UNHS Legal Issues Regarding International Bribery and Corruption Research Paper Hi,I need a 3 pages research about legal issues regarding international bri

UNHS Legal Issues Regarding International Bribery and Corruption Research Paper Hi,I need a 3 pages research about legal issues regarding international bribery and corruption such as the FCPA. Suggested references are atteched.Thanks beforehand. Electronic copy available at: http://ssrn.com/abstract=1930190
Electronic copy available at: http://ssrn.com/abstract=1930190
Electronic copy available at: http://ssrn.com/abstract=1930190
WAKE FOREST JOURNAL OF BUSINESS
AND INTELLECTUAL PROPERTY LAW
VOLUME 12
SUMMER 2012
NUMBER 3
AMERICAN ENTREPRENEUR IN CHINA: POTHOLES AND
ROADBLOCKS ON THE SILK ROAD TO PROSPERITY
Lawrence J. Trautman†
I. OVERVIEW …………………………………………………….. 427
II. WHAT BASIC NEEDS ARE DRIVING
CHINESE POLICY? …………………………………………… 429
III. DOING BUSINESS IN CHINA IS NOT JUST
LIKE DOING BUSINESS IN ANOTHER
FOREIGN COUNTRY ………………………………………… 431
A. THE MODERN CHINESE LEGAL SYSTEM ……………… 433
B. NO CONCEPT OF PRIVATE PROPERTY …………………. 434
C. ACCOUNTING STANDARDS: AUDITOR
FRUSTRATION AND ADOPTION OF INTERNATIONAL
FINANCIAL REPORTING STANDARDS (“IFRS”) ………. 435
D. EXPERIENCE WITH MARKETS AND “CORPORATE
FORM” IS DISARMINGLY RECENT ………………………… 438
E. BANKING IN THE PRC ……………………………………… 440
The non-performing loan (“NPL”) issue ……………….. 441
F.BANKING DAY OF RECKONING NEAR? …………………. 443
IV. A CONTROLLED ECONOMY IS A
BUREAUCRACY AFTER ALL……………………………. 446
A. BUSINESS FORMATION …………………………………….. 446
†
J.D., Oklahoma City Univ. Law School; MBA, The George Washington
University; BA, The American University. Mr. Trautman is a past president of the
New York and Metropolitan Washington/Baltimore Chapters of the National
Association of Corporate Directors.
The author wishes to extend particular thanks to the following for their
assistance in the research and preparation of this article: Lawrence Hellman and
Attorney Gu Ming of the Oklahoma City University School of Law; Deans Hou
Xinyi and Zuo Haicong and Professor Zhang Yong of the Nankai University Law
School; Susan Shirk, former Deputy Assistant Secretary of State for East Asia and
Pacific Affairs, and now Professor at UC- San Diego; and, in particular, Professor
Norwood Beveridge of the Oklahoma City University School of Law.
