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CHINA

ANTI-CORRUPTION HANDBOOK (Q2 2013) Introduction by Richard L. Cassin

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Permission is hereby granted to the purchaser for internal use of this book or copies hereof.

The information in The China Anti-Corruption Handbook is intended for public discussion and educational purposes only. It does not constitute legal advice and the use of this book and any information contained in it does not create an attorney-client relationship.

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Contents INTRODUCTION

By Richard L. Cassin

CHAPTER 1 GUIDE TO ANTI-CORRUPTION ENFORCEMENT AGENCIES IN CHINA, HONG KONG AND MACAU

CHAPTER 2 ANTI-CORRUPTION ENFORCEMENT ANALYSIS

BY INDUSTRY With special sections on: Basic Materials Consumer Goods Consumer Services Financials Health Care Industrials

CHAPTER 3 REGIONAL ANTI-CORRUPTION ENFORCEMENT DIRECTORY

CHAPTER 4 FCPA ENFORCEMENT IN CHINA BY INDUSTRY Overview Case studies

CHAPTER 5 STATE-OWNED ENTERPRISES (SOEs) AND POLITICALLY EXPOSED PERSONS (PEPs) Overview Case studies

CHAPTER 6 MINISTRY-LEVEL CODES OF CONDUCT

BY INDUSTRY Banking Regulatory Commission China Securities Regulatory Commission China Insurance Regulatory Commission Ministry of Health

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CHAPTER 7 CORPORATE DUE DILIGENCE CHECKLIST Anti-corruption due diligence in China Third-party due diligence in China: chief areas of concern Public records in Hong Kong Public records in Macau

CHAPTER 8 ANTI-CORRUPTION LEGISLATION AND REGULATIONS Anti-Unfair Competition Law of China CPC Central Committee Anti-Corruption Guidelines 2011 Amendment to Criminal Law Prohibiting Foreign Bribery China Supreme Court Judicial Opinions on Commercial Bribery Interim Regulations on Prohibiting Commercial Bribery Data Privacy Items Decree of the People’s Bank of China Regulations on Foreign Exchange Administration Independent Commission Against Corruption Ordinance (Hong Kong) Prevention and suppression of the crime of money laundering (Macau)

CHAPTER 9 ANNEXES Directory of centrally managed state-owned enterprises Overview of intellectual property law in China The Foreign Corrupt Practices Act in Chinese

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Chapter 01

Guide To Anti-Corruption Enforcement Agencies

Central Commission For Discipline Inspection

Wang Qishan

王岐山 Secretary of the Central Commission for Discipline Inspection Wang Qishan was appointed in 2012 the secretary of the Central Commission for Discipline Inspection, a disciplinary arm of the Communist Party of China (CPC) charged with rooting out corruption and malfeasance among party cadres. He is concurrently the deputy prime minister of the State Council and the sixth ranked member of the Politburo Standing Committee, China’s highest ruling council. From 2003 to 2007, he was the deputy Party secretary and mayor of Beijing, in charge of organizing 2008 Beijing Olympics Games. Wang also has a solid background in the financial sector, having served as deputy president of People’s Bank of China (1993-1994) and president of China Construction Bank (1996-1997).

Zhao Hongzhu

Huang Shuxian

Li Yufu

赵洪祝

黄树贤

李玉赋

杜金才

Deputy Secretary

Deputy Secretary

Deputy Secretary

Deputy Secretary

Wu Yuliang

Zhang Jun

Chen Wenqing

Wang Wei

吴玉良

张军

陈文清

王伟

Deputy Secretary

Deputy Secretary

Deputy Secretary

Deputy Secretary

Du Jincai

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Chapter 01

Guide To Anti-Corruption Enforcement Agencies

2012 Enforcement Data from the Supreme People’s Procuratorate Procuratorates across the country investigated 34,326 cases of all types of corruption crimes, including embezzlement, bribery and dereliction of duty, involving 47,338 individuals, an increase of 5.4% and 6.4% respectively from 2011. 8.79 billion yuan (US $1.42 billion) was recovered in investigations.

