Overseas firms making sure they keep their hands clean

Three in 10 have ceased doing business with a partner due to corruption concerns.

Another 15 percent abandoned planned acquisitions because of possible corruption at the target. Among the 30 percent of companies that chose to avoid doing business in regions associated with corruption, one quarter bypassed China.

Another survey done by Kroll, a US-based consultancy, showed that 80 percent of companies based in China reported they had been exposed to fraud during 2012 to 2013. On average, 1.2 percent of revenue is believed to be lost to fraud in the country.

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While the atmosphere has become tense among government officials, business circles are not immune to the anti-corruption campaign.

In June, there was an investigation of GlaxoSmithKline Plc. More than 700 middlemen and travel agencies are alleged to have helped channel nearly $500 million in kickbacks to those who prescribed pills from the UK drugmaker. Four high-level executives of GSK China were detained by the Ministry of Public Security and at least 18 other employees arrested.

In another high-profile case, senior executives of China National Petroleum Corp were targeted in an investigation starting in August. The investigation has spread to at least five business partners of PetroChina.

Cucino also expressed concern over the crackdown. "It is important that the crackdowns themselves are done in accordance with Chinese laws and that full due process is respected.

"European companies would also like to understand better the central government's strategy and would encourage greater transparency in the processes, in particular the due processes of actual investigations," he said.

"Had we not seen what happened last year, we would definitely say foreign companies would continue to find it difficult to compete squarely with State-owned entities," said Wendy Wysong, a partner at Clifford Chance LLP.

"But President Xi Jinping has made it clear that they are looking at the whole spectrum of corporate corruption, involving both domestic and foreign companies.

"In prior years, there was a tendency to discount the government's statements about anti-corruption as being politically motivated and/or efforts to consolidate power - activities that new leadership would be expected to undertake. But what we have seen this past year are real enforcement actions. I don't think any company can view themselves as immune from anti-corruption efforts. It is best to make sure you are in compliance," she added.

Other than just going through earnings reports, foreign companies are looking into their partners' shareholding structure and flaws in the record, said Diana Shin, partner of fraud investigation and dispute services at Ernst & Young.

Attention has also been given to the tradition of building guanxi (relationships), which is often taken as a golden rule for foreign businesses trying to make their way in China.

"Guanxi often starts when a person is very young - building up relationships and trust with school friends, young professionals and then, finally being in a position to work together as client or customer. Foreign companies as they enter the market don't have the benefit of a long-term relationship.

"They sometimes try to make up for that lost opportunity and time by giving excessive favors or entertaining on a lavish scale. That's not going to be allowed anymore, according to the president's anti-corruption plan," said Wysong.

"Hospitality and giving gifts are part of doing business. Everyone understands you have to develop a relationship in which you can talk comfortably and freely. It won't be the occasional casual lunches and company mugs that are of concern. Rather, it's the Rolex watches," Wysong said.

She said foreign companies are reviewing their compliance programs to make sure they are consistent with Chinese laws, as well as their own domestic laws. A lot of training has been done, especially in remote areas and factories on the outskirts of cities.

"You need to send the same message to everyone that they are expected to take compliance seriously and act in accordance with the policy," she added.

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