[Press Release] HONG KONG, Jan. 24 /PRNewswire/ -- With the news that Chinese graft-busters have targeted officials in the Guangdong city of Maoming in their on-going anti-corruption drive, foreign businesses operating in China need to reassess their dealings with government officials to identify whether they have been involved in activities that could be perceived as bribery and put a stop to it, says The Red Flag Group.
In recent years, Chinese efforts to crackdown on corruption among government officials have mainly focused on the so-called first-tiered cities. This included the sentencing in 2008 of Chen Liangyu, Shanghai's former communist party chief, and the dismissal of XuZhongheng, a former major of Shenzhen, both for bribery.
However, in a sign that the crackdown is turning towards emerging tier two cities, Chinese language media have reported that officials in the city of Maoming are being investigated for corruption. They include Yang Guangliang, Maoming's vice-mayor, who was placed under detention by the Central Commission for Discipline Inspection last October. Also targeted was Cheng Bin, the police chief of Maoming Public Security Bureau, and Yang Qiang, director of Maoming's Maogang district police bureau.
This followed other tier two city officials who have been recently netted by Chinese graft-busters, such as Chen Xizhao, deputy chief of police in the Guangdong city of Lianjiang, who was fired after it was reported that he invited 1,000 guests to a Christmas party at his residence. Also, Ye Shuyang, a former police chief in the city of Shaoguan, was arrested in 2008 and is set to stand trial for accepting more than 30 million yuan in bribes over a period of 20 years.
"Whereas previously, China's anti-corruption drive have mainly been focused in the largest cities such as Guangzhou and Shenzhen, what we are seeing now is the effort moving towards normally less high profile places such as Maoming," said Scott Lane, Principal and CEO of The Red Flag Group.
"What this means is that now more than ever, companies not only need to proactively assess business they have done with Chinese officials in the past, but also with any officials with whom they have established any sort of relationship, regardless of whether money has ever changed hands," Lane said, adding that it was important to identify activities that may have supported bribery. Companies need to analyze the different transactions that have taken place, whether they are deals, the use of third parties, or giving gifts or lavish entertainment to officials.
"In a country where the provision of gifts and lavish meals is a routine part of the business dealings, companies more than ever need to make sure they can keep track of and maintain thorough records of all gifts, entertainment and travel it provides to business relationships. It is only then that managers can have the information they need to spot red flags early, and prevent activity from occurring that incurs the full wrath of Chinese fraud investigators," Lane added.
"A company's compliance personnel should be able to use software, such as our ComplianceDesktop Gift and Benefits Tool, to make queries. They should be able to type in the names of the officials, and see whether any gifts or entertainment had been provided to the said officials, along with details such as what they were, the cost, when it was given, and whether there were any special circumstances," he said.
Requiring installation of no new hardware or software, the tool, which is part of ComplianceDesktop's anti-corruption suite, adapts and automates a company's gifts and entertainment policy by allowing for automatic approval of certain expenses which meet pre-set criteria. If a situation arises in which employees need guidance on whether they can give a certain gift to a certain official, they can access the tool using a web-based interface or a web-enabled mobile phone. By answering a number of questions, the tool can calculate whether the gift can be given according to the company's policies, as well as any further rules or additional procedures that must be followed.
In addition, the tool also allows employees to provide detailed records whenever they are giving gifts, including details of the recipient such as their name, affiliation, and contact information. It also allows for the generation of customized reports to suit each individual company's needs.
"ComplianceDesktop's Gift and Benefits Tool is an inexpensive and powerful way to allow companies to keep track of all out-going gifts. This is especially so considering the enormous lost opportunity and real cost that companies can experience if they get caught by Chinese graft-buster for giving an official an appropriate gift, even if it was given with the most innocent of intentions," Lane said.
About The Red Flag Group
The Red Flag Group is one of the world's leading independent Corporate Governance and Compliance firms providing thought leadership around Compliance to Fortune 1000 companies. Our main goals include helping companies develop and maintain efficient and effective Governance and Compliance programs in the emerging markets. The firm consists of ex in-house counsel and compliance officers and have offices in the USA, Hong Kong, Sydney, Singapore, London, and Dubai. For more information, go to www.redflaggroup.com.
