Confusion and Concealment Regarding Gift-Exchanges in China 2

2013: Year of the Snake

2013: Year of the Snake

Happy Year of the Snake!  This week, millions of people around the globe are celebrating the Chinese New Year and the start of a new lunar cycle.  An official week-long holiday in China, many are traveling to be with family, to eat “jiaozi” (dumplings) and to exchange gifts.

The culture of gift-exchange is deeply rooted in China, and social and legal norms dictate both how to give and to receive gifts.  Just as common in social as in business interactions, the gifts might range from an inexpensive trinket such as a “good luck knot” to an expensive watch.  But what is often meant as a sign of goodwill and friendship between business partners can also be a source of worry for companies who operate in China and are concerned about violating the anti-bribery laws of their home country or those of their host country.  The apparent contradiction between anti-bribery norms and traditional attitudes in China regarding gift exchange, however, is based more on misperception than on reality.

The first misconception is that corruption is somehow part of the culture in China.  This belief implies that corruption is a normal, expected and inevitable part of doing business in China.  The fact is that in recent years, and especially since the 1997 Asian financial crisis, many Asian countries, including China, have taken significant steps to address corruption by standardizing their internal accounting controls, enhancing corporate governance laws, and putting renewed emphasis on enforcing anti-bribery laws.

Westerners who are familiar with the Chinese concept of “guanxi,” which is a form of “I scratch your back, you scratch mine” relationship linking millions of Chinese firms, may believe that this also involves a tacit acceptance of bribery.  But in reality, the consensus – and the law – in China is that guanxi should not be used to conceal unethical or corrupt business practices.  As Heidi von Weltzien Hoivik, professor of business ethics at BI Norwegian School of Management writes in her article entitled East Meets West: Tacit Messages about Business Ethics in Stories Told by Chinese Managers, “the demand for reciprocity [in China] implies the importance of maintaining a balance.  This balance is also disturbed when corrupt practices occur and cannot be accepted at all.”

A second misconception is that all gifts are improper and should be prohibited.  Contrary to this belief, anti-corruption laws generally do not address routine corporate hospitality or small, symbolic gift-giving.  Under the PRC Anti-Unfair Competition Law, for example, “gifts of small value” in accordance with commercial customs are permitted.  The same can be said about the UK Bribery Act, in which hospitality or promotional expenditures that are “reasonable, proportionate and made in good faith” and are not intended to obtain a business advantage, will generally not be subject to prosecution.

The key is to keep the gifts modest and to err on the side of caution; the more lavish the gift, the greater the inference that it’s a bribe.  In the United States, companies have gotten in trouble under the FCPA for excessive gifts and hospitality for government officials in China.  In 2007, as just one example, Lucent Technologies paid a $2.5 million fine to the DOJ for, among other things, sightseeing trips that it offered Chinese officials to tourist attractions in the United States, including the Grand Canyon, Disneyland and Universal Studios.

In sum, companies wishing to do business in China should not see the culture of gift-exchange as contradictory to their ethical and legal obligations prohibiting them from making bribes.  Gifts, when well-intentioned and modest, are not likely to run afoul of anti-bribery laws.  Nor is the problem of bribery inherent to the Chinese tradition of giving gifts; rather, it is when gift-giving is used as a way to conceal bribes that problems arise, whether in China or in any other country.

For more information on how to manage gift-giving problems that may arise when doing business in China or elsewhere, consider using TRACE’s Gifts & Hospitality Software Solution, which allows companies to track, analyze and report on corporate hospitality anywhere in the world.

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