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V. BRIEF HISTORY OF CHINESE SECURITIES
MARKETS ………………………………………………………… 447
A. NOT REALLY PRIVATIZATION ……………………………. 451
B. REGULATION EVOLVES ……………………………………. 453
C. THE PEOPLE’S BANK OF CHINA (“PBOC”) ………….. 455
D. CHINA SECURITIES REGULATORY COMMISSION
(“CSRC”) ……………………………………………………….. 457
E. SHANGHAI AND SHENZHEN MARKETS DEVELOP ….. 459
F.IS “STOCK” TRADED ON THE SHANGHAI OR
SHENZEN EXCHANGES A “SECURITY” AS
AMERICANS UNDERSTAND THE TERM? ………………… 460
VI. DEVELOPMENT OF CHINESE CORPORATE
LAW………………………………………………………………….. 462
A. THE CHINESE CORPORATE LAW ………………………… 462
B. THE NEW COMPANY LAW (EFFECTIVE JANUARY 1,
2006) ……………………………………………………………… 463
C. CONVENTION ON CONTRACTS FOR THE
INTERNATIONAL SALE OF GOODS (“CISG”) ………….. 465
D. ARBITRATION AND DISPUTE RESOLUTION …………… 465
E. BANKRUPTCY…………………………………………………. 466
F.INTELLECTUAL PROPERTY ISSUES……………………….. 467
G. U.S. COURT JUDGMENTS IN CHINA:
ENFORCEABLE? ……………………………………………….. 470
H. JUDICIAL SYSTEM AND THE PRACTICE OF
CORPORATE LAW IN THE PRC…………………………….. 471
VII. DUTIES AND RESPONSIBILITIES OF
DIRECTORS IN A CHINESE SETTING ………………. 475
A. COMPARISON OF U.S. CORPORATE GOVERNANCE
WITH THAT OF THE PRC …………………………………….. 475
1. Number of Directors ………………………………………. 477
2. Term of Office for Directors ……………………………. 477
3. Qualifications ……………………………………………….. 477
B. DUTY OF LOYALTY …………………………………………. 482
C. DUTY OF CARE ……………………………………………….. 483
D. DISCLOSURE ………………………………………………….. 483
E. CHINESE DIRECTORS REPORT TO THE PRC
GOVERNMENT …………………………………………………. 484
F.TWO-TIER BOARD SYSTEM ………………………………… 485
G. IMPACT OF SARBANES-OXLEY…………………………… 486
H. DIRECTOR AND OFFICER LIABILITY ……………………. 487
I. ROLE OF THE CHINESE COMMUNIST PARTY IN
CORPORATE GOVERNANCE ………………………………… 488
J. FOREIGN CORRUPT PRACTICES ACT (“FCPA”) ……… 490
Corruption Threatens China’s Future …………………… 491
K. HONG KONG IS DIFFERENT ………………………………. 494
VIII. CONCLUSION ……………………………………………. 495
2012]
[AMERICAN ENTREPRENEUR IN CHINA]
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I. OVERVIEW
In many ways China is the new frontier for entrepreneurship as it
is perceived to be a logical primary source of economical
manufacturing, raw materials, and component parts, in addition to
being considered a major end market.1 China may also represent the
most likely future competition for many American industries, as well
as our major trading partner. 2 Increased commerce between the
United States and The People’s Republic of China (“PRC”) demands
that U.S. entrepreneurs understand the basic foundation for doing
business in the PRC. An increasing demand for United States citizens
to engage in commerce, or to sit on boards dealing with significant
exposure to Chinese developments has also become a reality. A
comprehensive and exhaustive treatment of this subject is beyond the
scope of this article. However, an identification of some major issues,
with suggestions for further research, is attempted. Hopefully,
constructive thinking will result from an overview of how conducting
business is fundamentally different in the PRC along with an
examination of relevant corporate governance issues.
This paper is an outgrowth of an earlier article written to discuss
the fundamentals of Chinese corporate governance.3 However, it soon
became apparent that any such attempt required an understanding of
some of the basic ways the Chinese environment differs from that
familiar to those experienced in the ways of American or European
governance. For example, common shares in China do not represent
the same ownership interest or have the same designated rights as in
the United States, there is no law protecting private property as we
know it, and the functions of true “free economic markets” (securities
or goods and services) have neither been understood nor embraced by
officials having a natural cultural instinct for governmental control of
economic enterprises. 4 Accordingly, with a view toward the
perspective of the entrepreneur, an attempt is made to bring to the
reader’s attention some of the more significant differences found in
conducting business in the PRC. Recent headlines depicting closer
1
Debbie Liao & Philip Sohmen, The Development of Modern Entrepreneurship
in China, STAN. J. OF EAST ASIAN AFFAIRS, 28, 31 (2001).
2
Wayne M. Morrison, China-U.S. Trade Issues, CONGRESSIONAL RESEARCH
SERVICE (Sept. 30, 2011), http://www.fas.org/sgp/crs/row/RL33536.pdf.
