Frankie Leung and Chris Fordham share recent trends and observations on corporate fraud and corruption in the Chinese mainland in an in-depth feature by Financier Worldwide. "We are seeing previously concealed fraud, bribery and corruption issues rising to the surface as companies continue to recover from the effects of the pandemic, and we expect this trend to continue as we enter the financial reporting season. Authorities in the Chinese mainland and Hong Kong SAR have both taken a firm stance on the fight against corruption in recent times, in the process revealing many bribery and corruption cases." 

Asked what enforcement trends to combat fraud and corruption there are in the region, Frankie observed that in the Chinese mainland, “supplemental corporate compliance framework guidelines had initially been rolled out in Shenzhen and have now been followed by similar guidelines in Shanghai. As with the US Department of Justice’s (DOJ’s) 2020 guidance on the evaluation of corporate compliance programmes, the new Chinese mainland guidelines may allow for penalty reductions if companies can adequately demonstrate that they have an effective ongoing compliance framework, with periodical monitoring and reviews in place, to minimise fraud risks.”

Businesses may be under-prepared for tough regulatory enforcement actions as “despite the challenging economic times brought about by the pandemic, it is clear that regional regulators are not minded to allow businesses an enforcement reprieve and, if anything, are introducing stronger enforcement measures in response to the perceived risks to protect markets and stakeholders. Consequently, businesses in the region may face a tougher year of regulatory enforcement than they had anticipated and budgeted for.”

Handling investigations during or post-pandemic requires a shift in approach. “Business use of mobile chat apps such as WeChat was already on the rise and with the shift toward remote working, employees have continued to increase the frequency of their communications through these channels. Companies can familiarise themselves with new methodologies that can capture and import chat data, including images, audio and video files, and display them in near native formats for review, enabling legal teams and investigators to cope better with chat discovery in investigations and compliance assessments.”

Asked how companies can proactively prevent fraud and corruption, they advised building “a strong compliant and ethical culture. This can be challenging in a region where business practices and norms such as ‘guanxi’ relationships may blur ethical lines and are subject to abuse by employees. Companies need to take these regional practices into account in their culture-building efforts. As culture influences the behaviours, values and decisions employees make, it is important in the fight against corruption and fraud for companies to get their culture right and find ways to measure and strengthen their ethical culture.”

Read Full Financier Worldwide InDepth Feature Here