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U.S. firms ensnared in China bribe case

Employees of McKinsey, McDonald's and Whirlpool are among 22 detained in a graft investigation, according to state-run media.

January 20, 2007|Don Lee and Evelyn Iritani | Times Staff Writers

SHANGHAI -- Several large U.S. corporations have been ensnared in China's anticorruption drive, according to state-run news organizations, which reported details Friday of a bribery investigation.

Some of the 22 people detained because of allegations that they accepted $500,000 in bribes from four Chinese computer-network equipment companies were employees of McDonald's Corp., Whirlpool Corp. and consulting firm McKinsey & Co.

The local companies were not identified, but the Shanghai Daily and other news organizations said two local employees of New York-based McKinsey had taken about $270,000 in bribes before awarding contracts for equipment orders. