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.
Practical issues to consider when managing investigations involving China. Managing internal investigations in any part of the world will have its own unique challenges. This is especially the case in China, where language proficiency and a deep understanding of local business culture are essential. Additional issues to consider include how best to manage information.
Preserving attorney-client privilege vis-a-vis foreign jurisdictions. Although there is no equivalent to US-style attorney-client privilege in China, when conducting internal investigations here multinational corporations should still make sure to preserve privilege protection vis-a-vis foreign jurisdictions. US multinational corporations often engage US-qualified outside counsel to direct and supervise the investigation for the purpose of providing legal advice, so that a US court or regulatory agency may recognize such communications to be protected by privilege under US laws.
Reviewing documents with data privacy and cybersecurity concerns. In reviewing and transferring data in the course of an investigation, multinational corporations should also make sure they do not inadvertently breach any rules and regulations relating to data privacy and cybersecurity. China’s Cybersecurity Law entered into force in June 2017, setting out requirements for handling data containing personal information. Planning for any review and transfer in an internal investigation will need to take into account all relevant requirements. With China’s new Encryption Law having come into force in January 2020, multinational corporations have to be prepared to meet more stringent China data privacy standards.
Protecting state secrets and international criminal judicial assistance restrictions. In many situations, multinational corporations have to navigate issues relating to any disclosure of documents to a foreign regulator. Following China’s State Secrets Law, a multinational professional services firm resisted production of certain papers in response to an SEC subpoena, until the dispute was resolved in early 2014. China’s International Criminal Judicial Assistance Law was also enacted in October 2018 to require approval from authorities before parties in China may provide documents in foreign criminal proceedings.
Managing a multijurisdictional investigation can be challenging, especially if you have to plan for potential enforcement authorities across different jurisdictions. An issue in China could quickly escalate across the US, UK and Europe. Ultimately there is no one-size-fits-all solution involving China, and it often takes an experienced multijurisdictional team on the ground to lead a consolidated strategy. Always consider any practical issues that may arise and solutions across all the jurisdictions.
Shaun Wu is a partner at Paul Hastings and leads the Investigations and White Collar Defence practice for Greater China. Wei Anqi, Lian Jie and Xiong Jialing also contributed to this article.