Opinion | 01-07-15

China focus: Compliance as a career path - What is the role of compliance?

In recent years, many global multinational companies (MNCs), such as GSK, have been under investigation for commercial corruption by the Chinese local government or by foreign anti-corruption institutions like the U.S. Department of Justice (DOJ). As a result, more and more attention has been paid to the compliance function. In this article Li Ji draws on her experience of working in the legal and compliance department of a US pharmaceutical business and outlines the current positioning of compliance departments in China. 

What is compliance?

Currently, compliance officer roles are amongst the most popular roles within the Chinese legal market. However, many lawyers, including in-house counsels, do not understand their role.

The legal basis of compliance centres around the Foreign Corrupt Practices Act (FCPA) which was instigated by the US in 1977 and the UK Bribery Act 2010. 

The FCPA has been amended several times and requires US companies and their overseas subsidiaries to comply with the FCPA. The FCPA makes it unlawful to provide or authorise any third party to provide “anything of value” to a foreign official for the purpose of “obtaining or retaining business”. The subsidiaries of US companies in China have to comply with not only China local anti-corruption laws, but also the FCPA. 

What kind of businesses need to consider compliance in China?

All U.S. companies and their subsidiaries must comply with the FCPA. The aforesaid U.S. companies include companies incorporated in the U.S., as well as those companies incorporated outside the U.S. which are listed in the U.S. We have seen a number of US companies in China increase their compliance resources, particularly those in industries involving more interaction with the Chinese government, such as healthcare. This is because it is an industry in which sales representatives from the healthcare companies have to increase prescriptions by visiting and communicating with the physicians at state owned hospitals.

What do compliance departments actually do? 

Compliance departments and their responsibilities generally fall into three categories:

(i) Compliance policy localisation and consulting: the compliance department has to formulate the internal compliance policies applicable to local Chinese subsidiaries according to the headquarter’s policies as well as Chinese local law. On a day to day basis, the compliance officer provides a consulting service to the business, including explaining compliance policies and advising on business activities. Moreover, in some sensitive industries, the compliance officer is requested to review and approve activities according to compliance policies. For example, in healthcare, the sponsorship of physicians working in a state-owned hospital. 

(ii) Internal compliance training: most Chinese employees have little or no idea about compliance or why they have to follow the policies. Thus, the compliance department is responsible for providing training to all staff, including vendors to the business (a.k.a. third parties) in order to ensure everyone is aware of the policies and how to comply.

(iii) Compliance investigation: the compliance department will deal with investigations of any alleged violation of FCPA, ethics or other policies by means of internal investigation, internal audit, or by supervising external investigators or lawyers.

How easy is it for in-house counsels to become compliance officers?

In the early days, the compliance policies of MNC in China were not very developed and generally there was little work for compliance professionals. The main responsibility for these compliance officers was to work with the business’s headquarters on any live investigation cases. At this time, the compliance function generally sat within the finance department and members would most likely report to the CFO. 

In more recent times, as policies and regulations have developed, more businesses have realised that Chinese local anti-corruption requirements cannot be ignored.  Compliance departments have grown to include members with legal backgrounds instead of those with finance or operations. In the headquarters of many MNCs, the compliance department usually reports to the legal head, making a legal background more crucial than ever. 

It is much easier for an in-house lawyer to progress their career in compliance because they already have an understanding of how businesses work and how various roles, both legal and compliance, fit in with internal policies. For lawyers coming from private practice the switch is more difficult because they generally have had little exposure to compliance matters, the exception being lawyers from law firms that specialise in highly regulated industries, such as, life sciences or healthcare. We often see these lawyers easily making a move into compliance, because they are familiar with internal compliance policies of the healthcare industry and have practical experience of compliance policy consulting and investigation. 

In China now a career in compliance has become one of the three choices for a legal professional (private practice, in-house and compliance). Of course it can be difficult to decide where you are best suited, and in our next article we will outline some tips on how lawyers can make a choice as to which route to follow. 

If you are looking to grow your compliance team or want to make a move into compliance please contact Shawn Chen on +86 21 6103 7331 or via email [email protected].