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Bribery in China – 10 lessons from recent cases

Written by Robert Barrington on Wednesday, 31 July 2013

In the past few days, we have seen two high-profile corruption stories emanating from China – the allegations against GlaxoSmithKline (GSK) and the indictment of high-profile regional governor Bo Xilai. What should we make of them?

In the past few days, we have seen two high-profile corruption stories emanating from China – the allegations against GlaxoSmithKline (GSK) and the indictment of high-profile regional governor Bo Xilai. What should we make of them? Perhaps the first thing to note is that information about these specific cases is scarce and will continue to be so. When Transparency International launched its Global Corruption Barometer – an opinion survey of citizens – on July 9th China was not included because none of the polling companies we approached felt able to collect the data. There are things we simply do not know about corruption in China. Trials are held in secret. The media are tightly controlled. Individuals and companies are intimidated into silence. This is not to say that information is entirely unavailable. In fact, a great deal has been written about corruption in China in the past few days – but compared to other countries there may be an unusual reliance on anecdotal and informal evidence.

Given the importance of the Chinese market to overseas companies, some very important questions emerge from these recent cases, and two in particular:

  • Is it possible to do resources-resources-business in China without contravening the UK Bribery Act?
  • Is the Chinese government serious about tackling corruption?

The impact of corruption
Before addressing those we should focus on the real issue, or at least the issue of most importance to TI. That is the damage that corruption does to the lives of ordinary people. In these two most recent cases, there has been corruption in the police, in local government, in land confiscation and in corruption-resources-corruption-resources-healthcare, all of which touch the lives of ordinary citizens. Corruption in corruption-resources-corruption-resources-healthcare is particularly pernicious. It means people being denied access to services they desperately need – whether a place in hospital for a difficult birth, or treatment for a serious condition – unless they can afford to pay.

If anyone doubts the devastating effects of small bribes, or facilitation payments, on the lives of ordinary people, they need look no further than corruption in corruption-resources-corruption-resources-healthcare. Beyond access and treatment times, there are a host of issues related to drugs and prescriptions: for instance, wrong drugs being deliberately prescribed because of the profits they bring to the medical staff, or prescription of entirely unnecessary, and costly, drugs. In short, people who need help from the corruption-resources-corruption-resources-healthcare system find their corruption-resources-corruption-resources-health gets worse not better. And the result for some people, perhaps many, is death.

And so to those two questions.

China and the Bribery Act
Nobody doubts that there are parts of the world – whether it be India, Russia, China or elsewhere – in which it is difficult to do resources-resources-business without facing demands for bribes. Those who have always disliked the Bribery Act cynically state that unless they pay bribes, British companies will be disadvantaged, as everyone else pays bribes – it will not be a ‘level playing field’. Such arguments have always assumed that local enforcement would be weak or non-existent. What is interesting about the GSK case, and as we saw previously in the prosecution of Rio Tinto employees in China, is the reminder that local laws matter as well. Apart from the over-riding ethical case for not paying bribes, this should be enough to convince companies that paying bribes in China is not sensible. In fact, blaming the Bribery Act is a lazy and parochial response that shows a lack of awareness about the global trend in corruption legislation and enforcement.

Does that therefore mean that British companies cannot operate in what many consider to be the world’s most exciting market? No – it means that to operate there they must follow some important principles.

First, if you really are certain you will have to pay bribes, don’t do it. That may mean not operating in certain areas of the market or geographical regions. It is unlikely to mean withdrawing from the country entirely, particularly a country as large and diverse as China. In the case of corruption-resources-corruption-resources-healthcare, for example, it may mean that some hospitals or cities are off limits. In a market that is trying to clean itself up, and where penalties for transgression are great, it is far better to suffer such a short-term restriction if in the long-term you are seen as a trustworthy company that will be a worthy partner in a cleaned-up system. This point was well made in the FT this week by Lord Marland the UK trade envoy.

Secondly, do a proper risk assessment to find out how likely you are to be able to operate without paying bribes (see our recently-published guidance Diagnosing Bribery Risk). Given the amount that journalists have discovered in the past few days about corruption-resources-corruption-resources-healthcare corruption in China it would be astonishing if a corporate risk assessment could not do the same.

Thirdly, having seen where the risks lie, work out how to avoid them. That is usually possible, though it may take time, effort and creativity. Fourthly, make sure your procedures work – genuinely designed to ensure zero tolerance, rather than tacitly allowing bribery to continue. Is this all sounding familiar? It should be – it follows most standard guidance to the Bribery Act (including that of the Ministry of Justice and TI). Finally blow the whistle on competitors who cheat. That would really help to create the level playing field.

Underlying all of this must be a nagging sense of doubt for any big company. Despite the recent ramp-up in resources dedicated to compliance, is it always doomed to fail? Does even the best-intentioned procedure quickly degenerate into a box-ticking approach that adds cost but not value? It is very possible that one fall-out from the GSK case will be the sense that we need to move to a second generation of compliance – one that more genuinely addresses culture, leadership, incentives and ethical decision-making than we have hitherto seen.

Ultimately, however hard a company tries, there is always the possibility that some employees will break their company’s rules – whether through personal greed, or because they have been set unrealistic performance targets, or because they operate in a market in which bribery is common, and they don’t know how to avoid it. Indeed, many commentators feel that global companies, with thousands of employees in high-risk markets, are almost certainly involved in bribery somewhere in the world. In such circumstances, they need to be able to demonstrate whether these are genuinely rogue employees as opposed to employees tacitly encouraged by a company that should know what is happening; and a model response when caught.

