FCPAméricas Blog
Tips for Latin American Companies Partnering with the Chinese – Embrace Compliance
3.27.2014
The following is a guest post from Gregory Shultz, the Founder of China-based “The Compliance Table.”
With the latest anti-corruption enforcement developments in China, Chinese companies are quickly being exposed to international compliance standards. This creates an opportunity for others doing business with the Chinese throughout the world to incorporate anti-corruption strategies into their own business plans. This is particularly relevant in Latin America, given the huge growth of Chinese investment there.
It is helpful to summarize certain global trends. The world is anxiously awaiting signs of economic growth in the world’s top economies, as it has done for the last six years. While most countries marvel at growth above 2% in a rebounding market environment, China was able to close 2013 with GDP of 7.7%. This figure is significantly lower than the double-digit growth the country has regularly produced year over year since the 1980s. The West sees the inevitable slowing of China’s economy as having a materially negative impact on the rest of the world due to the rise in cost of exports. The Chinese, however, have already found a way to benefit.
Chinese culture leads its people to create positives out of impending negatives. In particular, the country is starting to prioritize its interest in outbound investment in foreign nations, including those in Latin America, as an alternative to investing in the domestic economy. In December 2013, the Chinese National Development and Reform Commission (NDRC) produced a document stating that any investment project below USD$1 billion will contain self-explanatory registration procedures and will be subject to streamlined approval procedures. This represents a significant move towards the government’s flexibility to allow Chinese firms to seek overseas investments – previous approval thresholds were only USD$100 million.
With any good foreign investment opportunity comes potential problems of conducting business in new jurisdictions. Recent global media headlines have pointed the finger at foreign enterprises operating in China for allegations of bribery and malfeasance. GlaxoSmithKline, Rolls-Royce, and Danone, to name a few, represent the latest of foreign and domestic investigations of business conduct in China. The business world should not underestimate the actions being taken by the homeland authorities as well. Recently, provincial governments, some of which are quite remote to the powers of Beijing, have enacted policy and procedure controls to curb legacy corruption practices. GBI Source reports that, Gansu announced it will require manufacturers, distributors and medical institutions to sign ethics agreements for every procurement contract or face debarment. Sichuan has requested comments on a compliance policy and is considering a commercial bribery database to monitor third parties.
The government’s aggressive efforts have caused international and domestic companies to rethink their practices in China. Companies are generally bringing the term “compliance” and specifically, anti-bribery compliance, to board meetings and are discussing how to implement compliance programs to protect them from global headlines. Domestic law firms are also seeking new resources to build internal anti-corruption expertise so that they can better serve their clients. Dedicated compliance and legal headcounts are being added to payroll to ensure accountability is embedded in the organization.
As Chinese firms utilize the new National Development and Reform Commission guidelines to invest overseas, foreign firms, such as those operating in Latin America, should be proactive in applying today’s compliance expectations to their Chinese partners. Chinese culture is largely built upon trust, which is developed over time. Ensuring a business partner’s anti-bribery compliance program is solid can be a source of trust and a selling point to the transaction.
An initial starting point would be to provide policy and procedure documentation showing strict and monitored controls to mitigate risk. From there, firms should consider disclosing their third party risk management program, due diligence protocol and monitoring and testing programs to safeguard against actions often derived from vendors, consultants and business finders. Additionally, other areas worth disclosing include financial controls, contractual representation and warranties, training records and risk assessments.
These lessons are particularly relevant for Latin American companies that are engaging in business relationships with Chinese companies. In particular, they should be flexible and considerate of the Chinese firms’ appreciation for an ethical and compliant culture. It will make for a smoother transaction and lead to tangible benefit for the new company in the future.
Gregory Shultz is the Founder of The Compliance Table, a concept for rapid socialization of compliance best practices for legal and compliance professionals. The firm provides advisory services in the areas of general compliance build-outs, systems design & management, monitoring & testing implementations and program metrics & reporting. Prior to this role, Mr. Shultz was the former Head of Anti-Corruption Compliance for Morgan Stanley in Asia. For more information, see www.thecompliancetable.com or contact him at gshultz@thecompliancetable.com.
The opinions expressed in this post are those of the author in his or her individual capacity, and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author`s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.
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