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INVESTIGATING CORRUPTION IN CHINA – RECENT DEVELOPMENTS AND PRACTICAL EXPERIENCES Keith Williamson, Managing Director, Alvarez & Marsal Andrew Dale, Partner,

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Presentation on theme: "INVESTIGATING CORRUPTION IN CHINA – RECENT DEVELOPMENTS AND PRACTICAL EXPERIENCES Keith Williamson, Managing Director, Alvarez & Marsal Andrew Dale, Partner,"— Presentation transcript:

1 INVESTIGATING CORRUPTION IN CHINA – RECENT DEVELOPMENTS AND PRACTICAL EXPERIENCES Keith Williamson, Managing Director, Alvarez & Marsal Andrew Dale, Partner, Orrick, Herrington & Sutcliffe 6 May 2014

2 © Copyright 2014 Alvarez & Marsal Holdings, LLC. All rights reserved. ALVAREZ & MARSAL®, ® and A&M® are trademarks of Alvarez & Marsal Holdings, LLC. AGENDA I.Introduction II.Overview of anti-corruption legal framework in China III.Recent investigations and actions by US and Chinese authorities IV.Common corruption risks in China V.Practical challenges and solutions in conducting and remediating investigations in China VI.Summary VII.Biographies VIII.Contact Information 1

3 INTRODUCTION 2

4 OVERVIEW OF ANTI- CORRUPTION LEGAL FRAMEWORK IN CHINA 3

5 CHINESE ANTI-BRIBERY LAW OVERVIEW 4 Comprehensive legislation under PRC law regarding anti-corruption, for example: –Criminal Law –PRC Anti-Unfair Competition Law –SAIC Anti-Commercial Bribery Regulations –PRC Invitation and Submission of Bids Law –Advertisement Law of the People’s Republic Law –Government Procurement Law of the PRC –Laws of State Public Servants –Circular on Prohibiting State Administrative Agencies and Their Personnel from Presenting or Accepting Gifts in Performing Official Duties in China –Communist Party of China Regulations on Disciplinary Penalties –Related Rules issued by Industrial Administrative Departments

6 COMMERCIAL BRIBERY 5 Banned like UK’s Bribery Act Commercial bribes are activities of giving or accepting money, in-kind goods or property with the purpose of providing or obtaining transaction opportunities or other economic benefits, which take place during commercial business and which are in breach of the fair competition principle Any unrecorded commission, discount or payment will be treated as commercial bribery

7 RECENT INVESTIGATIONS AND ACTIONS BY US AND CHINESE AUTHORITIES 6

8 7 China and US-led investigations China-led investigations Rolls Royce – 2012/2013 GlaxoSmithKline – 2013 Dumex (owned by Danone) – 2013 US-led investigations Avon – JP Morgan – 2013

9 COMMON CORRUPTION RISKS IN CHINA 8

10 9 Common corruption risks in China Use of sales agents and government service providers Government relations Tax authorities, environmental agencies, customs, immigration, licensing agencies Off-book bank accounts and records Non-cash bribes Gifts (e.g. iPads, handbags, powdered milk) Appointment of relatives Hidden interests in related companies Joint ventures with state-owned enterprises Use of travel agencies – prevalent in many industries (not just pharma)

11 PRACTICAL CHALLENGES AND SOLUTIONS IN CONDUTING AND REMEDIATING INVESTIGATIONS IN CHINA 10

12 PRACTICAL CHALLENGES AND SOLUTIONS IN CONDUCTING AND REMEDIATING INVESTIGATIONS IN CHINA 11 Conducting investigations Planning and scoping investigations “Client confidentiality” v. common law privilege Data challenges Privacy and state secrecy Practical reality Off-shore entities, multiple sets of books Language and cultural acceptability Fabrication of documents and collusion with third parties

