U.S. enforcement authorities are increasingly targeting corrupt practices among Chinese companies in Africa. Four trends are worth watching, writes Chinwe Esimai in this opinion piece. Esimai is managing director and chief anti-bribery officer at Citigroup, where she oversees the firm’s global anti-bribery program. This article reflects her personal opinions.
Last March, Patrick Ho, former secretary for home affairs in Hong Kong and a Chinese national, was convicted on international bribery and money-laundering charges. He was fined $400,000 and sentenced to three years in prison in New York in connection with activities on behalf of a Chinese company, the China Energy Company, which was doing business in Africa. According to the U.S. Department of Justice (DOJ), Ho bribed and schemed to bribe government officials from Uganda and Chad respectively, in order to secure unfair business advantages for China Energy.
This case represents an important trend. It relates to U.S. authorities’ enforcement of the U.S. Foreign Corrupt Practices Act (FCPA). While historically FCPA enforcement cases involving China have focused on multinational companies based in China, this one is different. It is an example of FCPA enforcement actions involving Chinese companies doing business outside China and around the world. U.S. FCPA enforcement around the world is nothing new, but this trend represents increased and deliberate focus by U.S. authorities.
As the U.S. steps up anti-bribery enforcement efforts, the principal players in this relationship — China and African countries — have not prioritized implementing anti-bribery and corruption actions. While China enforces its own domestic laws, many observers believe that China should also promote ethical business practices among its companies doing business overseas. An opportunity also exists for U.K. anti-bribery enforcement authorities. The utmost responsibility lies with African countries to take the lead in ensuring the integrity of their own markets. They will have to do this if they want to assume their place as architects of their own destinies and leaders in the global economy. In the longer term, Africa would benefit from choosing a path of growth through integrity.
The Challenge of Corruption
China in recent years has been an aggressively investing in Africa. In a comprehensive June 2017 report, the global consulting firm McKinsey cited corruption as the largest pain point to be addressed to make the China-Africa trade partnership sustainable in the long term. According to the report, 60% to 87% of Chinese firms said they had paid a “tip” or bribe to obtain a license in connection with business transactions in Africa. The report notes that the corruption problem is “a vicious cycle in these countries — one fed by perceptions on both the African and the Chinese sides.”
Other key highlights of the report include:
China is Africa’s largest trading partner;
Investments exist across industries including manufacturing, real estate, and construction. They involve long-term commitments, and are likely to continue to grow;
Revenues could reach $440 billion by 2025.
The negative effects of corruption on society are well-documented. At the minimum, unethical and illegal practices in connection with massive investment flows contribute to corrupt practices where they already exist, and at the worst, they exacerbate them. Promoting ethical business practices is one of the best ways to build trust in the public sector, maximize natural resources and realize economic prosperity.
Four Trends to Watch
Tackling corruption in Chinese investments in Africa is therefore an important business imperative. How should that be done? I believe it is important to monitor four trends:
U.S. authorities are focused on FCPA enforcement involving Chinese companies.
The U.S. FCPA prohibits the payment of bribes to foreign officials to obtain or retain business. The FCPA also includes accounting provisions requiring issuers to make and maintain accurate books and records and a system of internal controls.
According to Stanford Law School anti-bribery statistics, a representation of historical FCPA enforcement actions, organized by geography where the bribes were paid, shows the highest concentration in China, with 57 of 277 cases. Nigeria and Iraq are second with 23 cases; Mexico is third with 22; and Brazil, India and Indonesia come next at 21.
U.S. enforcement authorities have repeatedly stated their commitment to “investigate and prosecute individuals who engage in foreign corrupt business practices, regardless of how sophisticated or far-flung the scheme may be…. We can and will follow the evidence wherever it leads – from Columbus to Kazakhstan and beyond.”
Increasingly, those investigations and prosecutions involve cooperation among authorities in various countries. For example, in December 2016, Brazil’s Odebrecht and its affiliate Braskem agreed to settlements to resolve charges with United States, Brazil and Switzerland authorities, in connection with the Operation Car Wash or Lava Jato investigations. Settlements involving multiple authorities within the U.S., as well as those involving U.S. authorities and their peers in other countries, are now prevalent.
Historically, FCPA enforcement cases involving China (including those reviewing employment practices) have largely centered on multinational companies based in China rather than Chinese companies doing business in China or elsewhere.
One indicator of U.S. authorities’ increased focus on FCPA cases involving Chinese companies abroad is a declaration from the DOJ. Announced in November 2018, the China Initiative outlined 10 goals, most of which relate to economic espionage. One goal, however, is to “identify FCPA cases involving Chinese companies that compete with American businesses,” signaling that U.S. authorities now view anti-bribery efforts as a key pillar of the U.S.’s trade strategy toward China.
A second indicator of this trend is reflected in recent enforcement cases, such as the proceedings against Patrick Ho, as noted above. The case underscores the FCPA’s broad applicability. The FCPA applies beyond U.S. borders and covers: (a) U.S. persons and businesses, (b) U.S. issuers and foreign public companies listed on U.S. stock exchanges or that are required to file periodic reports with the U.S. Securities and Exchange Commission, and (c) certain foreign persons and businesses acting while in the territory of the U.S.
