Monday, January 25, 2010

Corruption: Chinese corruption crackdown spreads

Source: The Red Flag Group- With the news that Chinese graft- busters have targeted officials in the Guangdong city of Maoming in their on- going anti-corruption drive, foreign businesses operating in China need to reassess their dealings with government officials to identify whether they have been involved in activities that could be perceived as bribery and put a stop to it, says The Red Flag Group.

In recent years, Chinese efforts to crackdown on corruption among government officials have mainly focused on the so-called first-tiered cities. This included the sentencing in 2008 of Chen Liangyu, Shanghai's former communist party chief, and the dismissal of XuZhongheng, a former major of Shenzhen, both for bribery.

However, in a sign that the crackdown is turning towards emerging tier two cities, Chinese language media have reported that officials in the city of Maoming are being investigated for corruption. They include Yang Guangliang, Maoming's vice-mayor, who was placed under detention by the Central Commission for Discipline Inspection last October. Also targeted was Cheng Bin, the police chief of Maoming Public Security Bureau, and Yang Qiang, director of Maoming's Maogang district police bureau.

This followed other tier two city officials who have been recently netted by Chinese graft-busters, such as Chen Xizhao, deputy chief of police in the Guangdong city of Lianjiang, who was fired after it was reported that he invited 1,000 guests to a Christmas party at his residence. Also, Ye Shuyang, a former police chief in the city of Shaoguan, was arrested in 2008 and is set to stand trial for accepting more than 30 million yuan in bribes over a period of 20 years.

"Whereas previously, China's anti-corruption drive have mainly been focused in the largest cities such as Guangzhou and Shenzhen, what we are seeing now is the effort moving towards normally less high profile places such as Maoming," said Scott Lane, Principal and CEO of The Red Flag Group.

"What this means is that now more than ever, companies not only need to proactively assess business they have done with Chinese officials in the past, but also with any officials with whom they have established any sort of relationship, regardless of whether money has ever changed hands," Lane said, adding that it was important to identify activities that may have supported bribery. Companies need to analyze the different transactions that have taken place, whether they are deals, the use of third parties, or giving gifts or lavish entertainment to officials.

"In a country where the provision of gifts and lavish meals is a routine part of the business dealings, companies more than ever need to make sure they can keep track of and maintain thorough records of all gifts, entertainment and travel it provides to business relationships. It is only then that managers can have the information they need to spot red flags early, and prevent activity from occurring that incurs the full wrath of Chinese fraud investigators," Lane added.

"A company's compliance personnel should be able to use software, such as our ComplianceDesktop Gift and Benefits Tool, to make queries. They should be able to type in the names of the officials, and see whether any gifts or entertainment had been provided to the said officials, along with details such as what they were, the cost, when it was given, and whether there were any special circumstances," he said.

Requiring installation of no new hardware or software, the tool, which is part of ComplianceDesktop's anti-corruption suite, adapts and automates a company's gifts and entertainment policy by allowing for automatic approval of certain expenses which meet pre-set criteria. If a situation arises in which employees need guidance on whether they can give a certain gift to a certain official, they can access the tool using a web-based interface or a web- enabled mobile phone. By answering a number of questions, the tool can calculate whether the gift can be given according to the company's policies, as well as any further rules or additional procedures that must be followed.

In addition, the tool also allows employees to provide detailed records whenever they are giving gifts, including details of the recipient such as their name, affiliation, and contact information. It also allows for the generation of customized reports to suit each individual company's needs.

"ComplianceDesktop's Gift and Benefits Tool is an inexpensive and powerful way to allow companies to keep track of all out-going gifts. This is especially so considering the enormous lost opportunity and real cost that companies can experience if they get caught by Chinese graft-buster for giving an official an appropriate gift, even if it was given with the most innocent of intentions," Lane said.

The Red Flag Group is one of the world's leading independent Corporate Governance and Compliance firms providing thought leadership around Compliance to Fortune 1000 companies.

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