China anti-corruption law 'broader in scope than FCPA'

A record number of cross-border deals in China last year, by foreign companies using FCPA compliance, has provided a boost in trust for international buyers...

HONG KONG - 18. März 2015.
The unprecedented Merger and Acquisition buying spree of 201 foreign deals in China last year - up 20 on the previous year - increased in value by nearly 80% to $38bn year-on-year, according to Mergermarket.

The growth has fuelled a surge in Foreign Corrupt Practice Act (FCPA) compliance, the most-actively enforced anti-bribery law globally, to make it a top priority for foreign companies doing business in China. Kate Yin, a Beijing-based compliance lawyer with Fangda Partners - who recently produced a report on commercial bribery - says, as such, China’s anti-corruption laws are now actually broader in scope than the FCPA.

Aggressive anti-bribery enforcement by Chinese regulators has also added to the urgency for investors to uncover all anomalies within a target before closing a deal, she adds.

Her report additionally urges foreign companies investing in food and consumer goods to strengthen compliance, so as to fit with the country's ever-changing enforcement of anti-corruption laws.

Buyer beware

Pre-purchase due diligence is a process that now lasts up to half a year in China, where corruption risks have always been high.

This has lead foreign buyers to conduct ever-more forensic scrutiny of M&A targets there, utilising tried and tested anti-corruption compliance to avoid committing or buying into violations.

US FCPA rules, used as a litmus test during the due diligence process, go some way to guaranteeing fewer problems down the line for foreign firms buying into China, especially as Chinese authorities are looking ever-more closely at the activities of foreign businesses operating in their country.

The FCPA's rules are well-known for their stringency in such areas as successor liability, where buyers can be held liable for violations committed by the target company pre-acquisition.

This covers even minority stakes or asset purchases... One well-known case of an asset purchase deal gone wrong, as highlighted by the FCPA, involved KBR and Halliburton, leading the buyer to pay a fine of $400m in 2009 for bribes paid to Nigerian construction officials by the target.

Moving goalposts

Experts warn China is considering a tenfold increase in penalties under its Anti-Unfair Competition Law, which deals with commercial bribery.

Tabled additions to this law include forcing violators to pay over revenue in fines, as well as 'ill-gotten profits'.

The 2013 landmark GlaxoSmithCline case brought compliance with Chinese anti-bribery laws to the fore when it was found by China to have made payments to doctors to prescribe its own drugs, leading to a near $500m fine.

But detractors of Chinese commercial law argue it's complicated than compliance with the FCPA, because the country's enforcement record lacks consistency, while its statutes are open to interpretation.

Presswire

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