According to the DOJ, factors contributing to the exercise of U.S. jurisdiction in the China Energy case included the fact that a U.S.-based non-governmental organization was used to conceal the criminal scheme. Ho was secretary-general of a NGO in Hong Kong and Arlington, Virginia. A bribe of $500,000 was allegedly paid, via wires transmitted through New York, to an account designated by a Ugandan minister.
U.S. regulators’ analysis of the applicability of the FCPA includes consideration of companies’ subsidiaries, foreign nationals’ activities in the U.S., as well as relevant financial transactions. Prosecutors also have a suite of criminal charges that may be brought to bear in their analysis.
Another similar case involved China Petroleum Chemical, whose stock trades on the New York Stock Exchange. Beginning in 2017, U.S. authorities initiated a probe into whether CPCC paid Nigerian officials more than $100 million in bribes in connection with a business dispute. I predict that we can expect this trend – of U.S. authorities investigating and prosecuting bribery allegations involving Chinese companies doing business around the world – to continue in the months and years ahead.
Chinese anti-bribery enforcement involving Chinese companies doing business in Africa is virtually non-existent.
Over the last several years, many countries have either strengthened their anti-bribery laws or increased enforcement of existing laws.
China has contributed to this positive trend. Beginning in 2012, China cracked down on corruption, enforcing Article 385 of the People’s Republic of China’s Criminal Law promulgated in 1997. Xi Jinping’s recent anti-corruption initiatives have attracted much attention, including those focused on pharmaceutical companies, such as GlaxoSmithKline, that are doing business in China.
Another recent example involves the Hong Kong Special Administrative Region of China Independent Commission Against Corruption’s charges against a JP Morgan Chase banker for the alleged hiring of relatives of Chinese officials in exchange for business.
While Article 164 of the PRC’s Criminal Law could, in principle, apply to the conduct of Chinese companies doing business in foreign countries, Chinese regulators have not brought enforcement actions against Chinese companies doing business in foreign countries, in spite of the increasing trend toward Chinese investments overseas.
As part of China’s investment strategy overseas, Chinese regulators should support anti-corruption efforts abroad.
An opportunity exists for U.K. enforcement authorities.
The issuance of the U.K. Bribery Act in 2010 represented a sea change in anti-bribery and corruption legislation. Similar to the FCPA, the UK Bribery Act has extraterritorial effect. In addition, the Bribery Act prohibits commercial bribery and facilitation or “grease” payments.
In the GSK case mentioned earlier, the U.K. Serious Fraud Office reportedly partnered with Chinese enforcement authorities.
As the U.K. continues to increase enforcement of the Bribery Act, an opportunity exists to bring actions involving Chinese companies in Africa. Given the U.K.’s geographic proximity to Africa, as well as the prevalence of business coverage of African transactions out of London in particular, U.K. authorities may have additional jurisdictional hooks at their disposal, more so than U.S. regulators historically have had.
African anti-bribery enforcement involving Chinese companies doing business in Africa is virtually nonexistent.
According to the McKinsey report, key African participants in the China-Africa trade dance are: Ethiopia, South Africa, Nigeria, Kenya, Tanzania, Angola, Zambia and Cote D’Ivoire. McKinsey notes that with the exception of Ethiopia and South Africa, these countries lack well-defined strategies governing their engagement with China.
It is noteworthy that some African countries have contributed to the positive global trend by amending their anti-bribery laws. Recent examples include Kenya, Mozambique, and South Africa. In spite of these promising developments, enforcement of existing laws across the continent remains sparse.
The African Union demonstrated leadership by identifying the promotion of ethics and the rule of law as a key pillar in Africa’s Agenda 2063 — the strategic framework for Africa’s socio-economic transformation. Anti-corruption initiatives are included under Aspiration 3: An Africa of good governance, democracy, respect for human rights, justice, and rule of law; and Aspiration 5: An Africa with a strong cultural identity, common heritage, values and ethics.
The components of Agenda 2063 cannot remain aspirational, but require coordinated efforts by Africa’s public and private sectors to tackle bribery challenges.
Growth Through Integrity
What better opportunity to embed anti-bribery best practices than high value, long-term, concentrated investment flows from a single country? As prominent participants in trade partnerships with China, Nigeria, Kenya, Ethiopia, and South Africa are uniquely positioned to lead the charge.
The first four critical steps would involve, at the minimum:
Defining standards of ethics and due diligence for business transactions;
Empowering enforcement agencies with qualified personnel and resources to conduct independent anti-bribery investigations;
Initiating enforcement probes into, and prosecuting, instances of alleged bribery; and
Launching culture initiatives, including training and disciplinary actions, to tackle the demand side of bribery in governmental agencies.
Defining the Future of Doing Business in Africa
Combating corruption represents a defining leadership question for Africa. African countries cannot rely on the U.S., the U.K., or China to fight Africa’s anti-corruption battles. Will Africa rise to the challenge? How will Africa choose to engage in the global economy? Over the next few years, the unfolding saga of this historic alliance will either replicate old bribery patterns or create new, unparalleled examples of integrity and excellence. It is up to Africans to decide.