SOURCE The Red Flag Group
Tuesday 26 January 2010
Sunday 24 January 2010
Ex-Credit Suisse broker jailed for 5 years
A former broker at investment Credit Suisse has been jailed for five years for misleading his clients by telling them that nearly US$1 billion was being invested in US government backed student loans, when in fact were tied to more risky sub-prime mortgages.
Eric Butler, formerly a managing director in Credit Suisse’s private banking division in charge of the corporate cash management group, was also ordered to pay a US$5 million fine. The recent sentce follows his trial and conviction last August. Federal prosecutors had originally asked for a sentence of at least 15 years.
According to facts unveiled during last year’s trial, between 2005 and 2007, Mr Butler, whose unit was responsible for helping clients manage excess corporate cash holdings, and a colleague misled clients by either sending or directing assistants to send emails with names of securities falsified to make them appear less risky.
This was done by removing terms referring to mortgages or collateralised debt obligations (CDO), which is type of product tied to sub-prime mortgages. Prosecutors said this was replaced with words which created an impression that the investments, consisted of auction rate securities totalling around US$900 million, were backed by student loans, and the clients were told that the product was a safe alternative to bank deposits or money market funds.
As a result of this scheme, some of Butler’s clients, which included sophisticated corporate investors the likes of drug company GlaxoSmithKline, lost as much as US$500 million, when the market for auction rate securities tied to CDOs froze in 2007.
Butler’s clients were then left with securities whose values sank as mortgage defaults rose. On the other hand, the sale of the products generated high commissions for Butler and his colleague.
A spokesman for Credit Suisse, David Walker, told the Wall Street Journal: “Since 2007, when we promptly informed our regulators of this matter, Credit Suisse has assisted the authorities to bring these individuals to justice.”
Paul Weinstein, Butler’s lawyer, said his client would seek to appeal the sentence.
Eric Butler, formerly a managing director in Credit Suisse’s private banking division in charge of the corporate cash management group, was also ordered to pay a US$5 million fine. The recent sentce follows his trial and conviction last August. Federal prosecutors had originally asked for a sentence of at least 15 years.
According to facts unveiled during last year’s trial, between 2005 and 2007, Mr Butler, whose unit was responsible for helping clients manage excess corporate cash holdings, and a colleague misled clients by either sending or directing assistants to send emails with names of securities falsified to make them appear less risky.
This was done by removing terms referring to mortgages or collateralised debt obligations (CDO), which is type of product tied to sub-prime mortgages. Prosecutors said this was replaced with words which created an impression that the investments, consisted of auction rate securities totalling around US$900 million, were backed by student loans, and the clients were told that the product was a safe alternative to bank deposits or money market funds.
As a result of this scheme, some of Butler’s clients, which included sophisticated corporate investors the likes of drug company GlaxoSmithKline, lost as much as US$500 million, when the market for auction rate securities tied to CDOs froze in 2007.
Butler’s clients were then left with securities whose values sank as mortgage defaults rose. On the other hand, the sale of the products generated high commissions for Butler and his colleague.
A spokesman for Credit Suisse, David Walker, told the Wall Street Journal: “Since 2007, when we promptly informed our regulators of this matter, Credit Suisse has assisted the authorities to bring these individuals to justice.”
Paul Weinstein, Butler’s lawyer, said his client would seek to appeal the sentence.
DoJ nets largest number of individuals in record FCPA case
In what is to date the largest number of individuals netted in a single FCPA case, the US Department of Justice (DoJ) has arrested and charged 22 executives at military and law enforcement production companies with attempting to bribe foreign government officials to win business contracts.
The 22 executives, who hailed from different companies based in the US, UK, and Israel, were indicted at the conclusion of a joint undercover sting operation carried out in cooperation with the FBI. It marks the first time that the DoJ has made use of such a technique in going after US companies who bribe foreign officials, as well as being the largest single investigation and prosecution against individuals in the history of the department’s enforcement of the US Foreign Corrupt Practices Act (FCPA).
“This on-going investigation is the first large scale use of under-cover law enforcement techniques to uncover FCPA violations and the largest action ever undertaken by the DoJ against individuals for FCPA violations. The fight to erase foreign bribery from the corporate play book will not be won overnight, but these actions are a turning point. From now on, would be FCPA violators should stop and ponder whether the person they are trying to bribe might really be a federal agent,” said Lanny Breuer, assistant attorney general of the DoJ’s criminal division.
