The most recent FCPA and anticorruption enforcement developments involving the People’s Republic of China (PRC) are summarized below. Thanks as always to Squire Sanders’ Shanghai Office for monitoring these enforcement actions.
1. New law or regulation
State level: No developments
Local level (Beijing & Shanghai): No developments
Communist Party Rules: No developments
2. Upcoming law or regulation
3. Government Action
(1) On March 1, 2013, Ke Jinrong (“Ke”), the former Deputy Director of the Bidding Management Committee, Wenling City, Zhejiang Province, was sentenced to 16 years in prison with confiscation of his personal assets totaling RMB 130,000 (USD 20,930) by the People’s Court of Wenling City for corruption and taking bribes.
During his term in office from 2005 to 2011, Ke allegedly accepted bribes on many occasions amounting to RMB 472,890 (USD 76,137) from companies bidding for construction projects. In return, Ke abused his position to help those companies seek illegal benefits. Ke was also found guilty of embezzling RMB 105,777 (USD 17,030) in public funds.
(2) On March 6, 2013, Yi Xin (“Yi”), the former Director, and Xie Yong (“Xie”), the former Deputy Director of the Audit Office of Guangzhou Medial Insurance Service Management Bureau were respectively sentenced to 6 years and 5 years in prison by the People’s Court of Huangpu District, Guangzhou City, Guangdong Province for taking bribes.
According to the prosecutor, Yi and Xie took advantage of their positions to accept bribes aggregating to RMB 710,000 (USD 114,313) from various pharmaceutical companies seeking to get their products approved for local health insurance plans.
(3) On March 15, 2013, Pan Jia (“Pan”), the former Chief of Jiu’er Village, Rui’an City, Zhejiang Province (a low-level official position in China but one that has historically proved to present opportunities for bribery) was sentenced to 9 years in prison by the People’s Court of Rui’an City for taking bribes.
Reportedly, during his term in office from 2004 to 2009, Pan abused his position as the Chief of Jiu’er Village to receive bribes that were described as “rewards”, “commissions” and “exchanges for equity” during the reconstruction of Jiu’er Village amounting to RMB 6.25 million (USD 1 million). Because Pan had already returned illicit funds worth RMB 3 million (USD 483,015), he was given a reduced sentence.
(4) On March 19, 2013, Chen Xiaozhong (“Chen”), the former Director of Lanyang Farm, a state-owned farm in Hainan Province, was sentenced to 7 years in prison by the No.2 Intermediate People’s Court of Hainan Province for accepting bribes.
During his term in office from October 2010 to October 2011, Chen allegedly took advantage of his position to seek illegal benefits from many project contractors engaged in employee housing construction projects, state-owned land development, and rural road construction. Chen was accused of taking bribes on twelve occasions totaling RMB 990,000 (USD 159,394). On June 29, 2012, Chen turned himself in to the procuratorate and returned illicit funds in the amount of RMB 600,000 (USD 96,603).
(1) According to Sun Jungong (“Sun”), a spokesperson for the Supreme People’s Court of China, from 2008 onwards, the number of heavy sentences (i.e., sentences of five years imprisonment or more, including death sentences and suspended death sentences) imposed on persons convicted of corruption, bribery, or dereliction of duty increased from 17.58% in 2007 to 23% in 2012. Sun also stated that the death sentence will be applied only to those few criminal offenders who commit serious crimes.
(2) On March 17, 2013, Li Keqiang (“Li”), the new Premier of China, vowed in a meeting with journalists to crack down on corruption and to practice frugality in governmental affairs. Li committed to cut the government workforce, halt spending on government offices and hotels, freeze spending on overseas trips and official vehicles, and slash the number of actions that require approvals.
5. China-related FCPA Action
On February 28, 2013, Keyuan Petrochemicals, Inc. (“Keyuan”), and its former CFO, Aichun Li (“Li”), settled an enforcement action with the U.S. Securities and Exchange Commission (“SEC”) by paying USD 1.025 million in civil penalties for violations of the books and records and internal control provisions of the Foreign Corrupt Practices Act (“FCPA”) and the anti-fraud and reporting provisions of other federal securities laws. This is the first FCPA enforcement action in 2013. Keyuan is a company based in Ningbo in Zhejiang province, and its stock is registered with the SEC.
According to the SEC Complaint, Keyuan operated an off-the-books cash account that was allegedly used to fund gifts to Chinese government officials, including officials from the local government, port, police, and fire departments, as well as providing cash bonuses to officers and technical experts providing consulting services. The account was even partially funded through the use of fictitious reimbursement claims that were submitted by the employees of Keyuan as a means to withdraw cash from Keyuan’s company account for use in the off-books account. Keyuan also allegedly violated other federal securities laws, including failure to disclose material information regarding its related-party transactions between the company and its CEO and the controlling shareholders, entities controlled by or affiliated with such persons and entities controlled by Keyuan’s management or their family members. The related-party transactions took the form of sales of products, purchase of raw materials, loan guarantees, and short term cash transfers as disclosed in the SEC Complaint.
Keyuan and Li entered into a joint settlement agreement with the SEC, agreed to pay USD 1 million and USD 25,000 respectively. Li also agreed to his suspension from practicing as an accountant before the SEC but with the right to apply for reinstatement after two years.