Corruption in China is both a significant impediment to the country’s development and a highly complex issue in US-China business relations. In this installment of Link Up, Learn More, I interview International Lawyer, Foreign Corrupt Practices Act (FCPA) Specialist and Author, Richard L. Cassin, who has resided in Asia for nearly two decades. What are some of the unique challenges with FCPA compliance in China? How can expatriate professionals in China best adhere to guidelines set forth by the FCPA, given the cultural practice of guanxi? For Mr. Cassin’s answers to these questions and more, read on:

It was reported by Xinhua News Agency that over 880,000 officials in China were disciplined between 2003 and 2008 for corruption-related activities. This seems like an incredible number. In your view, how big of a problem is corruption in China and how is it playing into the overall development of the country?
I’m always somewhat skeptical with official statistics coming from China. The bureaucrats have a tendency to report figures that support the government/communist party. And, because there’s been an anti-corruption drive on for a few years now, lower-level officials may be producing statistics to show positive results. That said, however, corruption is still a huge challenge in China. Outright bribery is still common across all industries. But it’s not clear how much impact it’s having on development. Western investors have compliance programs and usually believe (sometimes incorrectly) that they can deal with the risks.

Tell me a little bit about some of the more prevalent forms of corruption in China. How do they differ from those in the US?
The biggest problem for Western investors is the expectation of favors. Chinese officials expect to be hosted at events, sponsored for overseas trips, and given gifts at certain times of the year. They don’t necessarily view those things as corruption, so there’s a culture clash with investors trying to comply with the FCPA.

In February, Garth Peterson was fired from his position with Morgan Stanley after being suspected of “under the table” activities in China. Is he an exception, or just unlucky? Are many expatriate professionals participating in corrupt activities in order to secure business deals?
Peterson hasn’t been charged with any crimes yet and he’s entitled to the presumption of innocence. But Morgan Stanley’s investigation of his activities, disclosure to the SEC, and discipline against Peterson indicate that there were serious problems in the company’s business practices. Assuming Peterson broke the rules and perhaps the law, he’s an exception. Most Western investors now know that if they violate the FCPA, they’ll probably get caught and punished. So they don’t do it. In Peterson’s case, there were stories for years that the Chinese themselves were unhappy with the way business was being done in the real estate segment in Shanghai. A number of communist party officials had been fired and some were punished. So it was only a matter of time for Peterson’s alleged activities to come to light.

What are some of the unique challenges with FCPA compliance in China?
The biggest challenge is changing the way Chinese employees think about compliance. It’s their country and culture, so they accept it as normal. But that culture — with its expectations of guanxi — can be inconsistent with the FCPA and effective compliance programs. So the conflict between the local culture and the employer’s requirements is something that local employees need help to understand. Then they have to be willing to adopt the Western approach.

How can expatriate professionals in China best adhere to compliance guidelines of the Foreign Corrupt Practices Act, given the cultural practice of guanxi?
There’s no easy way to answer the question. Some companies impose zero-tolerance approaches in China when it comes to gift-giving, entertainment, hosting, etc. But that can put companies, especially smaller ones, at a huge disadvantage. If you can’t even get meetings with potential customers, you can’t grow your business. Companies and their expat professionals are struggling with this all the time. That’s what keeps lawyers busy.

How can a fair playing field be created in US-China business relations?
The Chinese government doesn’t want China and Chinese businesses to be known as corrupt. So it’s putting pressure on everyone to clean up their practices at home and abroad. It doesn’t have an equivalent yet to the Foreign Corrupt Practices Act and doesn’t prosecute overseas bribery. But it does appear to be cooperating with U.S. agencies in anti-corruption enforcement involving Chinese businesses and officials. So things are moving in the right direction.

Some Chinese officials who have been accused of corruption have found safe havens in the US and more specifically, in California and New Jersey.  Is extradition and/or conviction a future possibility?
Other Chinese officials have been prosecuted for corruption — most recently in Nevada. The Chinese apparently supported the prosecution by sharing evidence and giving other assistance. So it’s possible they will start showing an interest in extradition. Anti-corruption enforcement does appear to be a priority.

The subject of corruption and FCPA compliance is a personal interest of mine that I am exploring professionally. What are some career options for others who are also interested in this area of study?
Private law practice, law enforcement, journalism, policy and public interest work through the U.N., OECD, national governments and other international organizations, anti-corruption NGOs, auditing, forensic accounting, private investigation work — all are making an impact.

Tell me a little bit about the topics and countries that you cover on your blog.
Thanks for asking. We talk about how the FCPA works and the best ways to comply with it. Current FCPA developments — indictments, enforcement actions of all types, DOJ practices, opinion releases, policy speeches — they’re all part of the discussion. We also cover how other countries are dealing (or not dealing) with public corruption. Finally, we like to remind ourselves how corruption effects people — both those who commit the crimes and their victims. After all, corruption isn’t a natural disaster. It’s a human act, with human consequences, often tragic.

The ‘Forbes Curse’ is a term coined for many of China’s new billionaires who end up in jail soon after appearing on the ‘Forbes Richest’ list. Some argue that the only reason they are persecuted is because their wealth is a threat to the power of the Central Government. What’s your opinion?
I’ve noticed the same pattern throughout Asia. Local people have told me it’s a characteristic of Asian culture — that it’s not a good idea to attract too much attention. It excites envy and jealousy and makes you a target. So although the phenomenon of the ‘Forbes Curse’ is noticeable in China, it’s not unique to China. And it may have as much to do with the culture as with the Chinese government.

In terms of corruption, what does the future of China look like? Do you believe that arrests will increase, or are we coming to the final stages of “killing the chicken to scare the monkeys?”
Compliance is a long walk in a single direction. China is just beginning the process of changing its culture. Let’s check back in five years or so and see how they’ve done. I wish them success.

You can learn more from Richard L. Cassin on The FCPA Blog and in his books, “Bribery Abroad: Lessons From the Foreign Corrupt Practices Act” and “Bribery Everywhere: Chronicles From the Foreign Corrupt Practices Act.”

Interviews china, corruption, FCPA, foreign corrupt practices act, guanxi, Law, Richard L. Cassin, under the table