Since China’s corruption crackdown began, the authorities have caught a number of foreign companies engaging in corrupt practices. The Chinese government has sent a series of strong messages to foreign companies. For example, in 2014, GlaxoSmithKline was found to have been bribing doctors. Authorities ordered the company to pay a fine of USD 489 million and the company’s China head was given a 3-year jail term. Banking giant JP Morgan faced fines both in China and the U.S. for its corrupt practices in China.
In this new environment, corporate investigations are becoming far more common. Due to a change in the relevant laws, Chinese authorities encourage company employees to engage in whistleblowing activities when they suspect their employers of corruption. In spite of these risks, companies can make investigations much smoother and less costly by following a series practices and procedures.
Whistleblowing in China
Corporate whistleblowing in China has become a far bigger part of the business risk landscape. In 2014, the Supreme People’s Procuratorate adjusted the rules governing whistleblowing to enhance the rights and protections of individuals who use official channels to file complaints against corrupt companies. Most importantly, the authorities may financially reward the whistleblower for exposing corrupt practices at companies. The amendment gives the whistleblower the ability to request protection to safeguard against physical harm and property damage. The rule changes also give the whistleblower the chance to appeal an official refusal to investigate. It is also unlawful for a company to terminate or demote a whistleblowing employee in retaliation.
The lure of financial incentives, combined with a variety of safeguards against retaliation, could mean that some employees will be on the lookout for incidences of wrongdoing by their employer. This heightens the risk of wrongdoing for companies. Therefore, businesses should codify policies that make it as easy as possible to investigate wrongdoing. Businesses should be careful to eliminate all ambiguities in their policies and put all rules in the employee handbook.
Internal Investigation Procedures
A corporate investigation may occur if an employee or third party informs the authorities of an alleged wrongdoing. Immediately following any such accusations, the company should conduct an internal investigation and verify if, in fact, there is any wrongdoing. The earlier the company conducts the internal investigation, the lower the risk of negative publicity.
Internal investigations themselves pose a number of risks that companies must be aware of. For example, companies are legally obliged to protect so-called state secrets. The core of internal investigations usually involves the review of company documentation, which implicates employee privacy protections. The investigation could involve fully internal documentation (i.e. strictly between employees) or between employees and third parties.
Corporate investigations in China are, in some ways, dissimilar to those in other countries. The main difference is that the concept of legal privilege is virtually nonexistent. In accordance with China’s civil or criminal procedure laws, involved legal professionals may be obliged to disclose private client information to courts, regulatory bodies, or government officials. Therefore, companies should be aware that it is their responsibility to conduct and structure investigations in such a way that maximizes the protection of these privileges outside of China. Additionally, when an investigation begins, companies should inform all involved individuals not to create additional documents involving information that is under investigation.
Protection of “State Secrets”
Investigations must be handled with care, in part, because the Chinese government is extremely sensitive about what information may be reviewed by foreign parties. Such sensitive information is referred to as “state secrets”. According to article 9 of the State Secrets Law, this umbrella-term may include information related to China’s “economic and social development”, government-related information, and science and technology.
Companies must handle the issue with great care, as the State Secrets law is ambiguous and opaque, and failure to comply can constitute a serious criminal offence. Before investigation data is sent overseas, it should be cleared by the authorities and officially held to be free of state secrets.
It is important that multinational companies conduct a state secrets analysis, early on in their activities in China, and certainly prior to any investigation takes place. As most businesses must deal with the government and bureaucracy, most are at a risk of possessing what could be regarded as “state secrets”.
Other Precautionary Measures
Given the risk of international investigations in China, companies should have a set of policies in place to expedite investigations and make them less costly. For example, a foreign company in China should have a thorough anti-corruption policy that is in line with Chinese anti-corruption laws, as well as the guidance of local authorities, when applicable. Anti-corruption rules should be coordinated with the global anti-corruption policy of the company and available for the authorities to verify. This policy should be clearly outlined in the employee handbook and made relevant to the operations of the company. Having this policy in place will make an investigation much smoother as explicit violations will be more easily identified.
Another critical preemptive measure is to ensure that employee privacy protections are clearly codified into company policies and written in the employee handbook. While investigations may require employee data, employees are entitled to a certain level of confidentiality. If the investigation requires giving employee information to a third party, the company should request the consent of the employee. Additionally, companies should outline in their IT policy that the company has the right to monitor activities on company-owned IT assets. Companies should also post notices of this in public workspaces.
Regulatory inquiries in China require careful handling, particularly when there are allegations of corruption or fraud. Companies need to prepare for the risk of an internal investigation very early on. It is important to have legal resources in China that can help you navigate the differences in investigations between China and the country of origin. Businesses with a series of policies that increase transparency throughout the company will fare far better than companies that do not put in the effort to do so.
 See https://globalinvestigationsreview.com/insight/the-asia-pacific-investigations-review-2017/1068616/china-handling-internal-investigations