No business as usual with corruption in Israel and China, ex-US official says

Times have changed for Israeli companies playing on the international stage trying to cope with tougher legal requirements for weeding out corruption.

By YONAH JEREMY BOB
Updated: FEBRUARY 17, 2016 12:21
DLA PIPER ATTORNEYS Laura Flippin, Richard Chesley (center) and Jeremy Lustman smile at the seminar in Tel Aviv on legal compliance with global anti-corruption requirements. (photo credit: YONAH JEREMY BOB)
DLA PIPER ATTORNEYS Laura Flippin, Richard Chesley (center) and Jeremy Lustman smile at the seminar in Tel Aviv on legal compliance with global anti-corruption requirements.
(photo credit: YONAH JEREMY BOB)
Times have changed.
That is particularly true for Israeli companies playing on the international stage and trying to cope with tougher legal requirements for weeding out corruption.
It goes up yet another level when those companies are trying to penetrate Chinese markets and dealing with the different cultural approaches to handling corruption there.
These were the some of the main messages of Laura Flippin, a former US official who is now a lawyer for the DLA Piper multinational legal firm, of DLA Piper lawyers Richard Chesley and Jeremy Lustman, as well as of Herzog Fox Neeman lawyer Daniel Reisner at a recent seminar in Tel Aviv on legal compliance with global anti-corruption requirements and in a sit down with The Jerusalem Post afterward.
Chesley talked about the broader changes in the industry for Israelis who want to play at the highest levels of business, with subsidiaries spread across the globe, and who need to prepare to meet higher global legal anti-corruption standards.
He said that to comply with due diligence requirements for checking for problematic transactions, for example when buying, selling or merging with other corporations, “you must get to [your and the other company’s] actual emails, financial records – get to the documents, you must do forensic analysis – you can’t just ask” employees and take their word that there were no improprieties.
Without far more “structure, process and committing resources” to performing due diligence checks and maintaining anti-corruption safeguards, Israeli companies will “be foreclosed from the next opportunity,” Chesley said.
DLA Piper’s local presence, led by Lustman, said that allocating resources is the trickiest part.
Israelis need the “ability to do an assessment, where are my areas of exposure, where are my 50/50 areas – we provide an assessment to clients in a very tachlis-oriented (purpose-driven) way.," stated Lustman.
He added, "Look you have limited resources, these three areas are the most intense for exposure” to corruption issues.
Reisner explained that the reason some of Israelis were finally willing to foot the bill to perform detailed reviews of their dealings was to meet international anti-corruption standards related to Israel joining the OECD.
Without that motivation, Reisner said that Israelis might have been too intimidated by the compliance requirements coming from a country where there has been little concern of prosecution. He noted there are essentially no Justice Ministry or Israel Securities Exchange Commission prosecutions for paying foreign bribes.
In fact, until 2009, Reisner stated that it was legal in Israel to take a tax write-off for foreign bribes, and the Tax Authority had to publish a notice when that write-off was revoked.
How do all of these issues play out and get even more complex for Israelis concerned about anti-corruption issues specifically while trying to enter the Chinese market? Flippin has special insight into the anti-corruption issues in China.
She not only has lots of China- related private sector experience, but has worked on corruption issues in various capacities for the US government, including at the White House and the Department of Justice dealing with homeland security issues.
Giving advice to Israeli investors handling legal compliance in China, she suggested being ready to adapt fast to Chinese expectations.
“Culturally, the Chinese expect everyone to operate within the Chinese system and cultural approaches to doing business, emphasizing issues of respect, being available for the people of China [and understanding everyone is] working for the People’s Republic,” she said.
She added that “you must make sure you admit problems publicly, but in a way that reflects the Chinese system – they are less interested in the US, Israeli or EU norms.”
Reflecting on some of the extra challenges with anti-corruption issues in China, Flippin explained, “You may get conflicting advice from government officials about regulatory rules depending on their seniority and their role.”
She continued there can be power struggles between “local and national prosecutorial bureaus who have simultaneous jurisdiction.”
Further, she noted that sometimes a local authority might demand “a very out of proportion fine” for a corruption issue and that balancing these overlapping actors is difficult.
Flippin said overcoming such a situation is not as simple as going over the head of local authorities to national authorities, as “in some instances local prosecutors could have more authority if they have political support nationally.”
Part of the difficulty in cutting through the red tape is that some officials in China “outwardly project lots of authority and the ability to make decisions for the government, but report to someone else who you are never face to face with, and they were really just a messenger.”
This could be a special challenge for Israelis who like to cut to the chase and go face to face with the decision-maker, Flippin said.
Chesley added that to navigate the maze “you have to have local knowledge and experience to figure out the best way” to get the right information.
“Those that come in uninitiated to try to broker the deal, find it very difficult to navigate.”
Other challenges are that many officials can only be reached by fax and not email, that it can take several days sometimes merely to schedule meetings, and that unwritten procedures in courts can be mystifying.
Perhaps what makes compliance with corruption requirements in China most difficult is that “Chinese culture is very contextual, how and when they share information” is crucial, said Flippin.