For dereliction of duty crimes, 8,079 cases involving 11,690 individuals were investigated, increasing by 9.8% and 10.4% respectively from 2011.

Among all cases, 20,442 were grand cases (involving more than 50,000 yuan (US $8,053) for corruption and bribery; more than 100,000 yuan (US $16,107) for misappropriation of public funds).

2,569 officials above county level were investigated, including 179 officials above provincial-department level and 5 above provincial-minister level. Investigation was launched into high-ranking officials such as Bo Xilai, Liu Zhijun, Wang Lijun, Huang Sheng, and Tian Xueren.

In the sector of production safety, 423 cases involving 618 individuals were investigated.

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In the sector of construction, 7,981 cases were investigated in connection with project approval, public tender, urban planning, fund management, and quality supervision, involving 2.76 billion yuan (US $447 million).

For commercial bribery crime, 11,789 cases were investigated involving 4.19 billion yuan (US $678 million).

In the area of agricultural aid and rural development, 10,225 embezzlement and bribery cases were investigated, accounting for 38.9% of the total embezzlement and bribery cases investigated.

In areas connected to citizens’ welfare --such as food and drug safety, land acquisition, employment, anti-poverty, social security, immigration compensation, education, public health and disaster rescue - 5,196 dereliction of duty cases were investigated, accounting for 64.3% of all dereliction of duty cases investigated.

In a special enforcement action combatting food and drug safety problems, 180 cases involving 263 officials were investigated.

Chapter 02

Anti-Corruption Enforcement Analysis By Industry

Anti-Corruption Enforcement Analysis

By Industry China

Q: For the purposes of this chapter, what is a “corruption case”?

A:

Alleged corrupt activity involving at least US $100,000 and one corporate defendant whose industry has been identified.

Total Amount Of Money Captured In Corruption Cases, Mar 2012 - Feb 2013

Basic Materials Basic Materials

Industrials Health Care

Industry

Consumer Goods Goods Consumer

Financials

Consumer Services Consumer Services

Telecommunications Oil & Gas

Health Care Financials Oil & Gas

Industrials

Amount In CNY

Amount In USD

Percentage

Basic Materials

115,206,000

18,379,965

14.04%

Consumer Goods

32,622,134

5,204,535

3.97%

Consumer Services

25,559,170

4,077,710

3.11%

Financials

265,730,498

42,394,644

32.38%

Health Care

6,744,000

1,075,938

0.82%

Industrials

370,297,629

58,961,216

45.03%

Oil & Gas

5,300,000

845,562

0.65%

821,459,431

130,939,570

100%

TOTAL AMOUNT 26

Chapter 02

Anti-Corruption Enforcement Analysis By Industry

Yearly Totals by Industry Basic Materials Year

No. of Anti-Corruption Enforcement Records

Amt. Of Money Involved In Corruption

In USD

2002

0

2003

0

2004

0

1,820,000

219,277

2005

2

1,501,359,540

241,780,165

2006

1

3,360,000

420,000

2007

6

40,520,000

5,402,667

2008

4

83,999,000

12,298,536

2009

0

2010

10

64,500,000

9,485,294

2011

6

307,360,000

48,482,965

2012

10

79,526,000

12,687,578

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Chapter 02

Anti-Corruption Enforcement Analysis By Industry

Top Cases by Industry Basic Materials 1

2

3

ACCUSED: Zeng Yungao

ACCUSED: Hao Pengjun

ACCUSED: Liu Bokun

AMT. OF MONEY INVOLVED: 1.5 bllion yuan (US $185 million)

AMT. OF MONEY INVOLVED: 297 million yuan (US $47 million)

AMT. OF MONEY INVOLVED: 30 million yuan (US $4.8 million)

DETAILS: Twenty-four coal mine managers have received prison sentences of up to 11 years after being held accountable for two major flooding accidents last year that killed a total of 151 people…

Zeng Yungao, former chairman of the board, was sentenced to ten years in prison and fined five million yuan (640,000 U.S. dollars) for his involvement and bribery, according to a verdict by the Xingning City People’s Court on Wednesday.