According to the indictments, the accused allegedly engaged in schemes to pay bribes to the defence minister of an African nation. As part of the undercover operation, FBI agents posed as sales agents who were led to believe represented a minister of defence in a country in Africa. The executives are accused of allegedly agreeing to pay a 20 per cent commission to the sales agent, in what they believed would lead to the award of US$15 million contract to outfit the country’s presidential guard.
The accused executives, who are aged between 25 and 66 and hailed from a range of companies producing gear ranging from small arms, to ballistic vests and armoured vehicles, were told that half of this commission amount would be paid directly to the said defence minister. They also agreed to prepare price quotations in connection with the deal, one which represented the true cost of the contract, and another which included the extra 20 per cent kickback. The executives also allegedly agreed to do a small test deal to show the fictitious defence minister that he would receive the 10 per cent bribe.
They were arrested in Las Vegas and in Miami by FBI agents, and all were charged with conspiring to violate the FCPA, conspiring to engage in money laundering, and engaging in substantive violations of the FCPA. The indictments also sought to forfeit any illegal profits the company may have generate from bribery. If found guilty, the executives each face a maximum prison sentence of five years for both the conspiracy and FCPA counts, as well as 20 years for money laundering.
The 22 executives, who hailed from different companies based in the US, UK, and Israel, were indicted at the conclusion of a joint undercover sting operation carried out in cooperation with the FBI. It marks the first time that the DoJ has made use of such a technique in going after US companies who bribe foreign officials, as well as being the largest single investigation and prosecution against individuals in the history of the department’s enforcement of the US Foreign Corrupt Practices Act (FCPA).
“This on-going investigation is the first large scale use of under-cover law enforcement techniques to uncover FCPA violations and the largest action ever undertaken by the DoJ against individuals for FCPA violations. The fight to erase foreign bribery from the corporate play book will not be won overnight, but these actions are a turning point. From now on, would be FCPA violators should stop and ponder whether the person they are trying to bribe might really be a federal agent,” said Lanny Breuer, assistant attorney general of the DoJ’s criminal division.
According to the indictments, the accused allegedly engaged in schemes to pay bribes to the defence minister of an African nation. As part of the undercover operation, FBI agents posed as sales agents who were led to believe represented a minister of defence in a country in Africa. The executives are accused of allegedly agreeing to pay a 20 per cent commission to the sales agent, in what they believed would lead to the award of US$15 million contract to outfit the country’s presidential guard.
The accused executives, who are aged between 25 and 66 and hailed from a range of companies producing gear ranging from small arms, to ballistic vests and armoured vehicles, were told that half of this commission amount would be paid directly to the said defence minister. They also agreed to prepare price quotations in connection with the deal, one which represented the true cost of the contract, and another which included the extra 20 per cent kickback. The executives also allegedly agreed to do a small test deal to show the fictitious defence minister that he would receive the 10 per cent bribe.
They were arrested in Las Vegas and in Miami by FBI agents, and all were charged with conspiring to violate the FCPA, conspiring to engage in money laundering, and engaging in substantive violations of the FCPA. The indictments also sought to forfeit any illegal profits the company may have generate from bribery. If found guilty, the executives each face a maximum prison sentence of five years for both the conspiracy and FCPA counts, as well as 20 years for money laundering.
Sunday 17 January 2010
Johnson & Johnson accused of paying kickbacks to raise drug sales
Drug company Johnson & Johnson has been accused of paying tens of millions of dollars in kickbacks to a US nursing home pharmacy company to increase sales of drugs to patients.
The US Department of Justice (DoJ) said between 1999 and 2004, the pharmaceutical giant illegally paid Kentucky-based Omnicare, the biggest pharmacy serving nursing homes in the US, to buy Johnson & Johnson drugs and to promote their use at nursing homes. The kickback were directed towards a number of the company’s products, including Propulsid, Levaquin, Procrit, Duragesic, and Ultram, but the biggest share of the payments revolved around Risperdal, which is prescribed to help control anxiety.
According to the report which appeared in the Wall Street Journal, it is common in the pharmaceutical industry for drug makers to pay rebates for drugs sold through middlemen, such as Omnicare, whose role it is to process prescriptions, distribute the drugs, and manage insurance coverage. The practice is not illegal. Instead, prosecutors are accusing Johnson & Johnson of hiding the rebates, partly by disguising them as payment for information that Omnicare usually provides for free to drug company clients.
