(By Ding Jinkun) Recently, Glaxo SmithKline, UCB and many foreign pharmaceutical giants are being investigated for their involvement in economic crimes. The entire pharmaceutical industry is involved into this investigation, stated-owned pharmaceutical firms included. Thus, it can be seen that the Chinese medical market has developed some deformities. Among the resulting crimes, some specific acts include unlawfully raising the price of medicine and unreasonably requiring consumers, particular patients, to pay “perks” for the lawbreakers in the form of small fees.

Glaxo SmithKline (“GSK”) made an announcement in London that some of the enterprise’s senior executives in China were involved in some impropriety in business practices for evading standard enterprise processes and supervision, thus violating numerous Chinese laws. Such an announcement actually seemed rather disingenuous. Did GSK’s headquarter really have no knowledge that its senior executives had committed crimes? GSK’s headquarter’s acquiescence to such crimes is the more likely scenario. Even if they didn’t know, they shall first apologize to society and the general consuming public for poor management, rather than shifting the responsibility onto senior executives, all the while claiming total innocence.

With regard to foreign enterprises’ criminal methods, taking the Siemens scandal and GSK scandal as illustrative examples, habitual practices typically involve serving a third party or a fourth party as an intermediary to offer commercial bribes. The reality is, however, that these corrupt practices rarely effectively disguise criminal activity. On the contrary, crimes are more easily investigated because of the abundance of so many “insiders”. Since those obeying the laws are generally not put under investigation without proper reason, intra-enterprise controls and norms must be implemented according to the relevant legal procedures.

Earlier, foreign enterprise legal counsel told me his enterprise would like to engage a legal adviser specializing in criminal defense, and I said, “It is quite necessary.” Generally, enterprise legal counsel mainly deal with legal business in commercial laws and labor law, review external contracts and enhance internal management; surprisingly, enterprise legal counsel rarely undertake criminal risk control. Matters involving possible crimes may not even come to the counsel’s notice; the fact is, however, that many foreign enterprises’ business practices place those enterprises at considerable risk of being caught under the heavy-handed arms of the law. Virtually, controls implemented that are focused on restraining possible criminal activity, including process supervision and subsequent punishments for placing the enterprise at criminal risk are more of significance than that of other civil and commercial legal affairs.

As for foreign enterprises, among the crimes most likely to occur, including commercial bribery, duty encroachment, capital embezzlement, tax evasion, crimes of falsely making out specialized added-tax receipts and crimes of smuggling are just a few examples of the many types of criminal activity that occur at an alarming rate. Taking that into account, in order to better protect their own products and lawfully attract competitors, legal counsel shall familiarize themselves with criminal laws composed of manufacturing or selling counterfeit items, passing off trademarks, patent infringement, and commercial espionage. In addition, during regular business operation, legal advisers shall strive to prevent such typical criminal behaviors as falsely registered capital, false capital contributions, secretly withdrawing funds and similar illegal operations. Therefore, in terms of the many crimes of disrupting the order of the socialist market in China, it behooves foreign enterprises gingerly handle any and all business transactions, and approaches all business dealings with significantly more caution than in their home countries. To better handle criminal risk controls, criminal defense attorneys with actual practical experience are engaged by foreign enterprises to achieve optimal operations. More worryingly, however, is the possibility that a number of foreign enterprises are engaging professional defense attorneys to better undertake more secretive conduct as a way to evade Chinese laws. An reality of China’s imperfect and relatively unhealthy market economy is that the greatest, and often the easiest way to profit involve becoming successful not by the inherent value in a given enterprises’ products’ design and quality, but by monopolizing the market to the greatest possible extent, thus inducing commercial crimes, and as a corollary the manifestation of “rule by man” in China’s economic arena.

A Chinese proverb reads, “oranges change with their environment;” this essentially means that foreign enterprises abide by the laws in their home countries, but in China quickly “assimilate” and adopt the behaviors and attitudes of Chinese enterprises disobeying the laws. We need to make a careful consideration as to why enterprises in China have exhibited such different behaviors from those in other countries. Surely, China’s market economy appeals to any spirit of contract in the Western sense. However, it could take some time for this to fully manifest itself. When every enterprise is making money, the first reaction is to protect oneself and one’s profits. In today’s China, despite a growing and changing market environment, not violating criminal laws is as essential for the survival of a successful enterprise as it is in any other mature market economy.

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