Welcome To China Work Culture: Above The Law Article “China Compliance: Are You Ready For War With Your Own Staff?”

So true …

China Compliance: Are You Ready For War With Your Own Staff?


My post last week, China Anti-Corruption Compliance: What’s Peeing Got To Do With It?, was on how Chinese staff of foreign companies in China typically view China legal compliance differently than the foreign company itself. This follow-up post addresses how Chinese staff often resist strong foreign anti-corruption and compliance programs and how to deal with that situation.

When a foreign company seeks to initiate or toughen its China compliance program, one or more of its local employees will usually try to convince it that doing so will prevent it from competing effectively in China. It is not uncommon for Chinese employees to view their job as a platform for leveraging additional income through kickbacks. This view is even more prevalent among employees of foreign companies, which are viewed as easy marks. The employee who has been receiving kickbacks does not want the kickback gravy train to end or be revealed. Chinese staff often accuse the law firm retained to clean up company compliance of not knowing “how business is done in China” and demand that firm be fired.

If the foreign company refuses to back down on moving forward with compliance, the situation can turn ugly, with one or more of the staff listing the foreign company’s illegal activities and threatening to report the foreign company to the Chinese government for its previous non-compliance. Much of the time, the employee making these threats is the one responsible for the non-compliance and the one who always assured the home office that its China operations were in full compliance or that any non-compliance would never be an issue.

If you are a foreign company planning to commence or strengthen your China operation’s legal compliance program, you should prepare for some or all of the following:

The staff involved in kickbacks asserting that some other employees insisted that they take the kickbacks.
The staff insisting that your compliance cleanup operation is being done to take out certain people in the company.
The staff insisting those involved in the cleanup operation be fired. Be prepared for attempts to frame those supporting the cleanup. We have seen local staff fabricate “evidence” of improper expense reporting, allege sexual harassment, and come up with “discoveries” that a foreign employee is no longer eligible for a work visa, just to name a few examples.
We have worked with a few companies that lost the stomach to continue with their compliance cleanup in the face of such tactics. When our China lawyers take on a China compliance program, they stress that stopping midway will inflict pain but fail to provide benefits. They do what they can to prepare their clients for the war that may come.