The report said that intermediary companies such as Omnicare often wield strong influence in the drug making business, because they determine the brands of drugs prescribed to millions of patients in the US.
The 34-page complaint cites evidence such as admission in internal presentations by Johnson & Johnson executives of the pivotal role played by Omnicare in product selection by nursing home patients. In one email, the company calculated that US$3 million in rebates would result in US$9 million in sales, with a net return of US$4.8 million. In 2000, the two companies entered into a four-year agreement, involving a payment of US$4.65 million to Omnicare, in return for the pharmacy company making an effort to persuade patients to switch to Johnson & Johnson products.
The complaint also alleges that Johnson & Johnson sponsored Omnicare’s annual national managers meeting at a Florida resort. Between 1999 and 2004, the drug company paid US$50,000 for the sponsorship each year, and in return its sales managers were able to rub shoulders with Omnicare managers, and persuade them to buy more of the company’s drugs. The report goes on to say that the DoJ complaint was brought about by two whistle-blowers who were former employees at Omnicare.
Johnson & Johnson, which is based in New Jersey, has responded by saying that its acts were “lawful and appropriate”, and that the company is looking forward to defending against the claims in court. The company did not elaborate further.
The US Department of Justice (DoJ) said between 1999 and 2004, the pharmaceutical giant illegally paid Kentucky-based Omnicare, the biggest pharmacy serving nursing homes in the US, to buy Johnson & Johnson drugs and to promote their use at nursing homes. The kickback were directed towards a number of the company’s products, including Propulsid, Levaquin, Procrit, Duragesic, and Ultram, but the biggest share of the payments revolved around Risperdal, which is prescribed to help control anxiety.
According to the report which appeared in the Wall Street Journal, it is common in the pharmaceutical industry for drug makers to pay rebates for drugs sold through middlemen, such as Omnicare, whose role it is to process prescriptions, distribute the drugs, and manage insurance coverage. The practice is not illegal. Instead, prosecutors are accusing Johnson & Johnson of hiding the rebates, partly by disguising them as payment for information that Omnicare usually provides for free to drug company clients.
The report said that intermediary companies such as Omnicare often wield strong influence in the drug making business, because they determine the brands of drugs prescribed to millions of patients in the US.
The 34-page complaint cites evidence such as admission in internal presentations by Johnson & Johnson executives of the pivotal role played by Omnicare in product selection by nursing home patients. In one email, the company calculated that US$3 million in rebates would result in US$9 million in sales, with a net return of US$4.8 million. In 2000, the two companies entered into a four-year agreement, involving a payment of US$4.65 million to Omnicare, in return for the pharmacy company making an effort to persuade patients to switch to Johnson & Johnson products.
The complaint also alleges that Johnson & Johnson sponsored Omnicare’s annual national managers meeting at a Florida resort. Between 1999 and 2004, the drug company paid US$50,000 for the sponsorship each year, and in return its sales managers were able to rub shoulders with Omnicare managers, and persuade them to buy more of the company’s drugs. The report goes on to say that the DoJ complaint was brought about by two whistle-blowers who were former employees at Omnicare.
Johnson & Johnson, which is based in New Jersey, has responded by saying that its acts were “lawful and appropriate”, and that the company is looking forward to defending against the claims in court. The company did not elaborate further.
SEC names unit heads, new enforcement measures
The US Securities and Exchange Commission (SEC) has named the heads of the five specialist investigation units and its market investigation unit – which were created last year, as it continued what it described as its biggest shake-up since its establishment in 1972.
Concurrently, SEC Enforcement Division director Robert Khuzami also announced new measures and tools designed to help the beleaguered agency, which has been criticised for missing massive fraud such as that perpetrated by Wall Street swindler Bernard Madoff, ferret out white collar crime earlier.
The appointments announced by the SEC include Thomas Sporkin, former deputy chief at the SEC’s Office of Internet Enforcement, who will take over the new Office of Market Intelligence. Bruce Karpati, founder and head of the commission’s Hedge Fund Working Group, and Robert Kaplan, previously an SEC enforcement division assistant director, will take charge of a unit focused on asset management.
