Sample China Anti-Corruption Handbook

CHINA

ANTI-CORRUPTION HANDBOOK (Q4 2012)

Introduction by Richard L. Cassin 1

Contents GUIDE TO ANTI-CORRUPTION ENFORCEMENT AGENCIES Structural diagrams of anti-corruption agencies in China The agencies in brief Key personnel Structural diagrams of anti-corruption agencies in Hong Kong The agencies in brief Key personnel Structural diagrams of anti-corruption agencies in Macau The agencies in brief Key personnel

ANTI-CORRUPTION ENFORCEMENT ANALYSIS BY INDUSTRY Basic materials Consumer goods Consumer services Financials Health care…and many others

REGIONAL ANTI-CORRUPTION ENFORCEMENT ACTIONS Includes top corruption cases, 2011 enforcement details, and anti-corruption agency directories for: Beijing Chongqing Shanghai Shenzhen Tianjin…and 24 other regions

FCPA ENFORCEMENT ANALYSIS IN CHINA BY INDUSTRY The major cases FCPA enforcement involving China for the following industries: Consumer goods Financials Health care Oil & gas Technology…and others

THE JUDICIAL SYSTEM Structural diagrams of China’s court system The system in brief Key personnel Structural diagrams of Hong Kong’s court system The system in brief Key personnel Structural diagrams of Macau’s court system The system in brief Key personnel 2

STATE-OWNED ENTERPRISES (SOEs) AND POLITICALLY EXPOSED PERSONS (PEPs) What is a State-Owned Enterprise in China?

What is a Politically-Exposed Person (PEP) in China?

System of SOEs, PEPs, and related risks in China

MINISTRY-LEVEL CODES OF CONDUCT BY INDUSTRY Includes gift-giving and anti-corruption regulations from: Ministry of Health China Banking Regulatory Commission China Securities Regulatory Commission China Futures Association Securities Association of China China Insurance Regulatory Commission…and others

CORPORATE DUE DILIGENCE CHECKLIST China’s unique due diligence challenges Case studies Common forms of corporate fraud in China What does due diligence look like in China?

Public financial records, then and now

CHINA ANTI-CORRUPTION LEGISLATION AND REGULATIONS China: Anti-corruption and bribery laws Data privacy laws Regulations regarding the movement of money Relevant court opinions Anti-money laundering laws Hong Kong: Anti-corruption and bribery laws Banking regulations Anti-money laundering laws Macau: Anti-corruption and bribery laws Gift-giving regulations for government officials Anti-money laundering laws

ANNEXES Complete directory of China’s official state-owned companies The FCPA in Chinese

3

CHINA

Anti-Corruption Agencies National Bureau of Corruption Prevention (NBCP)4 4

The National Bureau of Corruption Prevention (NBCP) is a new body formed on Sept. 13, 2007, to coordinate all levels of anti-corruption efforts, but is not directly involved in investigations.

Central Committee for Discipline Inspection (CCDI)2,3 The CCDI does not transfer cases to the procuratorates as it is the Communist Party’s disciplinary arm and deals only with Party members.

2

Ministry of Supervision (MoS)1,3 For investigations by MoS and PSB, if there are sufficient grounds for a charge, the matter will be transferred to the procuratorates.

1

Public Security Bureau (PSB)1

People’s Procuratorates (PP)

Investigations With Charge

Investigations With Charge

For investigations by MoS and PSB, if there are sufficient grounds for a charge, the matter will be transferred to the procuratorates.

1

The CCDI and the MoS work in the same office, but have different target audiences.

3

The CCDI and the MoS work in the same office, but have different target audiences.

3

Party Members

Violation of Party Rules

4

Public Servants & Public Functionaries5 This refers to individuals (both Party members and non-members) who work in state-owned companies or government organizations, as well as those appointed to perform any kind of public service within a privately owned organization or company.