A model response – in China or elsewhere – looks something like this: have a pre-determined response plan, and don’t take short-cuts when disaster strikes; admit when things have gone wrong; don’t try to blame rogue employees if the company’s culture, incentives or systems are also at fault; cooperate fully with investigators; punish all those involved, up to board level if necessary; use the disaster as an opportunity to spot the flaws in your anti-corruption system; make sure the system is improved; and be as transparent as possible throughout this process.

China’s approach to tackling corruption
The mood music from China has had a distinctly anti-corruption feel to it recently. Both the outgoing President, Hu Jintao, and the incoming President, Xi Jiping, announced that it was one of the country’s key priorities at the end of last year. But that rang a bit hollow following the New York Times story about the accumulated family billions of Wen Jibao another top figure in the Communist Party.

In a society where corruption data are scarce, at least two indicators give grounds for optimism that over the long term China will tackle its corruption problem. First, there has undoubtedly been an increase in anti-corruption rhetoric and high-profile anti-corruption activity from the government. Secondly, citizens are clearly uneasy about corruption, as it makes their lives more difficult while they see the corrupt prospering. In the light of citizen unrest against corruption the world over – from Russia and Brazil to North Africa – the Chinese government is likely to pay heed.

Chinese cynicism
So we can make the case that it is in China’s self-interest to tackle corruption, and its leaders will see the need to do so. But there is also a lingering doubt. Not just about the real political will, or the ability of even the Communist Party to bring about change. Recently, a very senior figure in East African politics told me that when talking about corruption in Africa ‘China is the elephant in the room’. In his view, the actions of Chinese companies and the Chinese government in Africa are fuelling corruption, in a bid to win contracts and gain political influence – and forums like G8 and the G20 politely ignore this when discussing African development. This is a familiar story with regard to China and Africa, but it severely undermines the credibility of the Chinese leadership’s statements about tackling corruption. And if the Chinese government is really intending to tackle corruption within China, it is a particularly cynical approach to trade to talk about the damage of corruption-resources-corruption-resources-healthcare corruption at home while exporting it abroad.

There is a further suspicion of Chinese cynicism. Press stories about GSK have been quick to link the corruption allegations to stories about the Chinese government wanting the company to reduce its drug prices. Just as the Rio Tinto investigation was launched in the midst of a delicate negotiation on iron ore pricing. It is hard to escape the observation that corruption allegations can be used as a political weapon.

Where next?
There is nothing easier than to re-iterate a message of zero tolerance for corruption and that a company caught paying bribes must be punished. And indeed, if a company has been paying bribes, particularly in a market where risks are obviously high and the damage to human corruption-resources-corruption-resources-health is severe, it should be punished. But there are also shades of grey. Occasionally, the company is itself a victim, of a fraud perpetrated by its own employees. Sometimes the top brass really feel they have done their best and are genuinely surprised when corruption is found in a far-flung post of the empire. Even when a company has behaved corruptly, the majority of employees will be decent people doing their jobs in a legal way. A company in the position that GSK finds itself will have many questions to answer – not just about its systems, but about what it should have known and what it did actually know, and how decisions were taken, and when alarm bells did or did not ring. What is damaging about such cases is not just the increasingly large fines, but that answering these questions and acting on the answers will take many years – a huge management distraction to go alongside the media spotlight, the loss of trust by regulators, and the need to be more risk-averse in future.

So how can other companies avoid this? Already some lessons are emerging. Here are my top ten lessons from the recent China cases:

1. Make sure that identifying and mitigating corruption risk is seen as a high priority – especially if you operate in a high-risk market, even though it represents a small proportion of your revenues.
2. Gather proper information about high-risk markets – just look at what has come out about corruption-resources-corruption-resources-healthcare in China over the past ten days. There is a wealth of information in the public domain if you know where to look. Up-front investment in local knowledge is a worthwhile investment. The ways in which bribes are paid varies by market. Your risk assessment should try to capture this variety.
3. Don’t be tempted – if you know you will have to pay a bribe, it’s not worth it. Find some other way. There usually is one. But assume some of your employees might be tempted – try to prevent it and make sure you check.
4. Remember the danger of passive bribery – that your companies or employees may be the recipients of bribes, not simply paying bribes.
5. It’s not just about the Bribery Act. Remember local law and that enforcement action is being stepped up worldwide.
6. Blow the whistle. If it’s not a level playing field because your competitors pay bribes, tell the authorities in the UK, US or host country.
7. Prepare for a model response if you are caught.
8. Think about what second generation compliance might mean to your company – moving employees beyond box-ticking to a real anti-corruption culture.
9. Try to be part of the solution not the problem. Position your company to be part of the fight against corruption – publicly supporting laws like the Bribery Act, speaking out against corruption in your sector, making it known when you have had to lose resources-resources-business due to your ethical principles, etc. That makes the ‘rogue employees’ defence much more plausible.
10. Don’t pay bribes. It’s simple. It’s simplistic. But it can never be repeated often enough.

Note: GlaxoSmithKline is a member of TI-UK’s Business Integrity Forum. TI-UK’s procedure for responding to allegations or cases against members can be found here


Read 28205 times Last modified on Tuesday, 24 November 2015 11:47

Robert Barrington

Robert is TI-UK's Executive Director. You can view his full bio here, and tweet him @TIukED.

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