12th Global Fraud Survey Growing Beyond: a place for integrity
Regional insights: China
Chinese authorities have announced a further crackdown on domestic bribery and corruption.
Over the last decade, China has experienced unparalleled economic growth.
While growth rates may be slowing in 2012 compared to recent years, increasing incomes and the rising purchasing power of ordinary citizens will continue to prove China attractive to international investors.
However, these investment opportunities are not without risk.
China has been featured in the media for a string of high-profile financial frauds involving recently listed Chinese companies on US and other overseas exchanges. The prevalence of state ownership, high levels of bureaucracy, and at times seeming inconsistencies in the application of laws or regulations, also create heightened corruption compliance challenges.
Sustaining rapid growth will mean increasing the focus on these risks since bribery, corruption and fraud create market inefficiencies and hamper the development of broad-based economic development.
Even the existence of such concerns make it more difficult for Chinese companies to access leading market practice through tie-ups with Western companies recently sensitized to ABAC risk. They also make it harder for Chinese companies to list abroad or complete foreign acquisitions.
Partly in recognition of the danger this poses to economic growth, the Chinese leadership has continued to make the fight against bribery and corruption a high priority. China's President, Hu Jintao, warned at the CPC Anniversary Gathering last year that the fight against corruption "is crucial in gaining popular support for the Communist Party and ensuring its very survival."
Be aware of local enforcement trends
Combined with President Hu's statement, Chinese authorities have announced a further crackdown on domestic bribery and corruption and have reinforced this message with a number of high-profile prosecutions and legislative changes.
In 2011, China passed the Eighth Amendment to the Criminal Law of the People's Republic of China, which criminalizes for the first time under Chinese law, the payments of bribes to foreign government officials. Like the FCPA, this applies to all Chinese citizens, all persons located in the China and all companies organized under Chinese law.
In 2012, China's Supreme People's Procuratorate announced that provincial-level databases listing individuals and companies found guilty of bribery offenses would be integrated into a nationwide record. If implemented effectively, this could prove to be a powerful tool in assessing in-country third-party risks.
Chinese authorities are taking local enforcement seriously and this view is reflected in the results from our respondents. Those interviewed in China are almost twice as likely to think that local regulators are willing and effective at prosecuting corruption as the global average.
President Hu's statement and local enforcement actions further reflect this. The Administration of Industry and Commerce has investigated more than 30,000 business-to-business corruption cases in the last five years, according to a report released during a 2011 Financial Procuratorial Forum.
The Chinese Police have investigated a further 6,500 national corruption cases over the same period, according to the Ministry of Public Security.
Risks to be aware of include:
- Imaging software being used to copy the official company chop for reuse in false documentation
- Spreadsheets preloaded with official bank logos and letterhead where users simply enter the transactions and balances they want
- Large quantities of "refurbished" official tax invoices available online, where the amounts and vendor details have been erased
- Internet sites offering point-of-sale credit card machines that can be used to produce card slips as proof of transactions without transmitting the transaction details to the bank
Where appropriate, organizations should also consider:
- Benchmarking acquisition costs or disposal amounts against similar deals
- Independently assessing the business rationale for a sample of high-value or high-volume transactions, such as consulting fees or subsistence expenses
- Conducting follow-up inquiries and/or site visits to major customers and suppliers to verify the amounts, signatories and authorizations on the relevant documentation