DETAILS: Chinese court sentenced a local coal boss in central Shanxi province to 20 years in jail and millions of yuan in fines after he was convicted for illegally running a mine and using earnings to amass dozens of homes across the country, state media reported. Hao Pengjun, the head of the Pu county coal office, collected 35 homes, most in Beijing and the southern Chinese resort island of Hainan, worth more than 170 million yuan ($26.5 million). Hao and family members also had personal bank accounts worth a “shocking” 127 million yuan ($20 million…The court also hit Hao and his wife, an accountant at the Chengnanling mine, with tax evasion charges and 260 million yuan in fines…Reports said Hao had illegally purchased a mining licence in 2000, and five years later, under pressure from a government anti-corruption body, faked the withdrawal of his personal shares in the Chengnanling mine… Chinese media reports said Hao had served in various roles as the Pu county coal mine chief, the Communist Party secretary for the coal mining office, the county’s mining chief, and the head of the local coal mine safety administration.

DETAILS: Liu Bokun, former chairman of the board of directors of Xinjiang Shenhua Mining Co. Ltd., was accused of corruption, bribery, and embezzlement of more than 30 million yuan (US$4.8 million). Liu was tried in Beijing Second Intermediate People’s Court on 21 Jan. 2013.

Xinhua, 21 Dec, 2006

Reuters, 15 Aug, 2011

Sina English, 22 Jan, 2013

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By Province

CORRUPTION INVESTIGATIONS

Shenzhen

Range 5 1300 and above

Range 4 1000-1299

Range 3 700-999

Range 2 400-699

Range 1 100-399

No. of corruption investigations launched in 2011

Chapter 03 Regional Anti-Corruption Enforcement Actions

Chapter 03

Regional Anti-Corruption Enforcement Actions

Beijing

PROVINCIAL

ANTI-CORRUPTION Directory

BEIJING

GUO JINLONG

WANG ANSHUN

LU XIWEN

Party Secretary

Deputy Party Secretary

Deputy Party Secretary

Guo Jinlong spent the first 24 years of his career in Sichuan Province (1969-1993), before relinquishing his position as Sichuan deputy secretary to take the position of Tibet Autonomous Region deputy Party secretary (1993-2000), and later the Region’s Party Secretary (2000-2004). Guo was Anhui Province Party Secretary (2004-2007) before moving to Beijing taking positions of vice mayor, acting mayor, mayor and deputy secretary over five years (2007-2012).

Wang Anshun is acting mayor of Beijing (since July 25, 2012), and principal of the Beijing Communist Party School (2007-present). Prior to Beijing, Wang spent six years in Shanghai, where his highest position was Deputy Secretary (2003-2007). He was director of Organization Department and a standing member of CPC Gansu Committee from 1999 to 2001.

Lu Xiwen, 58 and a Zhejiang native, was appointed deputy Party secretary of Beijing Municipal Party Committee in April 2013. Lu spent her entire career in Beijing, serving as Party secretary of Xicheng district (2003-2006) and director of Organization Department of Beijing Municipal Party Committee (2007-2013).

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Chapter 03

Regional Anti-Corruption Enforcement Actions

Enforcement Details for 2012 According to the Beijing People’s Procuratorate: 379 corruption cases were investigated in 2012, involving 459 individuals. 78 cases involved 1 million yuan and above. 76 officials above the county level were investigated. In addition to corruption cases, 77 dereliction of duty cases were investigated involving 94 individuals.

