Date
23 January 2017
As China continues its anti-graft drive, MNCs operating in the country will need to focus more on their business practices and compliance standards. Photo: Reuters
As China continues its anti-graft drive, MNCs operating in the country will need to focus more on their business practices and compliance standards. Photo: Reuters

Why MNC compliance units will be kept busy in Year of Monkey

President Xi Jinping’s unprecedented campaign against China’s corrupt “tigers and flies” made headlines throughout 2015 and shows no signs of abating in 2016.

With heightened levels of domestic enforcement against government graft as well as commercial corruption, we expect multinational corporations (MNCs) to continue to pay close attention to the ramifications of these efforts for their China operations. The financial sector in particular is poised to be a significant area of focus this year.

In recent years, many MNCs in China have established compliance units that can move quickly to investigate routine violations of gift and business courtesy policies.

In 2016, we anticipate that these companies, especially larger organizations, will invest greater resources in addressing systemic weaknesses in internal controls. These enhancements could take the form of implementing new payment and procurement systems on the front end, and conducting more data-driven investigations on the back end.

Risk-adjusted due diligence on potential business partners and third party service providers, who play a key role in the vast majority of enforcement actions under the US Foreign Corrupt Practices Act (FCPA), will also keep compliance officers and legal counsel busy.

Looking beyond China, the US Department of Justice (DOJ) issued the “Yates Memorandum” in September last year which could have significant legal consequences in the coming months for companies across the region with ties to the US.

Under the new guidelines, in order to get any cooperation credit from the DOJ that could reduce potential fines, companies must cooperate with investigations by identifying employees who may have broken the law.

In this manner, the DOJ may be able to obtain foreign-based information that normally falls outside the scope of a federal grand jury order, and extend the reach of investigations well beyond US territory. While the full impact of this memorandum is still being assessed, we expect that the DOJ will begin taking a more aggressive approach on prosecutions, in light of the increased global public outcry for executive accountability.

In November last year, the DOJ added Hui Chen to its anti-fraud and anti-corruption (FCPA) team as a ‘full-time compliance expert’. Chen previously held senior in-house compliance roles in the Asian offices of large MNCs and brings deep experience leading internal investigations and managing compliance programs in the region. Chen’s addition is expected to bring to the DOJ additional insight into business practices in the region as it increases its focus on effective compliance programs.

Haiyan Tang, litigation partner at Paul Hastings, co-wrote this article. 

– Contact us at [email protected]

RC

Litigation Partner at Paul Hastings

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