China’s fight against bribery and corruption
Walking the fine line of cultural courtesies and unethical behavior (as published in Marketwatch)
The tradition of gift-giving and “guanxi,” a term used for building a personal network of connections for mutual benefit, particularly in business, is culturally synonymous with doing business in China.
Unfortunately, this concept is often abused through bribery and unethical business practices that affect not only the corrupt executive/s but all the other stakeholders in the business.
Ethical practices in global businesses are in the spotlight in the wake of accusations that Wal-Mart Stores Inc. (US:WMT) used bribery to drive its expansion in Mexico, which then led to a widespread coverup. Read “Wal-Mart dogged by bribery allegations in Mexico.”
Stringent anti-bribery laws such as the U.S. Foreign Corrupt Practices Act (FCPA) and its U.K. counterpart, the U.K. Bribery Act 2010, which prohibit companies from paying bribes to foreign officials, are being enforced with criminal prosecution and heavy penalties for those indicted. Yet corruption scandals involving multinational companies are still grabbing headlines.
Last year China’s highest national agency, the Supreme People’s Procuratorate (SPP), investigated 25,000 bribery cases.
According to the SPP, the industries worst hit by corruption are urban construction, rural infrastructure, transport and railway projects. China’s Ministry of Commerce has recently affirmed that foreign-invested enterprises should strictly obey Chinese laws when engaging in business activity related to the country.
Among the ways that China is attempting to take a tougher stance on corruption is by opening access to its centralized database of bribery convictions. This measure, recently enacted by the SPP in partnership with other state anti-corruption agencies, allows for the public disclosure of a repository of individuals and companies convicted of bribery offenses.
As a result of the new access to the centralized databases of bribery convictions, businesses in these sectors now have the ability to check companies and/or individuals throughout all of mainland China that might have bribery convictions, eliminating the cumbersome task of checking individual provinces or regions.
Anyone discovered to be on the list will likely be disqualified for bidding on government projects. According to the SPP, more than 600,000 such inquiries were submitted in 2011. The national repository of bribery convictions will help overcome geographical limitations when investigating corruption cases and make the enormous number of public inquiries more convenient and, significantly, help to reduce and prevent bribery.
Companies expanding to China or hiring representatives in China must have a thorough insight into the legal landscape of Chinese anti-corruption laws which would determine the assessment of bribery risk, mitigation strategies and reactive measures if an issue were to arise.
Risk assessment for bribery and corruption
As companies explore global expansion, it is important to have a holistic approach toward prevention of bribery and corruption within the organization. Multinationals need to comply with regulations such as those in place in the U.S. and U.K., while some have already burnt their fingers with convictions and heavy penalties. Although bribery and corruption may be comparatively higher in certain developing nations, it is a global phenomenon and it is essential that you ensure that your organization is taking the necessary measures including implementing tight controls that comply with international anti-bribery policies.
A crucial element of building an effective anti-bribery compliance program involves a risk assessment for exposure to bribery, corruption and fraud within an environment where whistle blowing for genuine good cause is encouraged. A risk assessment typically involves conducting a “fault tree” type review.
This helps to identify the major corruption risks that the organization is exposed to in relation to the effectiveness of its current level of anti-corruption controls and compliance programs (e.g., internal audit) to establish if there are any loopholes or ambiguous elements that need to be closed off. It is also important to note that regulatory requirements change from time to time, as does a company’s business environment, thus emphasizing the need for keeping the anti-bribery and anti-corruption compliance program updated through regular risk assessments.
Why Tax Havens Are A Bad Idea?
The drive against the use of tax havens and the secrecy they allow has widened. The Organization for Economic Cooperation and Development (OECD) as a whole has launched initiatives against tax havens. Countries involved are:
Australia, New Zealand, Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, Canada, United States, Japan, Korea, Brazil, Mexico
Having a tax haven in one’s legal structure increases reporting requirements and the likelihood of tax audits. There are also likely to be increased withholding requirements on remittances to the tax havens.
Tax Haven In Your Legal Structure?
Evaluate links and transactions with tax payments.
Consider whether they really fulfill an industrial commercial or other financial need.
If the links or transactions merely avoid tax and have no other commercial reality, take immediate corrective action.
Co-founder, Nair & Co.
Posted: July 2010
The Great Depression—Or not?
Pain breeds innovation. When society experiences pain, innovators emerge with new ideas, concepts, policies, technologies and products focused on eradicating the pain and ensuring that it does not return. The end result: society recovers from the pain in form and fashion much stronger than at the pain’s inception. In other words, society evolves through pain and innovation.
Today’s economic crisis is causing a great deal of pain. Characterized by increasing levels of unemployment, downward spiraling currency valuations, increasing trade deficits, plummeting GDP growth and concerns about geopolitical stability, this pain is global. As the global media and world leaders attempt to identify the causes behind the foregoing, two words appear consistently: waste and greed. Consistent with historical precedence, as society grapples with this economic crisis new business trends and innovations are emerging in response to the crisis.
First, globalization is establishing itself as a mainstay in modern business practice. While “going global” has been en vogue since 2001, its early lack of widespread acceptance by small and medium size businesses hindered its recognition as anything more than an ephemeral trend. At the onset of this economic crisis, many critics argued that its global reach would cause many companies to contract global operations, thereby ending the trendiness of globalization. To date, however, the economic downturn appears to have galvanized globalization. While large corporations fight to maintain global operations in recognition of the value created thereby, many small and mid-size businesses appear to be expanding globally amidst the crisis as a cost effective means to increase bottom lines and maintain competitive standing. While globalization may have contributed to the widespread nature of the current economic crisis, society is betting that globalization will contribute to its recovery as well.
Second, sustainability is emerging as an integral component of any new initiative. New businesses, business processes and technologies are not considered viable unless decision makers conclude they are sustainable. Sustainability takes multiple meanings and forms. In the energy context, it means renewable and takes the form of biofuels, wind, solar, nuclear or hydro. In the urbanization context, it means long term growth/expansion with minimal social displacement and detrimental environmental consequences and takes the form of “green” development. In the general business context, it means recession proof and cost effectiveness and takes the form of Zappos, Wal-Mart and the multitude of other businesses thriving during this economic downturn. Society is unwilling to promote endeavors which may be compromised by a change in the wind’s direction.
Third, social utility and impact are becoming norms rather than anomalies. Ranging from new platforms fostering a stronger sense of community (e.g. Facebook, Twitter) to recent developments in alternative energy and healthcare, society’s sense of community appears to be growing stronger in response to the “community” wide economic crisis. It almost appears as though society realizes that at end of the day, “all we have is each other.” Through the promotion of socially utilitarian technologies and ventures, society is healing itself.
Innovation is the engine of society’s evolution. Accordingly, society should be the better for the economic downturn as a result of the innovation it inspired.
Nair & Co.
Posted: (June 2009)