BEIJING

YANG YIWEN

YE QINGCHUN

WANG HAIPING

AIC Chief

CDI Chief

Supervisory Bureau Chief

Website: www.hd315.gov.cn

Website: www.bjsupervision.gov.cn

Website: www.bjsupervision.gov.cn

Yang Yiwen, born in 1961 and a Shandong native, is the chief and deputy Party secretary of Beijing AIC. Previous appointments include head of Rights and Interests Department of Beijing Communist Youth League and deputy chief of the Beijing Municipal Bureau of Justice. Yang was appointed deputy secretary (2003-2010) and chief (2006 – 2010) of Beijing Dongcheng district.

Ye Qingchun, born in April 1952, the Secretary of the Beijing Commission for Discipline Inspection (CDI) is also a member of the Central Commission for Discipline Inspection (CCDI), and holds a seat in the Standing Committee of the Beijing Municipal Party Committee. Prior to his Beijing appointment, Ye was member of the Standing Committee of Henan Province and Secretary of Henan Province CDI. All of Ye’s appointments since 1988 were either related to the Ministry of Supervision, or the CCDI.

Wang Haiping is the deputy secretary of Beijing CDI and chief of the Beijing Supervision Bureau. His previous positions included member of the Fangshan District (Beijing) Standing Committee, Party secretary of Dongying township, chief of the Fangshan district CDI and secretary-general of Beijing CDI.

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Chapter 03

Regional Anti-Corruption Enforcement Actions

BEIJING

CHI QIANG

FU ZHENGHUA

Procurator-General

Public Security Bureau Chief

Website: www.bjjc.gov.cn/bjoweb

Website: www.bjgaj.gov.cn

Chi Qiang, born in 1952 and a Hebei native, is Party secretary of Beijing Municipal People’s Procuratorate. Chi previously worked in National Railway Transport Procuratorate as division chief of Law and Order Attorney’s Office (1986) and chief of the Beijing Railway Transportation Intermediate Court (1992). Chi was later appointed deputy director of Bejing Higher People’s Court (2007) and became director in 2008.

Fu Zhenghua, born in March 1955 and a Master in Law from a Peking University branch for cadres, is the Director and Party Secretary of the Beijing Municipal Public Security Bureau (PSB). He is also a member of the Standing Committee of Beijing Municipal Party Committee, and the deputy secretary of the Beijing Political and Legal Committee. His has a long standing career within the Public Security system, including previous appointments as the deputy director of the Criminal Investigation Department (CID) in the Ministry of Public Security, and deputy head of the CID of Beijing PSB.

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Chapter 03

Regional Anti-Corruption Enforcement Actions

Top Cases by Province 1

2

3

ACCUSED: Liu Zhijun

ACCUSED: Wang Fusheng

ACCUSED: Li Bingchun

CO-ACCUSED: Ding Shumiao, Luo Baojin

CO-ACCUSED: - NA -

CO-ACCUSED: - NA -

SECTOR/INDUSTRY: Railroads

SECTOR/INDUSTRY: Construction

SECTOR/INDUSTRY: Construction

AMT. OF MONEY INVOLVED: Up to 800 million yuan (US $126 million)

AMT. OF MONEY INVOLVED: At least 720 million yuan (US $113 million)

AMT. OF MONEY INVOLVED: 210 million yuan (US $49 million)

DETAILS: Liu Zhijun, the biggest policymaker behind China’s “leap-frog” high-speed railway system since he was named as the minister in 2003, was placed under investigation on allegations of severe disciplinary violations. Earlier in February, Liu was removed from his posts as minister and Communist party secretary at the ministry…Some saw the earlier corruption investigation of Ding Shumiao, a well-known businesswoman in the railway equipment sector, as a sign of scandal in the sector…Shanxi native Ding started her business from coal transportation and later expanded to areas including railway equipment, entertainment and advertising. Her earlier business success in the railway sector was greatly helped by Luo Baojin, former railway bureau director in Datong who was close to Liu.

DETAILS: Wang Fusheng, chairman of Beijing Fuhua Construction and Development Co, was alleged to have evaded paying nearly 200 million yuan (US$29.4 millioin) in corporate income tax, according to the Beijing News.

