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 - March 18, 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.


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