Why Multinational Companies Doing Business in China Fall into the Trap of Making Payments to China's Police

Abstract

Multinational Companies (MNCs) doing business in China often fall into the trap of making payments to the Public Security Bureau (PSB), China’s Police, in order to enlist the help of the PSB in law enforcement. The MNC might have suffered a theft of intellectual property rights or might be faced with an issue of unfair competitor involving an ex-employee and a competing business operator. The MNC believes that criminal enforcement will send a stiff message and will be a more effective deterrent against future offenses. Under China’s laws, many economic offenses can give rise to criminal liability but in order to initiate a criminal investigation, the MNC is often asked by the PSB for the payment of an administrative fee, often couched as advanced payment for the reimbursement of expenses needed for the investigation. The payment is usually small, several thousand dollars, and seems innocuous to the MNC. Although the initial payment may seem harmless, it might lead to a string of additional demands by the PSB for more and larger payments and the MNC might become enmeshed in entanglements with other PRC authorities, brought in by the PSB, that also demand payments. A string of multiple payments then becomes much more problematic for the MNC and the entanglements might become hostile as the MNC feels increasingly trapped and exploited.