He denied the charges…In the Mei Hui Mansion project, Wang was alleged to evade paying 25 million yuan in tax by faking bad loans and bribed senior officials from the Beijing branch of State Administration of Taxation to the tune of 500,000 yuan…In 2002, Wang’s company signed fictitious contracts with a Thai company to sell Fu Hua Mansion as an agent. Then he instigated others to fake 210 million yuan as bad loans and a 310 million yuan commission as costs on the balance sheet on grounds that the Thai company was bankrupt and unable to return the money.

DETAILS: Li Bingchun, Chief of Liqiao Town within the Shunyi District of Beijing, is alleged to have netted more cash through corruption than any town official convicted in China to date.

Caixin Online, 28 Feb, 2011

China News Digest, 22 Dec, 2010

China Compliance Digest, 27 Feb, 2012

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Li has been charged with accepting bribes totaling 38 million yuan (US $6 million), and misapprioriating 178 million yuan (US $28.2 million) in public funds.

In addition to pocketing compensation funds meant for Liqiao Town, Li worked with Sun Qishi, Head of Liqiao’s Investment Division, to transfer millions in government funds to Melody Trade Center, a shopping mall owned by Li and Sun.

Chapter 04

FCPA Enforcement In China By Industry

FCPA Enforcement In China By Industry Summaries of the major cases TECHNOLOGY Faro Technologies, Inc. In June 2008, Faro Technologies, Inc., a Floridabased manufacturer of measurement devices and software, confirmed it had reached a settlement with the DOJ and SEC for FCPA violations in China.

Faro entered into a two-year deferred prosecution agreement with the DOJ. The company agreed to pay a penalty of $1.1 million.

In addition, Faro agreed to pay $1.85 million in disgorgement and prejudgment interest to settle with the SEC. Faro was found to have made illegal payments to employees at Chinese state-owned or controlled entities through its Shanghai subsidiary, Faro China.

An executive at Faro China approved payments totaling $444,492. The payments were routed through an agent with whom Faro China entered into a false services contract, allowing the company to disguise the kickbacks as “referral fees.”

According to internal documents, these “referral fees” at times were 10 to 15 percent of the total contract value.

The illegal payments helped Faro secure contracts worth approximately $4,944,234, and $1.4 million in net profit.

In August 2009, Faro’s former sales director in Asia resolved a civil complaint with the SEC, agreeing to pay a $30,000 civil penalty and $26,707 in disgorgement and prejudgment interest.

According to the SEC complaint, the former sales director “authorized bribery payments to employees of Chinese state-owned companies in order to obtain contracts, and that in order to conceal the bribes [he] instructed that account entries be altered.”

International Business Machine Corporation In March 2011, International Business Machine Corporation (“IBM”) agreed to a $10 million settlement with the SEC to resolve charges that IBM’s wholly-owned subsidiaries in China violated the books and records and internal control provisions of the Foreign Corrupt Practices Act. The settlement was split into $5.3 million in disgorgement, $2.7 million in prejudgment interest, and a $2 million civil penalty.

According to the SEC complaint, for at least a five-year period ending in early 2009, employees of IBM (China) Investment Company Limited and IBM Global Services (China) Co. Ltd. created slush funds at local travel agencies and business partners that were used for cash payments, improper gifts, and travel and entertainment for Chinese government officials.

IBM-China was contracted by governmentowned and government-controlled entities for the provision of hardware, software, and other services.

Travel and entertainment irregularities arose over training sessions IBM-China was contractually obligated to provide to its government clients.

For procurement purposes, IBM-China staffers categorized its preferred travel agents as “authorized service providers.” The staffers invoiced the company for these “services,” and funneled that money into the unapproved trips for government officials.

The SEC found that more than 100 IBM-China staff and two key managers were involved in the misconduct.

All told, the SEC complaint charged that IBM’s internal controls allowed at least 114 instances of fabricated invoices, unapproved trips, trips that served little or no apparent business purpose, and trips with per diem payments and gifts to government officials.

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