3
Lawrence J. Trautman, Corporate Governance in the People’s Republic of
China: What an American Director Needs to Know About Doing Business in China
(Aug. 2008), http://works.bepress.com/lawrence_trautman/1/.
4
Id.
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[VOL. 12
economic relations between the U.S. and China make the codependence between the two countries inevitable. China now ranks as
the largest trading partner of the United States in terms of trade
balance, ranks first in terms of imports into the U.S., and ranks third
(behind Canada and Mexico) in terms of receiving U.S. exports. 5
According to the World Bank, when measured by the “purchasing
power parity” method, China has the world’s second largest
economy.6 It ranks fourth (roughly equal to the economies of France
and Great Britain) behind the U.S., Japan, and Germany, when viewed
under the traditional market exchange method.7 When results for 2010
became available, China surpassed Japan as the world’s second largest
economy. 8 China Daily reports that “China’s economy grew at an
annual rate of 9.5 percent in the second quarter of [2011], slower from
a 9.7 percent rise for the first quarter.”9
It has been said that the construction crane is the national bird of
China. While China enjoys perhaps the oldest of the world’s great
cultures, traveling through the PRC today and witnessing its dramatic
economic growth, makes it difficult to understand that the beginning
of relevant, modern Chinese legal development dates back only to
1979, with the Law of the People’s Republic of China (“Chinese
Company Law”) adopted in 1993. 10 Even more astounding, the
modern roller-coaster development of Chinese securities markets is
essentially an experiment materially just twenty-something-yearsold.11 Donald C. Clarke has recently highlighted the pressing need for
5
U.S. CENSUS BUREAU, U.S. DEPT. OF COMM., U.S. INTERNATIONAL TRADE IN
GOODS AND SERVICES (July 2011); see also Angel Gonzalez & Ryan Dezember,
Sinopec Enters U.S. Shale, WALL ST. J. (Jan. 4, 2012),
http://online.wsj.com/article/SB10001424052970203550304577138493192325500.h
tml (providing an example of almost daily announcements illustrating increased
investment by Chinese in the U.S.).
6
China Overview, THE WORLD BANK,
http://www.worldbank.org/en/country/china/overview (last visited May 26, 2012).
7
China’s Economy Smaller in New Study: World Bank, CHINA DAILY (Dec. 18,
2007), http://www.chinadaily.com.cn/china/2007-12/18/content_6329427.htm; see
also BARRY NAUGHTON, THE CHINESE ECONOMY: TRANSITIONS AND GROWTH, (The
MIT Press, 2007).
8
Chester Dawson & Jason Dean, Rising China Bests A Shrinking Japan, WALL
ST. J. (Feb. 13, 2011),
http://online.wsj.com/article/SB10001424052748704593604576140912411499184.h
tml.
9
Xinhua, China Faces Pressure of Price Rises in Short Term, CHINA DAILY
(Sep. 26, 2011), http://www.chinadaily.com.cn/bizchina/201109/26/content_13791250.htm.
10
GU MINKANG, UNDERSTANDING CHINESE COMPANY LAW 5-8 (Hong Kong
Univ. Press, 2006).
11
CARL E. WALTER & FRASER J.T. HOWIE, PRIVATIZING CHINA: INSIDE CHINA’S
continued . . .
2012]
[AMERICAN ENTREPRENEUR IN CHINA]
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scholarly research about comparative corporate governance, stating
that:
[T]he last thirty years have seen a startling rise in the
economic importance of other countries, particularly
China and the rest of non-Japan Asia. From 1980 to
2006, for example, China’s share of world GDP
(estimated on the basis of purchasing-power parity)
rose from about three percent to about sixteen
percent.12
Indeed, we should all be grateful to Professor Clarke for “bring[ing]
