Case Analysis Corruption in China

Topics: Foreign Corrupt Practices Act, Bribery, Political corruption Pages: 5 (1831 words) Published: April 6, 2011
Case: Coping with Corruption in Trading with China.
Corporations across the globe deal in international business practices every day. When a company must to do business in countries with a high level of corruption, a company should have a plan that helps to maintain control over a key piece of intellectual property or some production process component that allows company to maintain power in the relationship. Most of these processes and practices are legal and ethical, following the laws and regulations of various international governments. Some of these practices are just the opposite, illegal in eye of American company but viewed acceptable in other cultures. Many countries are involved in bribery which makes many American companies not only unethical to give in to bribery and other corrupt business practices but unlawful. This case is just an example and representations of what companies are willing to do and how much money they are willing to pay to enter a contract with China or their market. Most of the payments and other favors are made to establish guanxi in China. Gunaxi means “connections” and it is important part of the Chinese culture. According to Western standards most of these connections which include gifts and bribes are illegal but must be done in order to successfully deal with Chinese businesses. This case presents with various illegal and some legal types of payments.

1.List all the different types of bribes, payments or favors represented in this case under FCPA, Criminal Law of PRC and Law against Unfair Competition of the PRC. Why is either legal or illegal?

The biggest incentive for Chinese official is travel. Business trips that are sponsored by International companies can be legal, where a foreign company invites an official to get to know the company better and visit a factory in the home country of the company, which is considered as legal activity. Costs of staying in expensive hotels, golfing lessons and small stops in other states in the US during the visit represent illegal incentives that are offered to officials. As mentioned in the case, Commodity Inspection Bureau (CIB) requested visits the site in the US for inspection purposes but often inspections don’t even take a place, which is also considered as illegal. If foreign companies wants to overcome dealing with CIB they need to turn to other illegal route such as buying certificate for inspections and machineries on a black market, which is also considered as illegal. Other payments such as 3% kickback to speed of the process of setting up a subsidiary or a new business in China are required to ensure that relationships have been established and companies are easily welcomed in the country.

2.For those practices that you listed as illegal classify each as lubrication, extortion, or subornation and explain your reasoning. Lubrication- relatively small sum of cash, a gift, or a service given to a low-ranking official in a country where such offerings are not prohibited by law. Under lubrication trip abroad of technical people that need to inspect the facility or equipment could be in this category. Extortion- payments extracted under duress by someone in authority from a person seeking only what he is lawfully entitled. For example request made by CIB official, 3% kickbacks that is almost required by some Chinese companies. Free gifts and overseas trips by Chinese officials and their families fall into extortion category. The companies know that without these gifts, the contract with Chinese government would not be secured. It is almost an unspoken rule in China while doing a business, companies must bribe. American company in defense made a statement that all “these costs where legitimate costs of doing business in China” however as submitted the cost of these activities were equivalent of millions of dollars to secure a contract with China.

Subornation- “ large sums of money, frequently not properly...
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