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Aug 10
2009

The whole world's watching

Posted by RedConn in John GoffinvestmentsemployeesChina

RedConn

U.S. executives based in China have of late grown increasingly wary of monitoring by their own government--rather than local officials.

That's understandable. Stricter enforcement of the Foreign Corrupt Practices Act has ratcheted up the heat on all American managers working abroad. Since 2006, the SEC has brought more FCPA cases than it did in all 28 years prior (which was when the law was first enacted). 

A large slice of the most-recent cases has targeted U.S. companies doing business in China. In July, manufacturer Avery Dennison agreed to settle SEC charges that it had committed two violations of the FCPA in China.

But the arrests on Wednesday of four Rio Tinto employees in Shanghai will no doubt spook U.S. executives working on the mainland.  Indeed, the arrests once again underscore the many perils of doing business in the middle kingdom.

Bear in mind, gift-giving is a common business practice in China. But that practice essentially gives officials in the PRC carte blanch to arrest foreign executives. What's more, many businesses in China are part private, part public.

Thus, the CFO at a U.S. company could have what would be construed as an innocent discussion about China's future renminbi policy with an executive at a prospective joint venture partner. If that executive also turns out to be the assistant undersecretary to the vice chairman of the Ministry of Finance in Hunan province, the conversation could be construed as illegal.

Given the hullabaloo orchestrated by Beijing, it's possible that the Rio Tinto employees may end up doing any jail time in China. If so, scores of multinational corporations may be forced to rethink their entire China strategy.

Toward that point, Australian Prime Minister Kevin Rudd has warned Beijing it had significant interests at stake in detaining the Rio Tinto workers. He said the world was watching how it handled a case.

On Tuesday, the U.S. government issued its own warning."China and how it reacts to cases like this will have a bearing on the international business climate and the willingness of individual businesses to invest in China," a U.S. State Department spokesman, Philip Crowley, said in Washington.

Prison time for Rio Tinto's workers could see U.S. companies pull up stakes in China. India beckons.

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