Managing multijurisdictional investigations involving China

Imagine you are a UK/Europe-based multinational corporation assessing allegations of non-compliant business practices in its China operations. These may include corruption, bribery, fraud or other forms of misconduct. Suppose your company is also publicly listed in New York, or has some other nexus with the US. What jurisdictions should you be most concerned about? In a multijurisdictional investigation, which enforcement authorities should you expect to work with?

As business operations are increasingly cross-border, compliance and investigation functions have to evolve for multijurisdictional challenges. Planning internal investigations is no longer a routine process. Working backwards, how to manage an internal investigation will ultimately depend on which jurisdictions and enforcement authorities may potentially come into play.

Relevant enforcement authorities

One of the most active enforcement authorities is the US Department of Justice (DOJ). Since 1977, the Foreign Corrupt Practices Act (FCPA) affords the DOJ broad jurisdiction over targets with a sufficient nexus to the US. If a company is regulated by the Securities and Exchange Commission (SEC), the SEC also enforces the act.

The FCPA makes it unlawful for parties to pay foreign officials to improperly obtain business. Particularly in the China context, “foreign official” has been broadly interpreted to include employees of state-owned enterprises and public hospitals. As an incentive, the DOJ launched a self-reporting programme in 2016 to encourage voluntary disclosure, full co-operation, and timely and appropriate remediation to be considered for declination of prosecution.

Yet, in a strategic priority targeting China, the DOJ announced its “China Initiative” in November 2018 to include enhanced enforcement and a focus on FCPA violations involving Chinese businesses.

Another relevant enforcement authority to consider is the UK’s Serious Fraud Office (SFO), which is the lead agency enforcing the UK Bribery Act since it entered into force in July 2011. The Bribery Act affords the SFO wide jurisdiction over offences committed outside the UK, where the target has a “close connection” with the UK.

It arguably has a farther reach than the FCPA, covering bribery of foreign officials as well as commercial parties, and criminalizing both the paying and the receiving of bribes. This creates a new risk for many multinational corporations based in the UK and across Europe, with business operations here in China and elsewhere in the world.

If any violations take place in China, the Chinese enforcement authorities would of course be involved as well. The Public Security Bureau and the people’s procuratorates investigate criminal matters, while the State Administration of Market Regulation focuses on commercial bribery under the Anti-Unfair Competition Law. In March 2018, China also established its National Supervisory Commission as a new state agency with broad investigatory powers over anti-corruption. This would impact multinational corporations as they interact with state-owned enterprises and public entities.

An internal investigation will always focus on factual review, but should also be aware of relevant enforcement authorities and their respective areas of concern. Identifying potential issues and appropriate remediation measures will also depend on multijurisdictional enforcement considerations.