New tide of investigations likely after impending change to law against unfair competition
Investigations into commercial bribery are tipped to surge on the mainland once a change to its law against unfair competition kicks in and market supervisors are freed up from overseeing institutional reforms, according to a joint report.
“China is strengthening its anti-commercial-bribery measures with improved legislation and strengthened law enforcement,” Kate Yin, the main author of the report and a partner at mainland law firm Fangda Partners, said yesterday.
“We are likely to see a new tide of anti-commercial-bribery investigations next year once the amendment to the Anti-Unfair Competition Law is passed. A burst of law-enforcement measures usually follows a newly amended law.”
The “China Anti-Commercial Bribery Blue Paper” was jointly released by the China Institute of Corporate Legal Affairs and Fangda Partners, and based on a survey of 277 companies on the mainland in March and April.
China released a draft of the amended law, which covers business-related bribery, for public feedback in February. The present law came into force in 1993 and is widely seen as not keeping pace with changes in the market.
The draft stipulates that commercial bribery applies not only to sales and purchasing but also to gaining a competitive edge. It can also apply if the bribes are channelled through a third party or an agent.
Some analysts expect the changes to go through this year because of enthusiasm for it among policymakers.
Mainland authorities have pursued several high-profile bribery cases against companies in recent years. In 2014, a mainland court fined British pharmaceutical firm GlaxoSmithKline a record 3 billion yuan (HK$3.57 billion) for bribery.
The joint report said industries at highest risk of bribery were the pharmaceutical and health care, fast-moving consumer goods, real estate and construction, and finance and investment sectors.
But the number of commercial bribery investigations initiated by the State Administration for Industry and Commerce dropped sharply last year, partly due to institutional overhauls.
The SAIC recorded a combined 7,507 investigations in 2014 and 2013, but just 669 in the first half of last year, according to administration figures.
Some local parts of the SAIC – one of the key bodies responsible for ensuring fair competition – are being merged with food, drug and quality inspection watchdogs as part of government reforms. In some regions, branches at the city and county level are reporting to local governments, rather than to provincial administrations, in a push for greater cooperation.
About 22 per cent of the firms that took part in the survey were state-owned enterprises, one in four were private businesses, and 53 per cent were multinational companies or joint ventures.
Yin said that many of the respondents said they were not prepared for surprise visits by inspectors. “Dawn raids … are increasingly common in anti-commercial bribery investigations as a quick and effective measure,” she said. “But only 30 per cent of respondents said they had a relevant crisis management mechanism [to deal with them].”
Some companies destroyed documents, lied or even fought with government officials during such raids, leading to higher compliance costs, the report said.
The multinational firms surveyed said about 40 per cent of investigations they were subject to began with a dawn raid, a figure that rose to more than half in the pharmaceutical and health care industry.
Though most of the respondents said they welcomed tougher action against business-related bribery, about 6 per cent said the measures would have a negative effect on their business.
They said they would have higher exposure to investigations and fines, fewer business opportunities, and less chance to meet business targets, indicating that bribery was still a means for some businesses to seal deals in the world’s second-largest economy.
