China has a message for Western companies: corruption does not pay
Nicholas Leong says awareness of shifting regulations and due compliance are the safeguards for foreign firms, as they seek to do business in China while avoiding double jeopardy blows like that at GSK
Last month, a court in Lanzhou city jailed and fined six Nestlé employees, after a years-long investigation into bribery allegations surrounding sales of baby formula. In 2013, Reuters found that Nestlé’s staff regularly bribed hospital staff in China to exclusively supply its milk formula to newborns. That practice ran afoul of a 1995 law that bars health practitioners from promoting formula over breastfeeding. It also contravened global guidelines of the World Health Organisation.
Other Western mainstays in China punished over corruption allegations in recent years include household names IBM, Daimler and Pfizer, as well as Avon and Morgan Stanley. The hefty penalties imposed send a message to the West: Chinese consumers are not to be pushed around, and Western companies run grave risks by resorting to underhand means to compete.
China’s ongoing crackdown on corruption is not confined to the venality of local government officials. Foreign companies have been and still are engaging in corrupt practices in China.
Nurses tend to newborns at a hospital in Lanzhou, Gansu. A court in Lanzhou jailed and fined Nestle workers after a prolonged bribery investigation related to sales of baby formula. Photo: Xinhua
The hardening regulatory environment follows a global drive to root out corporate malfeasance that is normalising double jeopardy rules. Indeed, corrupt practices in China are no longer punished exclusively in China. Given their transnational nature, companies are typically subject to the Foreign Corrupt Practices Act (FCPA), a piece of US federal legislation that criminalises attempts by companies (and executives) that do business in or with the US to use corruption as a tool to influence foreign officials. The act allows for firms connected in any way to the US to be fined and their executives jailed, regardless of whether the companies or executives were physically present on US territory.
Transnational firms are thus required to be aware of the laws of other jurisdictions where they have business interests, to avoid falling afoul of the law in two or more jurisdictions for the same acts. One company punished twice under Chinese and US anti-corruption regimes was GlaxoSmithKline: the London-based pharmaceuticals company paid US$489 million to Chinese and US$20 million to US regulatory authorities over claims it bribed Chinese hospital executives, doctors and government officials. The key difference was that the Chinese found GSK guilty, while the Americans agreed to a deferred prosecution agreement to cease the investigation without GSK admitting guilt. As such, the case highlighted limitations on the act’s ability to deter corruption in China.
A video feed of the trial of British investigator Peter Humphrey, linked to pharmaceutical giant GSK, is broadcast to journalists at the Shanghai Intermediate Court in August 2014. Humphrey received a two-year jail term for trafficking personal data, but was released the following June and deported. Photo: AFP