13 PRACTICAL CHALLENGES AND SOLUTIONS IN CONDUCTING AND REMEDIATING INVESTIGATIONS IN CHINA 12 Fabrication of documents and collusion with third parties to disguise false and illegitimate transactions are commonplace in Chinese corruption cases Fapiao/invoice Supplier confirmation Purchase order Delivery note Business license Tax filing Annual report to Administration for Industry and Commerce Delivery note Sales agreement Purchase order Bank statement Bank slip Bank confirmation Bank chop Non-existing bank branch BankCustomer Supplier Government Official Company Board minutes Incorporation documents Official company seal or chop

14 PRACTICAL CHALLENGES AND SOLUTIONS IN CONDUCTING AND REMEDIATING INVESTIGATIONS IN CHINA 13 Remediating investigations Lack of oversight from international headquarters/operations Locals know best Practicality of compliance recommendations to local environment Relatively low status and qualifications of finance/accounting staff Rules v. principles – sometimes lack of local understanding where there is no rule Hierarchical management structure “Pleasing the boss trumps compliance” Silo mentality Internal politics Tone from the top Compliance as a value proposition

15 SUMMARY 14

16 SUMMARY 15 Three key takeaways Anti-corruption enforcement in China is now both global and local Pro-active preparation and proper scoping of investigations is vital Close “parental supervision” of Chinese operations is critical to ongoing compliance

17 QUESTIONS? 16

18 BIOGRAPHIES 17

19 Keith Williamson 18 Managing Director Hong Kong Keith Williamson is a Managing Director and Head of Alvarez & Marsal’s Global Forensic and Dispute Services team in Hong Kong and China. He brings more than 18 years of forensic and investigative accounting experience, specialising in investigations of fraud, corruption (US FCPA/UK Bribery Act) and regulatory issues, asset tracing and recovery, and litigation support and expert witness services for disputes. Mr. Williamson has predominantly been involved in large scale global investigations, asset tracing exercises and litigation support exercises on behalf of U.S., European and Asian owned corporations facing fraud, corruption, regulatory, asset recovery and dispute issues across a broad spectrum of industries, including oil and gas, minerals and mining, healthcare/pharmaceuticals, manufacturing, leisure, financial institutions, education, media and technology. Mr. Williamson has given evidence and been cross-examined in legal proceedings relating to forensic accounting matters. Most recently at A&M, Mr. Williamson has been investigating allegations of US FCPA violations in China and the Asia-Pacific region, performing forensic accounting reviews of alleged fraudulent activity in Hong Kong and China, and acting as the UK high court appointed receiver of Russian assets that are the subject of a judgment debt in favour of a Kazakh bank. Examples of Mr. Williamson’s notable assignments in Asia include: –US Foreign Corrupt Practices Act investigation of a global corporate’s activities across Asia, including China and Singapore. –Advising and assisting a non-governmental organisation with investigations of the alleged misappropriation of grant funds in Asia and Africa. –Forensic financial due diligence on a proposed Chinese acquisition by a US private equity firm. –Management of a large team of accountants and lawyers administering and investigating the assets comprising the multi-US$ billion estate of a Hong Kong businessman involved in property development. –Investigation of allegations of payroll and expense irregularities at a US SEC-listed manufacturer of household consumer products’ Chinese joint-venture. Prior to joining A&M in 2011, Mr. Williamson spent six years with AlixPartners in London, where he most recently served as Managing Director conducting investigations and compliance reviews and providing dispute services across Europe, Africa and the Middle East. Mr. Williamson also spent 10 years with Deloitte’s Forensic & Dispute Services team, including three years working in Asia from their Hong Kong office. Mr. Williamson earned a bachelor’s degree in Law from the University of Birmingham. He is a member of the Institute of Chartered Accountants in England and Wales and the Hong Kong Institute of Certified Public Accountants.