comparative law—an interest in what people in other countries do—
into the mainstream of a branch of American legal scholarship.”13
II. WHAT BASIC NEEDS ARE DRIVING CHINESE POLICY?
Susan Shirk, a former Deputy Assistant Secretary of State for East
Asia and Pacific Affairs, and now Professor at UC-San Diego, notes
that “[e]very good diplomat knows that you can never get anywhere
until you put yourself in the shoes of the person sitting across the table
from you.”14 Accordingly, all those seeking to do business in China
are well served to constantly ask themselves “what we would want” if
we were in charge of the PRC “controlled” economy. Law professors
Norwood Beveridge, Tahirih V. Lee, Dean John Cooper and other
commentators have observed that the motives of the PRC government
appear to consist of the following four major objectives: (1) Increasing
industrial productivity; (2) Seeking foreign exchange; (3) Import
substitution; and (4) Job creation (perhaps the primary goal). 15
Jamie F. Metzl of the Asia Society says “Driven by the need to
deliver economic growth as a major justification for its existence, the
STOCK MARKETS 5-43 (2d ed., 2006).
12
Donald C. Clarke, “Nothing But Wind”? The Past and Future of Comparative
Corporate Governance, 59 AM. J. COMP. L. 75, 77 (2011).
13
Id. at 109.
14
SUSAN L. SHIRK, CHINA: FRAGILE SUPERPOWER: HOW CHINA’S INTERNAL
POLITICS COULD DERAIL ITS PEACEFUL RISE 12 (2007).
15
Norwood Beveridge, Professor, Oklahoma City University School of Law,
Lecture for the 2007 International Conference at Nankai University in Tianjin, China
(July 9-Aug. 4, 2007); Tahirih V. Lee, Professor, Florida State University College of
Law, Lecture for the 2007 International Conference at Nankai University in Tianjin,
China (July 9-Aug. 4, 2007); John F. Cooper, Associate Dean of International and
Cooperative Programs and Professor of Law, Stetson University College of Law,
Lecture for the 2007 International Conference at Nankai University in Tianjin, China
(July 9-Aug. 4, 2007); see also Michael Petrusic, Oil and the National Security:
CNOOC’s Failed Bid to Purchase Unocal, 84 N.C. L. REV. 1373 (2006).
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Chinese government has done a tremendous job of creating wealth and
bringing hundreds of millions of Chinese people out of poverty.” 16
Development of capital markets and an efficient framework for capital
formation should allow China to tap its internal assets and the
resources needed from the rest of the world to finance and fuel the
PRC’s impressive economic growth. Yuwa Wei contends that the
decision to open and nurture the growth of the Shanghai and Shenzhen
exchanges rested upon two primary purposes: “(1) to utilize domestic
savings to facilitate social funds and private companies; and (2) to
discipline the listed companies and accelerate the pace of building a
modern corporate governance system.”17
The PRC leadership’s enlightened motivation to raise funds for the
National Social Security Fund may be seen through its activities of
June 12, 2001, when all companies were directed by the State Council
to include 10 percent of state-owned shares in all initial or follow-on
stock offerings. 18 The 2008-2009 global financial crisis, however,
“made clear that China’s dependence for growth on the purchasing
power of consumers in America, Europe and Japan creates a
dangerous vulnerability.” 19 China’s need to expand and reinforce a
“formal social safety net” is expanding as more Chinese reach
retirement age.20 This will add unprecedented costs that may shock an
already over-taxed environment that is heavily dependent on
infrastructure projects and other state-directed investments for
growth.21 In light of this,
Even if China’s leadership makes major progress on
domestic reform, it will find that the international
environment is becoming less conducive to easy
economic expansion. Higher prices for the oil, gas,
16
Jamie F. Metzl, China’s Threat to World Order: Computer hacking is typical
of Beijing’s disdain for global norms, WALL ST. J. (Aug. 17, 2011),
http://online.wsj.com/article/SB10001424053111904006104576500690087766626.h
tml.
17
Yuwa Wei, Volatility of China’s Securities Markets and Corporate
Governance, 29 SUFFOLK TRANSNAT’L L. REV. 207, 209 (2006).
