As Meng suggested in a recent post, there is something admirable about Chinese President Xi Jinping’s anticorruption crusade. With nearly 182,000 party members reprimanded during his first 18 months in office, President Xi’s program appears both more ambitious and enduring than those of his predecessors. Unfortunately, though, the core of corruption surrounding China’s senior leadership remains largely untouchable. Even as China cracks down on the abusive practices of low-level officials, billions of dollars in “suspicious” funds sit in the foreign accounts of that nation’s “princelings,” protected by the fact that, as Matthew notes, discussion of the corruption of China’s senior leaders remains “absolutely taboo.” After all, shedding too much light on the misbehavior of the nation’s elite threatens to defeat the leadership’s paramount concern: maintaining the legitimacy that undergirds China’s political stability. And this leads to what it is that positive accounts of President Xi’s battle against corruption often overlook: the contemporaneous willingness of China’s senior leaders to crack down on anticorruption efforts whenever those efforts threaten to step on the wrong political toes.
One of the best examples of this phenomenon is the Chinese government’s recent crackdown on investigative companies who perform due diligence.
Over the last two decades, China has developed an extensive investigations industry — ranging from one-person shops to large global risk consultancies — fueled by a massive influx of foreign investors in need of guides to the Chinese market, and more specifically in need of assistance in conducting due diligence on potential agents or partners, in order to avoid running afoul of anti-bribery laws. Until recently, these investigative firms benefited from a tradition of openness in records held by various organizations like China’s Administration of Industry and Commerce, which regulates most of the nation’s corporate entities. For a small fee, these investigation firms were often able to obtain whatever records they needed to compile due diligence reports. In 2012, though, Chinese authorities began to crack down on investigators (and their sources) using Article 253(A), a new provision of the Chinese Criminal Code that prohibits state entities from selling (or even sharing) private personal information. This crackdown not only marked a sea change in China’s due diligence industry, but it managed to ensnare, alongside thousands of Chinese investigators, Dun & Bradstreet’s Shanghai subsidiary, a prominent British-American couple that had worked for GlaxoSmithKline, and a Canadian investigator who exposed the weak financials of a Chinese mining operation.
Why would China crack down on due diligence investigators–whose job it is to help foreign investors avoid violating both Chinese and foreign anticorruption laws–at the same time that the Chinese government purports to be committed to combating rampant corruption? Well, news accounts suggest that Chinese authorities became increasingly concerned over the past few years about a series of reports that used information from private investigators to expose, among other things, the private (and presumably ill-gotten) wealth of leading officials. And that’s where the investigators got themselves in trouble.
China’s crackdown on investigative firms has at least two implications for the struggle against corruption in China:
First, the crackdown itself will make it more difficult (though not impossible) for foreign firms to comply with both Chinese and foreign anti-bribery laws. It is hard to do business in China without making use of third-party agents or local partners, but doing so gives rise to serious anti-bribery compliance risks.
Second, this crackdown (like the crackdown on Chinese anticorruption activists that Meng discussed recently) suggests reasons to temper one’s enthusiasm for President Xi’s anticorruption campaign. Combating low-level corruption is a worthy goal, and a meaningful step in developing an anticorruption norm among Chinese officials. And as Matthew has discussed in two prior posts (here and here), even selective, politically motivated prosecutions of senior officials may sometimes be defensible. But as long as China’s concern with political stability remains paramount and stands as an obstacle to turning the anticorruption lens squarely on the nation’s elite, the culture of corruption at the core of the Chinese political hierarchy will remain. And therein lies perhaps the biggest limitation of a politically circumscribed anticorruption program: the danger that enforcement will be used as cover to protect the corruption at the core of the system.