20 Andrew J. Dale, a partner in Orrick’s Hong Kong office, is a member of the firm’s White Collar & Corporate Investigations practice group. He has been recognized in both Chambers Asia Pacific and Chambers Global for his regional anti-corruption work and international investigations. While focusing his practice on corporate investigations, he has considerable experience in and also is a recognized lawyer for complex commercial litigation and arbitration matters. Some of his more notable engagements include the following cases. Advising a Hong Kong listed company subject to an SFC investigation. Represented a U.S. listed company relating to various accounting issues in its Asian operations. Assisted a U.S. listed company on an FCPA investigation relating to its Chinese subsidiaries. Represented a U.S. listed company regarding FCPA and other issues raised by a whistleblower. Advised a global client on an internal investigation involving the misappropriation of funds and confidential information. Represented a Japanese client in an asset tracing exercise in Asia, Europe and the United States. Andrew J. Dale Education Diploma in Legal Practice, College of Law of England and Wales, York, 1997 LL.B., University of Leicester, 1996 Admitted in Hong Kong England and Wales Honors “Ranked Lawyer” for China Dispute Resolution: Anti- Corruption, Chambers Asia and Chambers Global, 2014 “Dispute Star” for Hong Kong, Benchmark Asia Pacific 2013 Orrick Community Responsibility Award 2008 Memberships Fellow of the Hong Kong Institute of Directors High Technology Crime Investigation Association (Asia Pacific Chapter) The Law Society of Hong Kong’s Anti-Money Laundering Committee Partner White Collar & Corporate Investigations Hong Kong Contact

21 CONTACT INFORMATION 20

22 ALVAREZ & MARSAL ASIA Alvarez & Marsal Global Forensic and Dispute Services Limited 11/F, MassMutual Tower 38 Gloucester Road, Wanchai, Hong Kong Tel: Fax: Principal points of contact in A&M’s Global Forensic & Dispute Services practice in Asia: Keith WilliamsonJames Lei Managing Director, Hong KongDirector, Shanghai Aruni WeerakeseraDavin Teo Senior Director, Hong KongDirector, Hong Kong Hong Kong Office Shanghai Office Alvarez & Marsal Consulting (Shanghai) Limited Unit , Level 36, Tower 2, International Finance Centre, No.8 Century Avenue, Pudong District, Shanghai , China Tel: Fax: Beijing Office Alvarez & Marsal Consulting (Shanghai) Limited, Beijing Branch Unit , 11F, China World Office 1, No.1 Jianguomenwai Ave., Chaoyang District, Beijing , China Tel: Fax:

23 Orrick’s Key Contacts KEY OFFICE LOCATIONS HONG KONG 43/F, Gloucester Tower, The Landmark 15 Queen’s Road Central, Hong Kong Tel: Fax: NEW YORK 51 West 52nd Street, New York NY , United States Tel: Fax: Andrew J. Dale Partner Hong Kong Principal points of contact in Orrick’s Global White Collar & Corporate Investigations practice: Pamela R. Davis Partner San Francisco Guy Singer Partner New York & Washington D.C / SAN FRANCISCO The Orrick Building, 405 Howard Street San Francisco, CA United States Tel: Fax: WASHINGTON D.C. Columbia Center, th Street, N.W. Washington, D.C., United States Tel: Fax:

24 ABOUT ALVAREZ & MARSAL 23 Specialising in Forensic and Dispute services, as well as business advisory and consulting services, A&M delivers operational, consulting and industry expertise to management and investors seeking to overcome challenges, accelerate performance and maximize value. –Performance Improvement Revenue enhancement Process improvement Merger integration Strategy Risk management Interim management –Automotive and Suppliers –Consumer Packaged Goods –Energy –Financial Services –Healthcare and Life Sciences –High Tech –Infrastructure –Insurance –Manufacturing –Media and Entertainment –Public Sector –Private Equity –Real Estate –Retail –Transportation and Airlines –Turnaround and Restructuring Turnaround advisory Crisis and interim management Claims management Creditor advisory –Transaction Advisory Financial due diligence Commercial due diligence Operational due diligence Tax due diligence Divestiture services GLOBAL CAPABILITIES –Founded in 1983 by co- CEOs Tony Alvarez II and Bryan Marsal –2,400+ professionals –300+ Managing Directors –43 offices; 19 countries; 4 continents OVERVIEW INDUSTRY EXPERTISE –Forensics and Dispute Services Forensic accounting and investigations, Disputes - Testifying and consulting experts Forensic Technology –Tax Advisory –Global Asset Risk Services

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