberies to foreign public officials. Likewise, in 2011, China enacted a foreign anti-bribery provision, Criminal Law Article 164(2), which forbids “giving foreign public officials or international organization’s officials assets and properties in order to make improper business benefits.” However, although China did not totally ignore the provision, it is not substantially enforced.
The Chinese government did not totally ignore this enactment. For example, the Chinese Supreme Procuratorate once demonstrated interest to set rules about foreign anti-bribery.[1] Some huge SOEs (State Owned Enterprises) also set compliance programs for overseas branches. The measures include setting the standard for gift and expense reimbursement and hiring compliance officials in Pakistan in charge of supervising supplies purchasing.[2] Although these compliance methods were helpful to decrease foreign bribery acts, they are mostly targeted to protect Chinese public assets rather than deter foreign bribery acts. This means if your bribery helps the SOE business, it will not be taken seriously. Besides, there is no one case reported to criminally punish a corporation or an individual according to the 2011 provision, even though the Chinese corporations’ overseas bribery acts are usual. One report shows that in five of eight countries surveyed, 60%-87% Chinese firms admitted they once paid bribery to obtain a license in Africa.[3] If a criminal provision was not ever used (at least no criminal case was ever reported), it is fair to say that Chinese foreign anti-bribery law has not been substantially enforced.
The failure of Chinese foreign anti-bribery law enforcement raises a question: what blocks the enforcement? It is reasonable to imagine that overseas anti-bribery enforcement would benefit the Chinese government.[4] If a reasonable government did not do beneficial things, there must be some reasons and we need to understand the logic behind the inaction. This article attempts to figure out what blocks the Chinese government to enforce foreign anti-bribery law.
My analysis has three parts: political interests, economic interests and lack of enforcement method. The analysis on potential economic and political side-effects of a substantial enforcement action reveals what considerations decreases the government’s motivation to enforce the law, while the analysis on available mechanisms of CHina shows that even though China determines to substantially enforce the provision, the task is practically difficult.
Political Interests
Allocating resources to enforce a law overseas is a political choice. A political choice must balance political benefits and losses. This part would argue that the substantial enforcement of the anti-bribery provision might enhance the domestic people and the international society’s confidence in a rule-by-law society. However, the potential political losses, like diplomatic disputes, would decrease the Chinese government’s motivation to enforce the law.
Political Benefits
Firstly, the enforcement of such a law would help “promote a culture of corporate integrity at home.”[5] The enforcement would give a signal to the domestic people that the government is carrying out the rule of law principle: the law is passed by the legislation, the government has the duty to enforce it, so no overseas bribery will be tolerated and substantial measures must be taken. Similar logic lays on the motivation of the U.S. to enact the FCPA, which was proposed and enacted to increase the public’s sense of morality and people’s confidence in the government after the Watergate event and overseas bribery scandals of oil companies or defense contractors.[6] Accordingly, the Chinese government would also acquire moral legitimacy and increase the domestic culture of integrity and honesty by enforcing the overseas anti-bribery law.
Secondly, the enforcement would help enhance the confidence of foreign countries and improve China’s public image in international society. Today China is like the U.S. in 1970s. China is now in “trade war” with the U.S. while the U.S. was in cold war with the Soviet Union. China is eager to improve the international image to gain other nations’ supports like the U.S.’s wiliness to gain international support in the cold war period. The FCPA was enacted in this situation because the U.S. hoped to get rid of negative effect from overseas bribery scandals.[7] Similarly, China is facing doubt of its corporations’ integrity in Africa while the outward investment has increased a lot. Substantial enforcement of the foreign anti-bribery law would send the message that China takes the corporations’ bad behavior seriously and is taking measures to solve problems, which would help China gain trust and confidence from the invested countries and the whole international society.
Political Loss
However, although these political benefits look good, they are neither prioritized nor cheap. As a developing country faced with countless social problems, overseas anti-bribery law enforcement would not be the best way to enhance people’s confidence in the government. As for the international society’s confidence in the Chinese government, other political costs must be considered.
For the domestic integrity and people’s confidence in the government, before the domestic corruption is basically struck down and well solved, the enforcement overseas will not improve the domestic people’s trust and belief in the rule of law. After all, if the people are faced with bad administration, hard living conditions and ubiquitous corruption within the territory, who cares how honest the overseas corporations are?
For the international influence, even though the enforcement will indeed add the foreign countries confidence and benefit the Chinese government and corporations, the political cost is not low.
Firstly, Beijing would not hope other developing countries to regard China as one who likes to enforce its own laws on other countries’ territories. However, the enforcement of anti-corruption will establish this image. The definition of “corruption” and whether an act falls into it is controversial. In the UN convention against corruption, “corruption” is even not expressly defined. When deciding that a Chinese corporation gives bribery, there must be a foreign official who has claimed to have accepted the bribery or at least, be regarded as the goal of the bribery. Considering that most cases were found after the bribery happened, the enforcement would force the Chinese government to claim that some nation’s leaders accept Chinese corporation’s corruptive gifts. This will sometimes cause other governments’ denial of the bribery, and they might claim that the Chinese government interferes in other countries’ internal affairs. Although China could argue that “reducing the bribery is not an activity that interferes the internal affairs”, it is worth noting that Chinese government is afraid that such blame. The disputes with other nations constitute one potential political cost of enforcing the foreign anti-bribery law.