A unit looking into large scale market abuses and manipulation will be led by Daniel Hawke, who was director of SEC’s Philadelphia office. Structured and new products will be overseen by Kenneth Lench, also formerly an assistant director at the SEC’s enforcement division. Cheryl Scarboro, previously an associate director in the SEC’s enforcement division, will head the unit focusing on violations of the Foreign Corrupt Practices Act, while Elaine Greenberg, former the associate regional director of the SEC’s Philadelphia regional office, will take up leadership of the unit scrutinising municipal securities and public pensions.
“These specialised units address both challenges through improved understanding of complex products and markets, earlier and better capability to detect emerging fraud and misconduct, greater capacity to file cases with strike-force speed and an increased in expertise throughout the division. By making connections between similar tips from different outside sources, our new Office of Market Intelligence will enable the division to better focus resources on those tips and referrals with the greatest potential for uncovering wrongdoing,” Mr Khuzami said.
Mr Khuzami also announced the agency will now authorise staff to use tools, inspired by those used by the Department of Justice and which were previously unavailable to them, in eliciting cooperation from companies and individuals during investigations.
They include cooperation agreements, which recommend the bestowal of credit for cooperation in investigations where substantial assistance has been rendered, and deferred prosecution agreements, where the agency agrees to forego for a limited period, any enforcement act provided the other party agrees to cooperate fully in an investigation and to comply with conditions either prohibiting or requiring certain actions.
Finally, SEC enforcement staff will be allowed to use non-prosecution agreements, in which the commission would agree to not prosecute an offender provided that they provide cooperation.
Mr Khuzami also said the SEC has also streamlined the process for submitting witness immunity requests to the Justice Department, as well as set out clearer guidelines on how it evaluates the cooperation provided by companies and individuals during enforcement investigations.
Concurrently, SEC Enforcement Division director Robert Khuzami also announced new measures and tools designed to help the beleaguered agency, which has been criticised for missing massive fraud such as that perpetrated by Wall Street swindler Bernard Madoff, ferret out white collar crime earlier.
The appointments announced by the SEC include Thomas Sporkin, former deputy chief at the SEC’s Office of Internet Enforcement, who will take over the new Office of Market Intelligence. Bruce Karpati, founder and head of the commission’s Hedge Fund Working Group, and Robert Kaplan, previously an SEC enforcement division assistant director, will take charge of a unit focused on asset management.
A unit looking into large scale market abuses and manipulation will be led by Daniel Hawke, who was director of SEC’s Philadelphia office. Structured and new products will be overseen by Kenneth Lench, also formerly an assistant director at the SEC’s enforcement division. Cheryl Scarboro, previously an associate director in the SEC’s enforcement division, will head the unit focusing on violations of the Foreign Corrupt Practices Act, while Elaine Greenberg, former the associate regional director of the SEC’s Philadelphia regional office, will take up leadership of the unit scrutinising municipal securities and public pensions.
“These specialised units address both challenges through improved understanding of complex products and markets, earlier and better capability to detect emerging fraud and misconduct, greater capacity to file cases with strike-force speed and an increased in expertise throughout the division. By making connections between similar tips from different outside sources, our new Office of Market Intelligence will enable the division to better focus resources on those tips and referrals with the greatest potential for uncovering wrongdoing,” Mr Khuzami said.
Mr Khuzami also announced the agency will now authorise staff to use tools, inspired by those used by the Department of Justice and which were previously unavailable to them, in eliciting cooperation from companies and individuals during investigations.
They include cooperation agreements, which recommend the bestowal of credit for cooperation in investigations where substantial assistance has been rendered, and deferred prosecution agreements, where the agency agrees to forego for a limited period, any enforcement act provided the other party agrees to cooperate fully in an investigation and to comply with conditions either prohibiting or requiring certain actions.
Finally, SEC enforcement staff will be allowed to use non-prosecution agreements, in which the commission would agree to not prosecute an offender provided that they provide cooperation.
Mr Khuzami also said the SEC has also streamlined the process for submitting witness immunity requests to the Justice Department, as well as set out clearer guidelines on how it evaluates the cooperation provided by companies and individuals during enforcement investigations.
Monday 11 January 2010
Corruption in UK set to rise in 2010
Corruption and bribery cases in the UK reached record-highs in 2009, and this trend is expected to continue, according to accounting firm KPMG.
