Mistake #3- Corruption
Western business people doing business in China sometimes take an almost perverse pride in discussing payoffs to government officials. Many regard this as a symbol of their sophisticated knowledge of the Chinese bureaucracy.
Our advice regarding corruption is don’t do it, under any circumstances. There are many good reasons for saying no to bribery.
The main one of course is that it is illegal. Under the U.S. Foreign Corrupt Practices Act (FCPA), it is a criminal act for an American company to obtain business through bribery. FCPA applies only to payments, directly or indirectly, to government officials. It is worth noting that in China many large companies are owned by the state, therefore its senior executives may very likely fall under FCPA’s definition of “government officials”. This unique phenomenon significantly increases the chance of a “business” payment violating FCPA. The FCPA’s anti-bribery provisions make it unlawful for any issuer, domestic concern or person acting within the United States to offer or make a payment of anything of value directly or indirectly to a foreign official, international organization official, political party or party official, or any candidate for public office, for the purpose of influencing that official to assist in obtaining or retaining business (15 U.S.C. §§78dd-1 to -3). A covered company can be held liable for payments made on its behalf by agents or distributors. The biggest mistake is to underestimate the likelihood of your getting caught.
Another incentive to keep out of the quagmire of bribery is that a foreign investor is more likely to be a target of anti-corruption investigation should the government receive an “anonymous” tip or complaint from local entities. This often put you at the mercy of your Chinese partners or in a worse case, competitors. In recent years, Chinese government has strengthen its resolve and stepped up enforcements in the war against corruption. A number of high profile cases involving officials at the highest level of government have been successfully prosecuted and punishments swiftly carried out – including the former party boss of Beijing– Mr Chen Xitong (a member of the Politburo), a vice Chairman of the National People’s Congress—Mr Cheng Kejie, and most recently, party boss of Shanghai—Mr Chen Liangyu (also a member of the Politburo), whose case is still in investigation phase.
If this is not yet compelling enough to dissuade you, think in a positive fashion—taking a hard stand against corruption in what people think as a corruption warm bed can be a winning strategy to differentiate you or your company, not only to the government, but to your customers and partners. As an emerging economic super power, China’s corporations have just started to expand their collective influences overseas and every one of them harbors the ambition of becoming the next GE and IBM. If you maintain your integrity and refuse to play the dirty game of corruption, while you will lose some short term opportunities, in the long run you will begin to attract those world-class in-waiting customers and partners. Wal-mart is one good example of a foreign corporation which has been highly regarded and well accepted by its Chinese partners, customers, suppliers and the local government as a result of taking this approach.
Take-away lessons: 1) do not bribe government officials; 2) make it very clear to everyone who works for you in any capacity (employee, independent contractor, agent, etc.) that you will not tolerate the practice of bribery; and 3) include these rules in all relevant contracts (employment, sales, supply, joint venture, etc.).