Secondly, the exposure of briberies (many of them are from SOE officials) in newspapers might harm the public confidence of the Chinese government. Although the enforcement could show that Chinese government takes the law and the bribery issues seriously, at least at the initial period, the people from both domestic and international society will see news about Chinese corporations being convicted to bribe foreign public officials. Furthermore, many overseas corporations are SOEs, and SOEs are usually regarded as part of the government so people would have an image of Chinese officials give briberies. Therefore, the Chinese government would think the benefits of enforcement is dubious and the enforcement might even harm its reputation.
Conclusion
The substantial enforcement of foreign anti-bribery law has potential political interests, including enhancing domestic and international society’s confidence on the Chinese government and corporations. However, enforcing the law might lead to disputes with the countries in which bribery happens, and the government would fear that exposure of briberies might harm the public reputation of the Chinese government and corporations. At the same time, the Chinese government has much more politically beneficial work to do, including dealing with domestic corruption issue. Therefore, China has reasons not to enforce the foreign anti-bribery law.
Economic Interests
The decision maker will consider the economic implementations of the enforcement. The close economic relationship between Chinese government and the corporations, brought by Chinese state-owned system, make the law nearly impossible to enforce.
The government will care much about the economic loss of the punished corporations. For China, the enforcement targets are mostly huge SOEs, whose assets are directly owned by the government, or huge private corporations which acquired a lot of financial support from the state-owned banks. Unlike the U.S.’s enforcement of the FCPA, where the U.S. DOJ does not have much motivation to care for the economic interests of the corporations, Chinese government will be very reluctant to punish its owned SOEs. If the government punishes the SOEs, the penalty is directly made on the government-owned assets. Besides, the overseas corporations, especially the SOEs, are usually making investment according to the government’s policy like the One Belt One Road Initiative. The enforcement would likely lead to business failure or other collateral consequences like the loss of state-owned bank’s assets and the impairment of the Chinese government’s overseas plan or policy. Therefore, it is the government that took the loss and this economic consideration will block the government to substantially enforce the anti-bribery law.
Conclusion
Chinese state-owned system makes the government very reluctant and cautious to take seriously foreign anti-bribery enforcement.
Lack of Effective Enforcement Mechanism
Even though the Chinese government prioritizes the enforcement, its traditional anti-corruption and criminal investigation mechanism is not fit for the overseas enforcement task, and it is not easy to establish a more feasible mechanism in a foreseeable future.
Chinese Present Anti-Corruption Mechanism
First of all, we need to figure out the present mechanism. Chinse traditional anti-corruption mechanism has two characteristics: 1) territorial jurisdiction and 2) top-down inspection and supervision, and it is not fit for overseas anti-bribery enforcement.
Traditionally, China has a territorial jurisdiction for anti-corruption investigation. The National Supervisory Commission (NSC) and Discipline Inspection Commission (DIC) would be responsible for investigating corruptive acts in their legal territorial jurisdiction. For a SOE, the corporation and its public officials are supervised by a government of some level. Its anti-corruption crimes are within the jurisdiction of the government’s peer NSC and DIC. Take a recent news for example, the DIC of Haikou City, Hainan Province started investigating the Haikou’s Gas Corporation, a SOE subordinated to the Haikou government.[8] For a private corporation, if it tries to bribe a public official, the corresponding DIC has jurisdiction. If it tries to bribe a non-public manager, the police with territorial jurisdiction would interfere. To conclude, for both SOEs and private corporations, the anti-corruption investigation mechanism is of territorial jurisdiction.
In addition, the anti-corruption mechanism highly relies on top-down inspection methods. For a huge SOE, since the inner DIC is subordinated to the peer Commission of the Party, the inner DIC lacks the ability to deal with corruption of the corporation level. Since 2013, the Central Committee of the Communist Party of China sent Central Leading Groups for Inspection Work for inspecting provincial government and huge SOEs.[9] These groups are sent directly by the central government to inspect regional government and SOE’s corruption problems. Even for the SOEs’ overseas branches, similar groups were sent out. For example, in 2017 the DIC of the First Automobile Works Group Corporation (a huge SOE) sent to its European branches a team to audit the accounting books and interviewed employees to find out corruptive acts.[10]
The Unfeasibility of the Present Mechanism
Chinese anti-corruption mechanism lacks a centralized agency and flexible methods, which makes an effective foreign anti-bribery enforcement impossible.
