Corporate compliance series | Part 4: Anti-corruption and Criminal Compliance

Topic and guest introduction

The anti-corruption at the national level is mainly aimed at acts that endanger the security and interests of the state, society, and the public, such as bribery, neglect of duty, and favoritism by state employees.

At the enterprise level, the common means of corruption include accepting bribes, misappropriation (illegal appropriation of the unit’s property as one’s own), misappropriation of funds, self-dealing (transactions between staff members and the Company), and similar business (staff members use their positions to seek business opportunities belonging to the Company, which is manifested as operating similar business of the Company), etc.

The above-mentioned illegal acts involved, in addition to civil liability in accordance with the law, will be sanctioned by the Criminal Law, such as the crime of bribery of non-state employees, the crime of misappropriation of office, misappropriation of funds, etc.

To provide more insights on this topic, we had a Q&A session with Ms. Li from Allbright and she kindly provided us with an overview and suggestions for companies on what to focus on and how to mitigate potential risks when it comes to anti-corruption and criminal compliance.

The first step to anti-corruption and criminal compliance

SONG: Ms. Li, thank you again for your time. What would you say is one of the first steps towards anti-corruption and criminal compliance?

Ms. Li: I would say, it would be establishing internal whistleblower mechanisms such as employee reporting, internal handling, rewards, and punishments

The internal whistleblower system and whistleblower protection system are essential for enterprises to improve their own compliance system, and have long been the sword of anti-corruption and anti-commercial bribery within enterprises abroad. Whistleblower refers to the internal informant who discloses information in the enterprise or government department. The internal whistle-blowing system of enterprises can protect the whistle-blowers from retaliation, and the internal compliance mechanism of the organization can absorb most of the minor cases and the cases that the organization has the will and ability to deal with, which, on the one hand, allows enterprises to correct the problems at the early stage of their own, which is more timely and the preventive effect is often better than the later remedy, and on the other hand, can reduce the pressure on regulators.

In September 2019, the State Council issued “guidance on strengthening and standardizing supervision in and after the matter” requires enterprises to gradually “establish a system of whistleblowers and reward and strictly protect meritorious personnel who report serious violations and major risks and hazards”, the legislation gradually has a tendency to force enterprises to establish an internal reporting system.

The above-mentioned illegal acts involved, in addition to civil liability according to law, will be sanctioned by the Criminal Law, such as the crime of bribery of non-state employees, the crime of misappropriation of office, and the crime of misappropriation of funds.

Third-party corruption – how to mitigate risks

SONG: Thank you for a detailed reply, Ms. Li. Do you have any suggestions on how to mitigate the risk of corruption when it comes to third parties?

Ms. Li: Prevent and control third-party business corruption and improve third-party business compliance management

In business activities, if a third party pays or accepts bribes in a transaction, the company may be implicated by it and suffer penalties from anti-corruption agencies. In terms of a compliance review, detailed compliance agreements are added to the transaction contracts with third parties to effectively control the risk of third-party commercial corruption.

For example, here are some agreements that could be set up with the third party while cooperating:

1. Set up an agreement prohibiting improper payment and bookkeeping, and the trustee shall not give or promise to give cash or property benefits to government officials, competent business unit personnel, or persons with a close relationship with them or other units or individuals related to the transaction.
2. Set up a default termination agreement, the trustee shall make a guarantee to the principal in the transaction contract to adhere to the compliance terms, and any breach of the guarantee by the trustee will constitute a fundamental breach of contract, and the principal will have the right to terminate the contract accordingly.
3. Set up an indemnity agreement, if the trustee violates the compliance terms, the trustee is obliged to compensate the commissioner for all the losses suffered.

All-employee complience

SONG: Thank you for the examples, Ms. Li.  What else would you recommend when it comes to anti-corruption and criminal compliance?

Ms. Li: I suggest to build a compliance management system for the entire enterprise personnel.

What I mean, is to build third-party all-employee compliance and ensure that all employees related to the fulfillment of transaction contracts comply with compliance terms, covering both grassroots employees and laborers.

At the same time, compliance training is conducted to improve third-party compliance awareness and enforcement. Compliance audits should also be strengthened, especially for high-risk third parties, to review them for signs of irregularities.

External help in anti-corruption and criminal compliance

SONG: Thank you, would you like to add anything else to all mentioned above?

Ms. Li: I would recommend also to establish the standard process of anti-corruption work, and invite external lawyers to assist enterprises in the investigation, interview, and evidence collection of internal corruption cases

The composition of the investigation team, generally composed of legal affairs, department heads, and external lawyers. External lawyers, as members of the investigation team, can exercise investigative functions: spot-checking expenses, reimbursements, and correspondence, publicizing and processing the results of the investigation; for serious acts, evidence collection, drafting and reviewing the application for reporting.

When employees are found to be anti-corruption problems, they should be treated differently, for example, those who usually perform well only temporarily should be given priority to communication and probation, encourage the return of stolen goods, and convince the person concerned to take the initiative to surrender.  For those who have committed crimes for a long time and are unrepentant, we will resolutely report to the police; for those who violate the interests of the company but do not constitute a crime, we will demand compensation for damages by means of litigation.

SONG: Thank you Ms. Li for your suggestions and input.

This is our last part regarding corporate compliance.

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