5

Violation of Administrative Regulations

Embezzlement and Bribery

Private Sector

Commercial Corruption and Bribery

CHINA

Anti-Corruption Diagram SUPREME PEOPLE’S PROCURATORATE (SPP) STRUCTURE

Cao Jianming 曹建明 Procurator-General and Party Secretary of the Supreme People’s Procuratorate

Cao Jianming was elected Procurator-General of the Supreme People’s Procuratorate on March 16, 2008. From 2002-2008, he was the vice president and deputy secretary of the Leading Party Members’ Group of the Supreme People’s Court (ministerial level), and also a member of the court’s judicial committee. He also concurrently held the post of President of the National Judges College from 2002-2003.

Hu Zejun 胡泽君

Qiu Xueqiang 邱学强

Zhu Xiaoqing 朱孝清

Standing Deputy Procurator-General* Deputy Party Secretary

Deputy Procurator-General Deputy Party Secretary

Deputy Procurator General

Sun Qian 孙谦

Jiang Jianchu 姜建初

Zhang Changren 张常韧

Ke Hanmin 柯汉民

Deputy Procurator General

Deputy Procurator General

Deputy Procurator General

Deputy Procurator General

* Standing Deputy Procurator-General refers to the person first in line after the procurator-general responsible for managing the Supreme People’s Procuratorate.

5

2011 Enforcement Data from the Supreme People’s Procuratorate Investigated 32,567 cases involving 44,506 individuals for corruption and bribery related to official duties, with 2,524 holding county-level (198 of bureau and director level, seven of provincial and ministerial level) and above positions.

Arrested 40,604 individuals for serious commercial crimes like smuggling, financial fraud, illegal fund raising, stock market manipulation, illegal pyramid scheme, etc., and prosecuted 54,891.

Filed 8,056 cases for corruption and malfeasance, with extra focus on construction related crimes related to planning and adjustment, bidding process, use of funds, and quality control.

Filed 10,542 cases related to commercial corruption involving public servants or public functionaries.

Charged 6,870 individuals for infringement of intellectual properties rights.

Charged 17,725 individuals for significant environmental pollution and causing serious damage to energy resources conservation.

Initiated investigations on 873 state personnel for dereliction of duty in environment supervision and the unlawful issuance of tree-cutting licenses.

6

Arrested 2,012 and pressed charges against 1,562 individuals for production and sales of counterfeit or substandard drugs, or toxic and hazardous food.

Opened investigation against 202 state personnel implicated in cases related to food safety.

Investigated 4,779 cases related to demolition and relocation, poverty alleviation, social security, agriculture subsidies fund management, and budget housing projects.

Charged 3,492 individuals for involvement in the kidnapping, trafficking, and purchase of women and children.

There are five key anti-corruption bodies (excluding financial supervision and control) in China tasked with investigating and prosecuting corruption within the country.

National Bureau of Corruption Prevention (NBCP) The National Bureau of Corruption Prevention is a new government department formed on Sep 13, 2007, to coordinate all levels of anticorruption efforts in the country. It is, however, not directly involved in any corruption investigation.

Central Committee for Discipline Inspection (CCDI) The Central Committee for Discipline Inspection is strictly a disciplinary body within the Chinese Communist Party tasked with investigating and punishing any violation of Party rules

by Party members.

public service in non-state owned companies, or who perform public service according to the law.

Ministry of Supervision (MoS) The Ministry of Supervision is similar to the People’s Procuratorates (PP) in the sense that they also investigate into violations by public servants and public functionaries. They only differ in the area of investigation. The MoS, through its supervisory bureaus located nationwide, is responsible for violations of administrative regulations, while the PP take charge on embezzlement and bribery.

The supervisory bureaus are usually housed within the same building as the regional committees for discipline inspection, as the targets of their investigations usually overlap.

Ministry of Public Security As almost all government officials, civil servants, and middle and senior level personnel of state organizations are Party members, many anti-corruption investigations will at some point involve the participation of the CCDI.

People’s Procuratorates (PP) The People’s Procuratorates are responsible for investigating embezzlement of state property, as well as the bribery of public servants and “public functionaries”.

The Ministry of Public Security (also known as the police), through its Public Security Bureaus (PSB, police stations), is responsible for investigating commercial corruption and bribery.