To begin with, overseas enforcement requires a subject jurisdiction, which means a centralized organization instead of multiple regional agencies should take the responsibility. However, China only has a territorial jurisdiction system which cannot cope with the challenges by the overseas environment. Firstly, the corporation’s conducted bribery acts overseas and the local agency cannot put enough resources into this kind of crime. The local agencies lack experience, professionality and personnel to deal with crimes happening outside China. Besides, it is necessary to unify the enforcement standard. The enforcement targets are usually national corporations, and usually several local agencies have territorial jurisdiction. But if those local agencies all pursue after the corporation, a settlement would be hard to achieve. Without a settlement mechanism, a corporation would lack basic motivation to self-report, making the enforcement almost impossible. Therefore, the unified standard and centralized enforcement power makes it necessary to have a central agency responsible for the overseas enforcement. In fact, the U.S.’s enforcement of the FCPA, which is the most successful and substantial foreign anti-bribery enforcement in the world, is mostly in charge of the Department of Justice.
Secondly, the characteristics of bribery crime, plus the fact that the acts happen overseas, mean any top-down inspection, survey and enforcement activities are expensive and time-consuming. In a bribery crime, the involving parties in bribery would not disclose the crime by themselves and might hide the crime trails by modifying the accounting record. The corporation also lacks the inner motivation to disclose such a crime to the Chinese government. As discussed, traditionally the Chinese government would send inspecting groups. However, if the bribery is conducted overseas, any inspection groups would be costly. Considering the low standard of the Chinese accounting system, it is very hard for the Chinese government to find and investigate overseas bribery by a top-down inspection mechanism. Therefore, the traditional inspecting groups will fail to serve a regular mechanism.
Finally, I would argue that it is also hard to change the present mechanism and establish a more feasible way in a foreseeable future. From the successful experience of the FCPA enforcement, a whistleblower system, a settlement and corporation self-disclosure mechanism, and a workable accounting system are necessary. The whistleblower system and a settlement mechanism for the corporation to gain benefits from self-disclosure would help the government find the bribery acts. The settlement mechanism also would motivate the corporations to cooperate with the investigation, thus highly reducing the cost of enforcement. The accounting system would allow the supervision of corporate acts possible. However, China lacks the environment to establish such systems. First, China has no tradition of awarding the whistleblower with a substantial amount of money. Second, it is hard for the public to accept the idea that a government agency could settle with a company about a criminal act. Even a recent settlement procedure about exchange market improper behavior is highly controversial.[11] Third, China always lacks a responsible, transparent and efficient accounting system. Therefore, it hard to require China to make changes to specifically deal with the overseas bribery acts.
Conclusion
Although the 2011 foreign anti-bribery law was not totally ignored, China took no measures to substantially enforce this law. This article analyzes the potential factors that block the enforcement from political, economical and practical perspectives. This article argues, politically, although the enforcement might enhance domestic and international confidence and trust to the Chinese government, the potential diplomatic disputes and bribery scandals block the government’s motivation. From economic perspective, the public owned system of China led to the government and corporations’ close economic relationship, which blocks the government to take hard enforcement acts towards those corporations. Furthermore, in practical level, the lack of effective methods block the enforcement of Chinese oversea anti-bribery law. By analyzing the obstacles and situations that Chinese government faces, we could more objectively analyze Chinese government’s acts and present more practical policy suggestions.
Citations:
[1] “Procuratorate Promoted the Work of a Judicial Interpretation of Bribery Committed to Foreign Public Officials,” URL: http://www.chinanews.com/fz/2011/10-23/3407753.shtml
[2] “Double Insurance and Set up a ‘Compliance Officer’… Central SOEs Try to Prevent Overseas Integrity Risks,” URL: http://www.moj.gov.cn/news/content/2018-09/13/460_39807.html
[3] “McKinsey Report: Dance of the Lions and Dragons”, June 2017, at 15.
[4] John Tso, “It’s Time for China to Show its Foreign Bribery Law Is Not a Paper Tiger,” Global Anticorruption Blog (May 14, 2018).
[5] Id.
[6] “How the Foreign Corrupt Practices Act Came to Be,” URL: https://www.corporatecomplianceinsights.com/foreign-corrupt-practices-act-came/
[7] Id.
[8] “State-Owned Enterprise Executives Are Investigated for Violation of Law and Discipline: Buy Two College Degrees for Themselves,” URL: https://finance.sina.com.cn/chanjing/gsnews/2019-06-25/doc-ihytcerk9078308.shtml
[9] “Wikipedia: Central Leading Group for Inspection Work”, URL: https://en.wikipedia.org/wiki/Central_Leading_Group_for_Inspection_Work
[10] “Is the Supervision of Overseas Institutions ‘Unprecedented?’ Conduct Special Inspections And Inspections!” URL: http://www.moj.gov.cn/news/content/2018-09/13/460_39790.html
[11] “The New Rules of Securities Administrative Reconciliation Were Attacked by Lawyers,” URL: http://gudong.pro/page/atricle?aid=3089
