International Law

China Corruption. Et Tu? Do You Even Know?

By Dan

Last week, Rich Brubaker of All Roads Lead to China did an excellent post on China business risks, covering, among other things, corruption/bribery. An interesting mini-discussion on bribery has ensued in the comments section and in one of those sections, Rich listed out what he sees as the three prime examples of foreign companies engaging in corruption in China:

I think there are three cases of corrupt foreign firms:

1) Calculated risk-takers (largest category in my estimation)

The risk-reward ratio is acceptable for these firms. It's easy to counter with a hypothetical example in which the company decides that it's worth it: for example, a small-medium sized firm may figure it faces a ~0.01% of being busted, with a 50% higher chance of getting a $10 million contract. Of course they hire middlemen and feign ignorance if caught.

Type: small-medium foreign firms, some huge MNCs

2) China rogue exec (principal-agent problem)

China Exec has a lot of upside to making big profits, and does not fully internalize downside to the firm. My understanding is that foreign execs are virtually never subject to criminal prosecution in China, so absolute worst case is being fired and deportation (I'm not sure how many have been prosecuted under FCPA, but I'm guessing not very many). Global HQ may also look the other way.

Type: medium-huge MNCs

3) Uniformed or in denial of risks

The firm knowingly approves bribery in China, without considering the risks. As you paraphrase, 'well, all my Chinese competitors pay bribes to win contracts, so I have to'…

Type: all, but riskiest for huge MNCs (biggest target, highest global reputational costs)

Though I find his list interesting and probably accurate, I have my doubts it needs such fine parsing. My experiences tell me it is less complicated. When it comes to getting caught, there are essentially two kinds of companies. One kind makes very clear it will not permit corruption and it does whatever it can to make that very clear to its people. The other kind does a lot of winking and nodding and other things to make clear that though "I personally don't like it, the less I know about it, the better."

Am I being too simplistic?  Who out there has paid bribes?  Who out there is with a company that has paid bribes?  What are you seeing out there?  BTW, this blog, unlike some others, has absolutely no problem with commenters using assumed names. We delete comments because of inappropriate content, not anonymity.   

Full post as published by China Law Blog on September 11, 2010 (boomark / email).