Initial figures from the firm’s annual Fraud Barometer, which has been published for 21 years consecutively, show a fraud rate in the first six months of 2009 that was the highest in the report’s history, according to London newspaper The Guardian.
In all, there were 160 cases of serious fraud in the UK, costing £636 million.
Hitesh Patel, a partner at KPMG Forensic, said the near-record rate of fraud continued into the second half of 2009, and is expected to stay high in the next 12 months.
He said: “Overall, I would expect incidents of fraud to increase and the picture is likely to get worse before it gets better. The question is how big will the fraud spike be?” Mr Patel added that fraud has a so-called “long-tail”, which means it usually takes several years before fraud is detected, investigated, and brought to court – if ever. This means that the full impact of the credit crunch and the ensuing global financial crisis on fraud will continue to be felt in the years ahead.
“As companies look to increase top-line growth and reduce operational costs in the current stressed economic environment, supply chain and accounting related frauds are likely to be an issue in 2010. The drive to secure new business means that bribery and corruption offenses by employees may become an issue for companies,” Mr Patel said.
He added that this will become more important as the UK implements a draft bribery bill, which potentially makes companies liable if they are found to be negligent in preventing bribery and corruption. The bill is expected to become law in the UK before the end of the year.
The firm’s barometer tracks fraud cases with charges in excess of £100,000.
Initial figures from the firm’s annual Fraud Barometer, which has been published for 21 years consecutively, show a fraud rate in the first six months of 2009 that was the highest in the report’s history, according to London newspaper The Guardian.
In all, there were 160 cases of serious fraud in the UK, costing £636 million.
Hitesh Patel, a partner at KPMG Forensic, said the near-record rate of fraud continued into the second half of 2009, and is expected to stay high in the next 12 months.
He said: “Overall, I would expect incidents of fraud to increase and the picture is likely to get worse before it gets better. The question is how big will the fraud spike be?” Mr Patel added that fraud has a so-called “long-tail”, which means it usually takes several years before fraud is detected, investigated, and brought to court – if ever. This means that the full impact of the credit crunch and the ensuing global financial crisis on fraud will continue to be felt in the years ahead.
“As companies look to increase top-line growth and reduce operational costs in the current stressed economic environment, supply chain and accounting related frauds are likely to be an issue in 2010. The drive to secure new business means that bribery and corruption offenses by employees may become an issue for companies,” Mr Patel said.
He added that this will become more important as the UK implements a draft bribery bill, which potentially makes companies liable if they are found to be negligent in preventing bribery and corruption. The bill is expected to become law in the UK before the end of the year.
The firm’s barometer tracks fraud cases with charges in excess of £100,000.
Chinese corporate governance crusader fired for fraud
Hong Kong-listed China Mobile, the world’s largest mobile phone company, has dismissed vice chairman Zhang Chunjiang amid allegations of “serious financial irregularities”.
Mr Zhang, who according to a Financial Times report was a leading proponent for increased accountability for boards of directors and senior managers at state-owned enterprises (SOE), has also been removed as communist party secretary and vice-president at the mobile phone company’s main subsidiary in China.
Reports quoting the Chinese-language Caijing Magazine allege that Mr Zhang is suspected of hiding losses at a previous company. He is alleged to have concealed losses at China Netcom, another telecoms provider, ahead of its merger with China Unicom in 2008.
The FT report says that Mr Zhang is particularly noted for his efforts to improve corporate governance at SOEs by balancing the interests of the Chinese Communist Party, with those of minority shareholders.
According to the China Daily, Chinese officials have recently pledged to target corruption by high-ranking executives at state-owned enterprises, after a string of corruption scandals involving senior SOE executives last year.
They included Kang Rixin, former general manager of China National Nuclear Corporation, who has been under investigation for “grave discipline violations” since August. In July, Chen Tonghai, a former chairman of Sinopec, was sentenced to death for taking almost 200 million yuan in bribes.
“We will push ahead with investigations and try to curb corruption in SOEs in restructuring, mergers, and acquisitions, property transactions and construction projects,” said Qu Wanxiang, a vice-minister of supervision. The report said that Chinese graft-busters will focus on senior-ranking executives, and will seek to mete out severe penalties for bribery, and for setting up slush funds that are off the books.
