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.
New Law or Regulations
(1) Regulations on the Management of Governmental Affairs
On July 9, the Chinese Sate Council promulgated the new Regulations on the Management of Governmental Affairs (the “Regulation”), which focuses on major government issues of public concern such as the disclosure of information regarding government spending on official receptions, vehicles, and overseas trips, government procurement, and conference management.
According to the Regulation, government agencies are explicitly prohibited from purchasing luxury items, goods or commodities or constructing elaborate office buildings. Further, enhanced supervision is placed over the “three kinds of official consumptions”, i.e. use of government spending on official receptions, vehicles and overseas trips, which have been determined to be major sources of corruption in the past.
As the country’s first administrative regulations to deal with governmental affairs, the Regulation will be implemented on October 1, 2012.
Local level (Beijing & Shanghai): No developments
Communist Party Rules: No developments
Upcoming law or regulation
China Enforcement Actions
(1) On July 2, 2012, Liu Zhuozhi (“Liu”), the former Vice Chairman of the Inner Mongolia Autonomous Region in North China, was sentenced to life imprisonment by the Beijing No. 1 Intermediate People’s Court for taking over RMB 8.17 million (US$1.29 million) in bribes.
During Liu’s term as government head and Party chief of the Xilingol League in western Inner Mongolia and vice chairman of the autonomous region’s government between 2002 and 2010, Liu took advantage of his position and power to grant favors to 21 companies and individuals by improperly approving business and mining credentials and promoting officials. In exchange for these favors, Liu reportedly accepted bribes exceeding RMB 8.17 million (US$1.29 million).
(2) On July 3, 2012, Yan Limin (“Yan”), the former General Manager of the Hangzhou-based Juhuasuan website, a group-buying website and subsidiary of Taobao.com, China’s largest online retailer, was detained by Hangzhou police on suspicion of accepting bribes. The amount of bribes that Yan allegedly accepted has not yet been disclosed.
Juhuasuan.com’s transaction volume reportedly reached more than RMB 10 billion (USD1.6 billion) last year, accounting for approximately half of the market share in China. The previous investigation revealed that some unqualified business owners, purportedly through offering bribes, conspired with certain Juhuasuan employees to cheat customers by removing negative feedback posts and raising their credit ratings to promote sales.
Yan continues to remain in Hangzhou police custody as the investigation continues.
(3) On July 6, 2012, Tian Xueren (“Tian”), the former Vice Governor of Jilin Province, was expelled from the Communist Party of China (“CPC”) for allegedly taking substantial bribes. The case has been submitted to the prosecutors for further investigation.
(4) On July 11, 2012, Guangdong Province Higher People’s Court affirmed the trial court’s sentencing of Zhong Xinming (“Zhong”), the former Executive Deputy Mayor of Longgang District of Shenzhen, to death with a two year reprieve for taking bribes in the amount of RMB 5.19 million (USD 820,000) and HK dollar 35.9 million (USD 4.6 million).
Zhong was found guilty of abusing his power and taking bribes while leading land requisition efforts for the construction of Longgang Sports New Town, and while overseeing the construction of Metro Line 3 and renovation of Shenhui Road, between 2007 and 2010. Zhong and his brother, Zhong Weiming, reportedly accepted bribes from a property developer in exchange for offering him the right to develop a piece of land and helping him get compensation for land requisition. Zhong Weiming was sentenced to 12 years in prison and the person who purportedly provided the bribes was sentenced to 11 years in prison.
(5) On June 20, 2012, Wang Lisheng (“Wang”), the former Director of the Demolition and Relocation Office of the Northeast city Qitaihei in Heilongjiang Province, was prosecuted for engaging in commercial bribery.
During Wang’s term as the Director of the Demolition and Relocation Office (a low-level official position in China but one that has historically proved to present opportunities for bribery), Wang allegedly abused his power by improperly assisting his friend’s company to obtain demolition projects netting high profits. Wang reportedly accepted substantial bribes in exchange for his official assistance. The case will be submitted to the applicable court for trial in a matter of days.
Other Enforcement Related Developments
(1) On June 27, 2012, Liu Jiayi (“Liu”), the auditor general of the National Audit Office of the People’s Republic of China (PRC), disclosed in a report based on audits of 66 cities and counties that RMB 2.96 billion (USD 470 million) earmarked for affordable housing programs had been intercepted or embezzled last year..
In July, after Liu’s report, some misused affordable housing capital reportedly was recovered and persons allegedly responsible were placed under investigation by the relevant authorities.
(2) As of July 13, 2012, China reportedly has closed at least 89 websites since March of this year that allegedly falsely described themselves as anti-corruption portals. The websites, with names such as “corruption prevention website of China” and “corruption investigation and prevention research center of China,” were closed by the PRC State Internet Information Office for allegedly extorting companies, government agencies and individuals by threatening to falsely post negative bribery news about the relevant persons or entities unless they acceded to their demands.
(3) It was reported in early July that more than 1,000 officials across Guangdong province in southern China have been investigated for corruption as part of a year-long crackdown on economic crimes, including commercial bribery. In Shenzhen, authorities have arrested 146 party officials and civil servants since February, 2012 for corrupt activities involving RMB 150 million (USD 23 million). The campaign has extended to other second-tier cities within the province as well.
(4) China’s procuratorial organs also reportedly handled 13,870 criminal cases of embezzlement and bribery, and brought 18,856 suspects into lawsuits in the first five months of 2012. The figures were revealed by the Supreme People’s Procuratorate at a national conference held in the city of Dalian in northeast China’s Liaoning province in early July.
China Related U.S. Enforcement Action
(1) On July 17, the Nordam Group Inc. (“Nordam”), a provider of aircraft maintenance, repair and overhaul (MRO) services based in Tulsa, Okla., entered into an agreement with the Department of Justice to pay a USD 2 million penalty to resolve violations of the U.S. Foreign Corrupt Practices Act (FCPA).
According to the agreement, Nordam, its subsidiaries and affiliates paid bribes totaling USD 1.5 million to employees of airlines created, controlled and exclusively owned by the People’s Republic of China in order to secure contracts to perform MRO services for those airlines. The bribes were paid both directly and indirectly to the airline employees. Several Nordam employees in the U.S. were aware of and approved the bribes which were referred to internally as “commissions” or “facilitator fees”.