Would that it were so easy.
Kickback schemes are rampant in China. If you have Chinese employees and you buy or sell product in China, there is a good chance you are losing money from kickbacks and likely also violating Chinese and U.S. (or European laws).
American Public Media’s Marketplace just did a brief radio story on kickbacks in China, entitled, Playing straight sometimes misses bottom line: In most countries, scandal is bad for business. But in China, being on the up and up can mean lost business.
The story starts out talking about the currently pending investigation involving bribery charges against “seven multinational companies, including McDonald’s and Whirlpool”:
Twenty-two people have been detained. Suspicion is they took half a million dollars in kickbacks from computer equipment suppliers. In most countries scandal’s bad for business. But Jocelyn Ford reports sometimes, being on the up and up means lost business.
The radio story takes place on a bus chartered by That’s Beijing magazine, to take a group of advertisers “on an all-expenses-paid trip to the ski slopes.” That’s Beijing’s Manager talks about how he does not allow his ad sales staff “to lure customers with kickbacks,” even “though that’s common practice in the magazine industry”:
WESTER: You know one time, when we first started out, this guy pulled us aside from a real estate company and he said, “You guys are fools. Look at this sales kit.”
Corporations like McDonalds and Japan’s Fuji Xerox might be embarrassed by the investigation. But Humphrey says it’s good news the police are starting to enforce the law against kickbacks.
How can you stop your China employees from taking or paying kickbacks? There are no easy answers and oftentimes the best you can hope for is minimization, rather than elimination. I had a client who hired a private investigator to determine whether any of his seven Chinese employees were getting kickbacks and he learned they all were. He fired three of them and warned the other four. The problem is that both China and the United States (usually under the FCPA) are cracking down on China corruption and these investigations often go to the top.
- Make clear, in writing, in both English and Chinese, that kickbacks are not allowed, will not be tolerated, and automatically lead to firing and reporting of the incident to the appropriate authorities. Provide examples of what is allowed and what is not. Set up an ethics or kickback line, direct to you or to someone you trust, so doubts can be quickly resolved.
- Retain skilled professionals to investigate who at your company is involved in kickback schemes. A private investigation firm can set up a “company” and periodically test your employees.
- Conduct thorough background checks on those you are planning to hire.
- Provide your entire staff with regular and monitored China anti-corruption training/FCPA compliance training. Make sure that attendance is recorded. This training should be led by an outside entity (typically by China lawyers who know both China law and applicable foreign law) who are fluent in both Chinese and in English.
- Stay on top of your China office. Know who is doing business with whom and know the numbers. Ask questions.