The report also said that the Chinese government has been seeking to improve corporate management at SOEs. It quoted Lin Yueqin, an economist at the Chinese Academy of Social Sciences, as saying that this effort was hampered by a system whereby SOE executives are appointed by central authorities. This gives way to abuses of power, because corporate boards of directors often do not have the authority to properly supervise the appointed executives, he said.
Mr Zhang, who according to a Financial Times report was a leading proponent for increased accountability for boards of directors and senior managers at state-owned enterprises (SOE), has also been removed as communist party secretary and vice-president at the mobile phone company’s main subsidiary in China.
Reports quoting the Chinese-language Caijing Magazine allege that Mr Zhang is suspected of hiding losses at a previous company. He is alleged to have concealed losses at China Netcom, another telecoms provider, ahead of its merger with China Unicom in 2008.
The FT report says that Mr Zhang is particularly noted for his efforts to improve corporate governance at SOEs by balancing the interests of the Chinese Communist Party, with those of minority shareholders.
According to the China Daily, Chinese officials have recently pledged to target corruption by high-ranking executives at state-owned enterprises, after a string of corruption scandals involving senior SOE executives last year.
They included Kang Rixin, former general manager of China National Nuclear Corporation, who has been under investigation for “grave discipline violations” since August. In July, Chen Tonghai, a former chairman of Sinopec, was sentenced to death for taking almost 200 million yuan in bribes.
“We will push ahead with investigations and try to curb corruption in SOEs in restructuring, mergers, and acquisitions, property transactions and construction projects,” said Qu Wanxiang, a vice-minister of supervision. The report said that Chinese graft-busters will focus on senior-ranking executives, and will seek to mete out severe penalties for bribery, and for setting up slush funds that are off the books.
The report also said that the Chinese government has been seeking to improve corporate management at SOEs. It quoted Lin Yueqin, an economist at the Chinese Academy of Social Sciences, as saying that this effort was hampered by a system whereby SOE executives are appointed by central authorities. This gives way to abuses of power, because corporate boards of directors often do not have the authority to properly supervise the appointed executives, he said.
Sunday 3 January 2010
UTStarcom settles Chinese bribery claims for US$3m
US-based network equipment maker UTStarcom has been fined US$3 million for bribing employees at state-owned telecommunications firms in China.
The fine includes payments of US$1.5 million each to the US Department of Justice (DoJ) and Securities and Exchange Commission (SEC). According to a complaint filed by the SEC, a wholly-owned Chinese subsidiary of UTStarcom paid close to US$7 million between 2002 and 2007 for hundreds of trips for employees of state-owned telecommunications companies in China who were UTStarcom’s customers.
The trips, which included popular US tourist destinations such as Hawaii, Las Vegas, and New York, were supposedly for training purposes, and were recorded as such in UTStarcom’s financial accounts, according to the DoJ. However, the company did not have any facilities in the said locations, and conducted no training. The true purpose of these trips, according to the agencies, was sightseeing, and for UTStarcom to obtain and keep lucrative supply contracts.
The SEC has also alleged that UTStarcom gave lavish gifts and all-expenses paid executive training trips in the US for existing and potential customers in China and Thailand. The company also hired, and provided them with work visas, individuals who were affiliated with foreign state-own companies that were customers. In reality, the individuals did no work for UTStarcom. The California-based company also made improper payments to sham consultants in China and Mongolia, with the knowledge that funds would eventually be used to bribe foreign government officials.
“UTStarcom spent millions of dollars on illegal bribes to win and keep customers in Asia. It is important for corporate America to recognise that resorting to these methods of boosting profits contributes to a culture of corruption that cannot be condoned under US law,” said Marc Fagel, director of the SEC’s San Francisco office.
As part of an agreement, which did not require the company to admit or deny the wrongdoings, UTStarcom will also be required to implement stronger internal controls, and will be required to make annual FCPA (Foreign Corrupt Practices Act) compliance reports to the SEC. The DoJ said it has taken into account the fact that UTStarcom internally investigated and then self-disclosed the violation, cooperated with a probe by the department, and undertook remedial actions. Because of this, the agency said it will not prosecute the company or its subsidiaries for making the improper payments, provided it continues to satisfy the terms of the agreement.
