China’s crackdown on corruption means businesses need to crackdown on local compliance

13 Feb 2015 12:00 am by Rebecca Gillingham

677846The shift in focus was illustrated by the resignation of Mao Xiaofeng, the president of one of China's largest financial institutions, the Minsheng Bank. Although the government has not explicitly stated a link to corruption, the country's media has reported that Mao had been detained for questioning by the state anti-corruption agency.

A search through the Nexis global news database highlights reporting on that 70 listed firms are involved in the corruption scandals:

At least 70 Chinese-listed companies have been affected by China's ongoing anti-graft campaign, with companies from the energy and natural resources sectors taking the biggest hit […] According to The Beijing News, 18 companies from the energy and natural resources sectors, including nonferrous metal, coal, oil and gas industries have been tainted by corruption scandals, roughly one-quarter of the total number.

The corporate and finance sectors are not the only industries being targeted in the Chinese government's continued effort to stem the tide of corruption. China's film and TV industry, which services the second largest entertainment market in the world, will also come under increased scrutiny this year. BBC Monitoring Asia Pacific – Political note that

In light of corruption in the press, publication, radio, film, and television industry, Li Qiufang, member of the Central Discipline Inspection Commission [CDIC] and head of the CDIC disciplinary inspection group stationed in the State Administration of Press, Publication, Radio, Film and Television, recently highlighted the "unspoken rules" in the film and television industry and indicated that extensive investigations on that basis will be conducted this year and that restraining mechanisms will be drawn up.

The Chinese government is set to continue to increase its effort against corruption in all areas of the country's key industries and is also working on innovative ways to change people's mind-sets. Recently, the Communist Party's official media outlet, the People's Daily, released an interactive video game called 'Fight Corruption' and is encouraging participation to raise anti-corruption awareness.

With anti-corruption efforts increasing, increased vigilance and awareness is essential for any Western organisation conducting business in China.

While established compliance processes may ensure adherence to US and UK legislation, this may not be sufficient to satisfy Chinese anti-bribery and corruption regulations. This can leave many organisations open to significant risk.

Organisations with operations in China need to ensure they have additional compliance policies in place that specifically address the requirements of Chinese legislation. Given the historical ambiguity in anti-corruption enforcement in China, many companies have not seen commercial bribery as a significant business risk in the past. The recent spate of high-profile investigations and convictions in China should force companies to re-focus on local compliance efforts, particularly as this seems to be penetrating industries previously overlooked.

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