If investigations by MoS and PSB turn up sufficient grounds for a charge, the matter will be transferred to the PP, as only the PP has the power to prosecute.

Public functionaries refer to individuals who work in state organizations, stateowned companies, or are appointed by state-owned companies to perform

7

Beijing

PROVINCIAL

Anti-Corruption Directory BEIJING

Wang AnShun

Zhang ZhiKuan

Ye QINGCHUN

Deputy Party Secretary

Beijing Administration for Industry & Commerce Head

CCDI Head

Wang Anshun, born in December 1957, is a native of Huixian County in central China’s Henan Province. He had worked in petroleum geology authorities, the Ministry of Land and Resources, northwest China’s Gansu Province, Shanghai and Beijing, holding a series of important positions.

Website http://www.hd315.gov.cn/

Website http://www.bjsupervision. gov.cn/

8

Director and Party Secretary of Beijing AIC cum Director of Beijing Food Safety Office. Zhang was committee member of the Inner Mongolia Universities’ Workers Union, Party member and Deputy Education Inspector of Inner Mongolia Education Dept. He also assisted Inner Mongolia Education Dept Director Li Dongsheng in the running of the Supervision Office, Policy and Regulation Office, and Chinese Language and Literature Management Office.

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.

Enforcement Details

“We will actively serve to protect the livelihood of the people by working with relevant departments to carry out food and drug safety supervision, put in extra effort on in-depth investigation and prevention of corruption within education, health, safety, building of budget housing, and other social welfare related fields.”

Mu Ping People’s Procuratorate Head

According to the Beijing People’s Procuratorate, 356 corruption and bribery cases were investigated in 2011, which involve 418 people.150 million yuan was recovered from these enforcement actions.

There were 108 government officials above the county level investigated, which account for 22.6% of the total enforcement actions. Among them, there was 1 ministerial level official, 31 bureau level officials, 76 division level officials. 57 enforcement actions involved 1 million yuan and above. On the other hand, 115 commercial bribery enforcement actions were carried out and investigated 121 people.

BEIJING

ZHANG HOUKUN

MU PING

FU ZHENGHUA

Supervisory Bureau Head

People’s Procuratorate Head

Public Security Bureau Head

Website http://www.bjsupervision. gov.cn/

Website http://www.bjjc.gov.cn/ bjoweb

Website http://www.bjgaj.gov.cn/

Also the Deputy Secretary of the Beijing Central Commission for Discipline Inspection, Director of the Beijing Administrative Complaint Center, and Director of Bureau of Corruption Prevention of Beijing. His previous positions included Party Secretary of Beijing No.19 Plastic Factory, and deputy Party secretary, office director, cum deputy discipline inspection secretary for Beijing No.2 Light Industry Corporation.

Mu Ping, born in September 1952 and a Master degree in Law, is the Chief Procurator and Party secretary of the Beijing Municipal People’s Procuratorate. Mu has worked in Beijing Higher People’s Court and Beijing Intermediate People’s Court from 1980 to 1999. Prior to his court appointments, Mu was the Deputy Secretary of Beijing Political and Law Committee.

Also a member of the Standing Committee of Beijing Municipal Party Committee, and the deputy secretary of the Beijing Politics and Law Commission. 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.

9

From CPC Central Committee Anti-Corruption Guidelines For 2008 - 2012

建立健全惩治和预防腐败体系 2008 - 2012年工作规划

Momentum to keep punishing corruption

保持惩治腐败的强劲势头 Resolutely investigate and deal with the law and discipline violations Take a clear stand against corruption, any corrupt elements must be punished according to law, will not be tolerated.

Abuse of power, corruption, bribery, corruption and degeneration occurred in the leading organs and leading cadres to investigate and deal with cases of dereliction of duty as the focus, and severely punish cases of collusion and trading power for money and seriously infringed upon the interests of the masses, the use of the cadre and personnel rights, judicial power, administrative enforcement powers, the right to administrative examination and approval bribery, favoritism cases.

Seriously investigate and punish cases of violations of political discipline.

