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China not soft on corporate crime

Canadian securities regulators and law enforcement authorities grappling with a series of “challenges” posed by offshore companies listed on Canadian markets — mostly from China — may find some solace in that country’s zero-tolerance policy on commercial corruption.

On Nov. 9, Wu Jianwen, 42, the former president of the state-owned Shanghai Pharmaceutical Group was sentenced to death by a Shanghai court, with a two-year reprieve, for taking about $1.8-million in bribes and embezzling another $5-million over a 10-year period.

In September, a court in eastern China’s Shandong Province handed down a sentence of capital punishment against Wang Huayuan, who was convicted of taking bribes, abuse of power and for failing to explain the source of his personal assets.

And in July, two former senior Chinese government officials were executed following their convictions on corruption charges, marking the highest punishment meted out in recent years as the ruling Communist Party tackles public-resentment toward rampant graft in the world’s second-largest economy.

The two officials, former vice mayors of the prosperous eastern cities of Hangzhou and Suzhou, have been accused of taking millions of dollars in bribes in awarding contracts in the cities’ booming real estate markets.

Although most death sentences in China are commuted to life in prison with good behavior, these punishments provide an interesting contrast to Canada’s treatment of white-collar crime.

To wit, Garth Drabinsky is appealing a five-year prison sentence — which will actually work out to less than 14 months in jail — for orchestrating an accounting fraud that cost investors of Livent Inc. about $500 million.

Most of the punishment meted out by Chinese courts involves government officials and those employed in state-owned entities.

However, according to an international survey on corruption, it still has an uphill climb. On a scale from 10 (highly clean) to zero (highly corrupt), China ranked 78 out of 178 countries examined in the Transparency International Corruption Perception Index last year. The global survey ranks countries by their perceived levels of corruption, as determined by expert assessment and opinion surveys.

Canada ranked sixth best among all countries in the survey, led by Denmark, New Zealand, Singapore, Finland and Sweden. The United Kingdom ranked 20th and the United States was 22nd. The worst perceived corruption offenders in the survey were Somalia, which ranked last, Myanmar, Afghanistan and Iraq.

It’s against this backdrop that the Ontario Securities Commission is conducting a targeted review of emerging-market companies listed in Canada, focusing on 24 issuers from different industries and geographic areas. The OSC’s goal is to develop new policy to handle some of the problems raised by clashing business practices, co-operation among regulators and how to enforce Canadian securities laws and regulations internationally.

In recent months, Canada’s top securities watchdog halted trading in high-profile cases involving offshore companies, including Sino-Forest Corp., which has timber operations in mainland China, and was the largest forestry company listed on the Toronto Stock Exchange at the time a cease trade order was issued in August. The company is also the subject of investigation by the RCMP.

On Tuesday, an independent committee of Sino-Forest’s board of directors issued a 111-page interim report refuting the fraud allegations leveled against the company by research firm Muddy Waters LLP. However, the panel of independent directors acknowledged they were unable to verify title ownership to no more than 18% of the company’s stated assets.

In the case of Zungui Haixi Corp., a Hong Kong-based sportswear company, the stock remains halted on the TSX Venture Exchange because no one from the firm showed up at a hearing before the OSC to oppose the cease trade order.

The trading ban, which was issued in September after Ernst & Young LLP suspended an audit of Zungui, was extended until a hearing Nov. 23 into allegations from OSC staff against Zungui’s chief executive Yanda Cai and chairman Fengyi Cai for failing to co-operate with the company’s audit and special committees and the securities watchdog.


Avoiding Corporate Crime

by Russell Mokhiber

There’s some extra space in the AP Stylebook now that its editors have eliminated the term “illegal immigrant.” I propose that AP replace it with “corporate crime.” There’s little question that corporate crime — pollution, corruption, fraud, reckless homicide — inflicts far more damage on society than all street crime combined

Lanny Breuer now back at his old law firm — Covington & Burling — taking down $4 million a year defending corporate criminals(AP/J. Scott Applewhite)Yet, it is rarely talked about in the mainstream press.

Corporate Crime Reporter” recently completed news search of the term “corporate crime” in all news items since the beginning of the year and came up with 430 mentions.  Fully 90 percent of the mentions are from overseas outlets — predominantly from Australia, Canada and the UK.

“Corporate Crime Reporter” found only 42 mentions by U.S. news outlets — most of them smaller newspapers — like the Record and Clarion in Beaverton, Michigan or the Eagle Tribune in North Andover, Massachusetts — or blogs like the FCPAProfessor, CT Blue or the Dissident Voice.  About 14 of the 42 mentions came from mainstream outlets — with three of the 14 appearing in a New York Times blog.

When mainstream news outlets did use the phrase “corporate crime,” it was mostly in reference to corporate crime outside the United States.

CNN did a report that mentioned corporate crime in Russia.

CNN International did a show that reference corporate crime in China.

The New York Times ran an op-ed that talked about the possibility of prosecuting corporate crime in Africa.

We found only one mainstream U.S. story that had the phrase “corporate crime” in the headline. That was a New York Times headline titled “Top Prosecutor of Corporate Crime to Resign.” The story was about Lanny Breuer, the head of the Justice Department’s Criminal Division, resigning. The irony is that Breuer was the target of two major news magazine shows — one by 60 Minutes titled “Prosecuting Wall Street” and one by PBS’ Frontline titled “The Untouchables” — that brought into sharp focus Breuer’s failure to criminally prosecute any big Wall Street bank or high level executive for the 2008 financial meltdown.  Breuer now back at his old law firm — Covington & Burling — taking down $4 million a year defending corporate criminals.

Not that Covington uses the phrase “corporate crime.” Covington calls the practice “White Collar Defense and Investigations.”
(Competing laws firms are more honest about it. Jones Day calls their practice “Corporate Criminal Investigations.”)

But top federal prosecutors rarely use the phrase “corporate crime.”  I’ve found only one instance in which Eric Holder has used it in his three years as Attorney General. It apparently slipped out earlier this year when Holder was asked a question about prosecuting individual executives.  “We’re gonna make some news with regard to holding individuals responsible for things we tend to think of as corporate crimes,” Holder said.

Note — Holder said we’re going to hold individuals responsible — not hold corporations responsible.  In fact, Holder has perpetuated a system that fails to hold corporations responsible.

Instead of criminally prosecuting corporations and securing guilty pleas, the Department for the most part now settles major corporate crime cases with non prosecution and deferred prosecution agreements.  This undermines deterrence and sends the message that we have in a two tiered criminal justice system — one for powerless individual street criminals — who will go to jail if they commit crimes — and one for powerful corporate criminals — who will not be forced to plead guilty if they commit crimes.

And it’s not just the Department of Justice.

For decades now, the Securities and Exchange Commission (SEC) has settled major corporate cases with consent decrees in which the corporation “neither admits nor denies” violating the law but consents not to violate it again.  These decrees are now being challenged by federal judges — most notably Judge Jed Rakoff in New York and Judge Richard Leon in Washington, D.C.

Just because mainstream news outlets and federal prosecutors rarely mention the phrase “corporate crime” and just because we don’t secure admissions and guilty pleas against the corporate criminals doesn’t mean corporate crime doesn’t exist in the United States.  It just means that the powerful have flooded the public sphere and defined the terms of the debate.

On May 3 at the National Press Club, Corporate Crime Reporter will raise these and other issues at a one day conference.  We’ll put “corporate crime” front and center.


Edward Lehman 雷曼法学博士
Managing Director 董事长

LEHMAN, LEE & XU China Lawyers
Founder of LehmanBrown


Edward Lehman comments on China National People's Congress CCTV

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