The following is an excerpt from today’s Online Caijing Magazine (English). The original Caijing report is in Chinese. The link will only take you to an abstract, rather than a full report, which is for the eyes of subscribers only. Fair enough. Luckily, someone somewhere somehow manages to post this.
Foreign Investment Process in Graft Storm
Since August, virtually every Chinese government regulatory department involved in foreign investment has been affected by a stormy investigation into high-level corruption.
A half-dozen officials have been forced to step down from the Ministry of Commerce (MOFCOM) and State Administration for Industry and Commerce (SAIC). Lawyers who served as brokers for questionable deals were punished as well.
Guo Jingyi, an official at MOFCOM’s Treaty and Law Department, was detained in mid-August by the Communist Party’s disciplinary arm. Also arrested were two lawyers, Zhang Yuzhu, director for the Beijing legal firm Seafront Law Office, and his former colleague Liu Yang.
In late September, authorities arrested Deng Zhan, a former deputy administrator of foreign investment at MOFCOM, on charges of accepting bribes. Du Baozhong, from MOFCOM’s treaty department, was detained in late October. And later Liu Wei, a deputy chief for foreign investment registration at SAIC, was arrested.
Guo and Deng were detained by party discipline inspectors in connection with their roles in approving foreign mergers and acquisitions. Liu was a link in the process and worked closely with Guo and Deng.
The cases of Zhang, charged with commercial bribery, and Deng, who allegedly accepted bribes, have been forwarded to judicial authorities.
Although there have been no official statements about connections between these individual cases or other details, the probe has sent shock waves throughout the foreign investment sector, affecting companies, financial service institutions and investors.
Like a loose string pulled on an old sweater, the investigations of Guo and his associates also may unravel the flawed regulatory system that affects the entire foreign investment field.
The cases reflect the shortcomings of gray-zone rules for approving startups, mergers and acquisitions involving foreign companies. Guo and his lawyer friends allegedly took advantage of these and other regulations for reasons still unclear.
At the same time, the cases have exposed the reality of the country’s often vague foreign investment regulations, which apparently lack administrative power in some areas and appear to be too restrictive in others.
A lawyer specializing in mergers and acquisitions involving foreign investment said, “To a large extent, Guo Jingyi’s rent-seeking behavior was all within the scope free discretion and in fact cleared administrative hurdles for normal business activities. This is really sad.”
An earlier report at ALB Legal News also reveals that two US law firms are under investigation for their involvement in the MOFCOM bribery scandal:
The Chinese government is investigating deals involving two US law firms in a wider corruption probe which saw the detention of officials responsible for approving foreign investment deals into the country.
According to Chinese media, special government investigators are reviewing investments cases in which two US-based law firms are involved. Media sources did not name the firms but revealed they had offices in Hong Kong and Beijing.
Richard Cassin, from US-based firm Cassin Law, said that American law firms embroiled in the corruption probe may risk criminal prosecution at home under the Foreign Corrupt Practices Act (FCPA). He also said that these problems may emerge when law firms are not careful enough in complying with the Act.
More than 150 people attended an AmCham-China event with keynote speaker Guo Jingyi, director general of the Ministry of Commerce’s Treaty and Law Department, on November 6 at China World Hotel. Guo discussed the merger and acquisition regulations issued by the government in September and their impact on both foreign and domestic companies. He gave specific attention to the background of the drafting of the rules and their future implementation. Image from: