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The Dangers of Engaging in Corrupt Practices

This page focuses on risks related to corruption; learn more about doing business in China:

Navigating the Chinese Business Environment

Common Frauds and Scams

Protecting your Intellectual Property

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Introduction

Companies doing business in China are more susceptible to certain risks including fraudulent reporting, misappropriation of assets and lack of management integrity. ‘Guanxi’ or ‘relationships’, are of particular importance in China; relationships with government bodies, investors, partners, and even with staff. ‘Guanxi’ is often an important factor in the vendor selection process as well as when a companyis engaging with agents, consultants and business partners. The importance of the establishment and maintenance of ‘guanxi’ in China increases the opportunity that corrupt practices will arise in the course of regular business affairs.

Corrupt Practices in China:

Situations where corrupt practices are likely to be encountered by foreign businesses in China include:

a. Corruption during the procurement process. Here are some red flags to be aware of during sourcing/procurement initiatives:

b. Official and commercial bribery required to get things done:

c. Agents, dealers, distributors who engage in bribery:

d. Internal fraud/embezzlement:

Overview of the Anti-Corruption Legal Frameworks:

In China

Since March 2013 the new Chinese leadership has executed a broad anti-corruption campaign, resulting in increased pressure and vigilance on the business practices of foreign companies in China. While the focus of domestic bribery prosecution in China had traditionally been on Chinese nationals accepting bribes, in 2011 China also criminalized foreign bribery under Article 163 of China’s Criminal Law. Many multinational companies have recently been implicated in accusations of corrupt practices under the new legal provisions.

Related offences include: conspiracy to bribe, attempting to bribe, aiding and abetting, counselling, an intention in common to bribe and possession of property or proceeds of property obtained or derived from bribery or laundering that property or those proceeds.

In Canada:

In 1998 Canada brought into force the Corruption of Foreign Public Officials Act (CFPOA), which implements our obligations under the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions. The CFPOA is thus Canada’s anti-corruption law, banning Canadian companies and their employees from bribing foreign officials to gain an advantage while doing business abroad. It helps to ensure that Canadian companies act in good faith and aims to create a level playing field for international business, consistent with the principles behind the OECD Convention.

In 2013, Canada strengthened the CFPOA through six new amendments:

1. The changes to the Act make it easier for the Canadian government to prosecute Canadian companies for bribery regardless of where the alleged crime took place. Previously, prosecutors needed to demonstrate a “real and substantial link” between Canadian territory and the crime. For example, if a Canadian subsidiary had bribed a foreign official using profits gained from operations in that country and no Canadians were involved or informed, the crime may not have fallen under the Act's jurisdiction.

2. This amendment will come into effect at a later date determined by Cabinet.

3. The Royal Canadian Mounted Police (RCMP) now has exclusive authority to lay charges under the Act.

4. All businesses can now be charged with bribery under the Act. Previously, only for profit businesses could be prosecuted under the legislation.

5. The maximum penalty for offences will increase from five years' imprisonment to 14 years.

6. The Act now includes an offence that prevents falsifying financial records to hide foreign bribery.

How to Protect Yourself:

Before (Prevention)

a. Due diligence is always a good idea!

The Trade Commissioner Service can help!

b. Conduct a thorough risk assessment. It is understandable that companies have limited resources for compliance efforts; an effective risk assessment will help you deploy those efforts effectively.

c. Develop a compliance plan. A good compliance plan ensures that employees must cooperate in corruption investigations and also acts as a deterrent.

During (Monitoring/Detection)

a. A monitored whistle-blower system is the most common method of detecting corruption and a good deterrent.

b. An investigation team could be put in place, which may also have the benefit of serving as a deterrent to potential wrongdoers.

After (Response)

Resources

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