America's Contribution to China's Corruption

Corruption Report

Title: America's Contribution to China's Corruption
By: Suzi Zambrano

            Two American companies involved in Chinese corruption scandals include Lucent Technologies and Diagnostics Products Corporation.

            Lucent forced Chinese executives in the company to offer bribes to officials in the state owned telecommunications company. Lucent also spent millions of dollars on approximately 315 on entertainment and leisure trips for Chinese officials. The expenses for these trips were improperly recorded in the company’s records and failed to provide adequate internal controls to monitor the provision of travel and other things of value to Chinese government officials.

            Between 2000 and 2003, Lucent also provided Chinese government officials with trips to the US referred to as “factory inspections” or “training” in contracts with its Chinese government customers. By 2001 however, Lucent had outsourced most of its manufacturing and no longer had any Lucent factories for its customers to tour. [1]  

            Diagnostics Products Corp gave out $1.6 million in bribes at state-owned Chinese hospitals. The bribes were paid from late 1991 through December 2002 for the purpose of obtaining business with these hospitals. DCP recorded these bribes in their records as “selling expenses”.[2]

            Foreign Companies doing business in China have to deal with the business culture in which bribery is common.  This makes it easy for US companies looking to expand their businesses to china to offend the Foreign Corrupt Practices Act (FCPA). Therefore, it would be difficult to start business in china in a law-abiding way even if the wanted to. What does this say about China’s economic future? Will business and corruption in China continue to go hand in hand? Though 99% of corruption in china goes undiscovered, American companies committing acts of economic dishonesty in foreign countries is not as cloaked. Both these companies served justice, each paying millions of dollars in fines as well as subjecting themselves to years of criminal and SEC civil investigations.

Endnotes:

[1] Department of Justice, 2007. Lucent Technologies Inc. Agrees to Pay $1 Million Fine to resolve FCPA Allegations. www.usdoj.gov

[2] Department of Justice. 2005. DPC (Tianjin) LTD. Charged With Violating The Foreign Corrupt Practices Act. WWW.USDOJ.GOV