18
Sandra P. Kister, China’s Share-Structure Reform: An Opportunity to Move
Beyond Practical Solutions to Practical Problems, 45 COLUM. J. TRANSNAT’L L.
REV. 312, 327 (2006) (explaining how deteriorating market conditions and political
pressure resulted in abandonment of this requirement within just a few months).
19
Ian Bremmer, China’s Bumpy Road Ahead: Unrest, inflation and an aging
populace stand in the way of the Middle Kingdom’s Touted Domination, WALL ST. J.
(July
9,
2011),
http://online.wsj.com/article/SB10001424052702303544604576430103921843770.h
tml.
20
Id.
21
Id.
2012]
[AMERICAN ENTREPRENEUR IN CHINA]
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metals and minerals that China needs to power its
economy will weigh on growth. The exertions of all
those other emerging market players will add to the
upward pressure on food and other commodity prices,
suppressing growth rates and undermining consumer
confidence, which have been the most important
sources of social and political stability in China . . .
Strong growth in China, coupled with America’s
unsustainable fiscal policies, high unemployment and
weakened consumer demand, will generate friction
between the world’s two largest economies—in
particular, by significantly increasing the likelihood of
protectionism on both sides. That’s a problem for
American companies looking for access to Chinese
consumers, but it’s far more troublesome for the
Chinese, who rely more on U.S. fiscal stability,
investment, technology and consumption.22
III. DOING BUSINESS IN CHINA IS NOT JUST LIKE DOING
BUSINESS IN ANOTHER FOREIGN COUNTRY
Business decisions may prove unusually complex to foreigners
seeking to do business in the PRC. Evolving from Confucianism,23
the traditional Chinese culture places much more emphasis on the
nurturing and maintenance of relationships than in most other areas of
the world. Relationships and connections, or “Guanxi,” are the
“vehicle in which Chinese business is conducted. Nothing gets done
without them.” 24 In this system,
[f]amily and social context define the individual, unlike
the Western view in which the individual defines his
own context. In other words, self-individualization is
possible only through an interaction with others within
the context of one’s own social roles and relationships.
The self is always in relation to others, a rational self, a
22
Id.
See generally The Influences of Confucius, CULTURAL CHINA (May 26, 2012,
11:12 AM), http://history.cultural-china.com/en/182History5836.html.
24
William D. Greenlee, China – Business Not as Usual, MARTINDALE.COM
(May 26, 2012, 11:24 AM), http://www.martindale.com/business-law/article_JonesVargas_218562.htm; see also Graham Mayeda, Appreciating the Difference: The
Role of Different Domestic Norms in Law and Development Reform; Lessons from
China and Japan, 51 MCGILL L.J. 547, 588-89 (2006).
23
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rational being. 25
Under this powerful system of Guanxi, “[p]eople’s sense of
themselves, and their self-worth, is often determined by their
relationships with others. The Chinese are both individualist and
group-oriented and the relationships between group and individual are
complex and deep-rooted.”26 Thus, it has been observed that personal
and business relationships in China must be developed on two levels:
“with the person as an individual, and the person as a member of a
reference group.”27
It is true that Westerners also develop guanxi-type relationships
and networks. What distinguishes the Chinese Guanxi system,
however, is that in China
this same pattern of relationships is also central to the
business world, on a quite explicit and open basis.
Business associates within a network are referred to as
being zi jia ren (one’s own family). In a Confucian
society, guanxi represents a natural blurring of the line
between the professional and the personal . . . This
complex system carries expectations that favors will be
returned.28
American businessmen in China should remain conscious of the
Guanxi system. While “[s]ome Chinese businesspeople dismiss
guanxi as old fashioned and . . . replaced by modern Western
methods[,] . . . the Western business person should assume both
approaches are relevant.”29
Guanxi and Western models of approaching a
transaction need to be viewed in tandem: a strong
enough relationship gains entry to the Western model
of n…
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