The fine includes payments of US$1.5 million each to the US Department of Justice (DoJ) and Securities and Exchange Commission (SEC). According to a complaint filed by the SEC, a wholly-owned Chinese subsidiary of UTStarcom paid close to US$7 million between 2002 and 2007 for hundreds of trips for employees of state-owned telecommunications companies in China who were UTStarcom’s customers.
The trips, which included popular US tourist destinations such as Hawaii, Las Vegas, and New York, were supposedly for training purposes, and were recorded as such in UTStarcom’s financial accounts, according to the DoJ. However, the company did not have any facilities in the said locations, and conducted no training. The true purpose of these trips, according to the agencies, was sightseeing, and for UTStarcom to obtain and keep lucrative supply contracts.
The SEC has also alleged that UTStarcom gave lavish gifts and all-expenses paid executive training trips in the US for existing and potential customers in China and Thailand. The company also hired, and provided them with work visas, individuals who were affiliated with foreign state-own companies that were customers. In reality, the individuals did no work for UTStarcom. The California-based company also made improper payments to sham consultants in China and Mongolia, with the knowledge that funds would eventually be used to bribe foreign government officials.
“UTStarcom spent millions of dollars on illegal bribes to win and keep customers in Asia. It is important for corporate America to recognise that resorting to these methods of boosting profits contributes to a culture of corruption that cannot be condoned under US law,” said Marc Fagel, director of the SEC’s San Francisco office.
As part of an agreement, which did not require the company to admit or deny the wrongdoings, UTStarcom will also be required to implement stronger internal controls, and will be required to make annual FCPA (Foreign Corrupt Practices Act) compliance reports to the SEC. The DoJ said it has taken into account the fact that UTStarcom internally investigated and then self-disclosed the violation, cooperated with a probe by the department, and undertook remedial actions. Because of this, the agency said it will not prosecute the company or its subsidiaries for making the improper payments, provided it continues to satisfy the terms of the agreement.
Billions went missing in China in 2009
Chinese officials embezzled away more than US$34 billion in government funds in the first 11 months of 2009, according to figures released country’s National Audit Office.
Covered 99,000 companies, government bodies, and public institutions in China, the office found that 234.7 billion yuan (around US$34.4 billion) were misused by government officials from January to November. So far, around 16.3 billion yuan have been recovered, according to a report which appeared in China Daily.
More than 230 people, including 67 government officials, have been handed over to disciplinary authorities as a result of the investigation, according to the report.
The investigation interviewed more than 20,000 government officials – including provincial-level cadres, and heads of large state-owned companies, and 55 Chinese central government departments.
According to the report, the National Audit Office’s director Liu Jiayi said that there have been improvements in the fight against corruption in China. However, embezzlement, waste of money, and false fiscal reporting still existed in many central government departments, he added.
“Criminals are now more intelligent, and covert,” said Mr Liu, according to the New York Times. The office said that money was being lost through money laundering, and the issuance of fraudulent loans. In some cases the government was being cheated through the sale or purchase of land or mining rights.
Chinese Premier Wen Jiabao, who was attending the national auditing conference where results of the investigation were announced, has urged the agency to remain vigilant in monitoring public investment projects – an area which has been traditionally prone to embezzlement and waste.
Covered 99,000 companies, government bodies, and public institutions in China, the office found that 234.7 billion yuan (around US$34.4 billion) were misused by government officials from January to November. So far, around 16.3 billion yuan have been recovered, according to a report which appeared in China Daily.
More than 230 people, including 67 government officials, have been handed over to disciplinary authorities as a result of the investigation, according to the report.
The investigation interviewed more than 20,000 government officials – including provincial-level cadres, and heads of large state-owned companies, and 55 Chinese central government departments.
According to the report, the National Audit Office’s director Liu Jiayi said that there have been improvements in the fight against corruption in China. However, embezzlement, waste of money, and false fiscal reporting still existed in many central government departments, he added.
“Criminals are now more intelligent, and covert,” said Mr Liu, according to the New York Times. The office said that money was being lost through money laundering, and the issuance of fraudulent loans. In some cases the government was being cheated through the sale or purchase of land or mining rights.
Chinese Premier Wen Jiabao, who was attending the national auditing conference where results of the investigation were announced, has urged the agency to remain vigilant in monitoring public investment projects – an area which has been traditionally prone to embezzlement and waste.
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