Seriously investigate and punish cases circumvent the bidding, false tenders and illegal subcontracting subcontracting, illegal land grants, lowcost transfer of land, illegal approval of real estate development projects or unauthorized changes to the plan to obtain benefits cases, illegal approval of exploration and mining rights, illegal to stake mineral development of the case, the irregularities in the financial sector credit, insider trading 10

坚决查处违纪违法案件 旗帜鲜明地反对腐败，对任何腐 败分子都必须依法严惩，决不姑 息。以查处发生在领导机关和领 导干部中滥用职权、贪污贿赂、 腐化堕落、失职渎职的案件为重 点，严肃查处官商勾结、权钱交 易和严重侵害群众利益的案件， 利用干部人事权、司法权、行政 执法权、行政审批权索贿受贿、 徇私舞弊的案件。严肃查处违反 政治纪律的案件。严肃查处规避 招标、虚假招标及违法转包分包 的案件，非法批地、低价出让土 地、违规审批房地产开发项目或 擅自变更规划获取利益的案件， 违法审批探矿权和采矿权、违法 入股矿产开发的案件，金融领域 违规授信、内幕交易、挪用保险 资金、违规发放核销贷款和资产 处置的案件，隐匿、侵占、转移 国有资产的案件。严肃查处为黄 赌毒等社会丑恶现象和黑恶势力 充当“保护伞”的案件。严肃 查处贿赂案件，既要惩处受贿行 为，又要惩处行贿行为。

and misappropriation of insurance funds, illegal issuing of loans and asset disposal cases, conceal, to occupy, to transfer the cases of state-owned assets.

Seriously investigate and punish cases to act as “umbrella” for pornography, gambling and other social evils and evil forces. Seriously investigate and punish bribery cases, it is necessary to punish bribery, but also to punish bribery.

Depth bribery in business Continue to promote the checking and correcting themselves and special treatment. Resolutely correct the improper trading practices, and to regulate the trading activities. Focused on investigating the construction, land transfers, property transactions, the field of drug sales, government procurement, resource development and distribution, as well as bank credit, securities and futures, commercial insurance, commercial bribery cases. Prohibited commercial bribery, the Chinese-funded enterprises and other organizations which have incomes in the country (territory) outside to investigate and punish commercial bribery in the country (border) foreign economic organizations in the Mainland of China. Formulated to promote the integrity of the market system in the work of bribery in business, and establish and improve the prevention and treatment of the views of the longterm mechanism of commercial bribery.

深入开展治理商业贿赂工作 继续推进自查自纠和专项治理。 坚决纠正不正当交易行为，规范 交易活动。重点查处工程建设、 土地出让、产权交易、医药购 销、政府采购、资源开发和经销 等领域以及银行信贷、证券期 货、商业保险等方面的商业贿赂 案件。严禁中资企业和其他取得 收入的组织在国（境）外的商业 贿赂行为，依法查处国（境）外 经济组织在我国内地的商业贿赂 行为。制定在治理商业贿赂专项 工作中推进市场诚信体系建设的 意见和建立健全防治商业贿赂长 效机制的意见。建立和完善商业 贿赂犯罪档案查询系统，把是否 存在不正当交易行为尤其是行贿 行为作为市场准入和退出的重要 依据。

11

FCPA ENFORCEMENT IN CHINA BY INDUSTRY

For thousands of multinational corporations in all industries, China tops the list of global FCPA risks.

This section covers the entire history of FCPA enforcement in China, with full-length entries on all the major cases as well as statistical risk assessment.

TECHNOLOGY SEC v. International Business Machine Corporation In March 2011, International Business Machine Corporation (“IBM”) agreed to pay a $10-million settlement to 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 to Chinese government officials.

IBM-China was contracted by government-owned and government12

controlled entities for the provision of hardware, software, and other services.

Travel and entertainment irregularities arose over training sessions IBMChina 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 funnelled 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 let pass at least 114 instances of fabricated invoices, unapproved trips, trips that served little or no apparent business purpose, and trips including per diem payments and gifts to government officials.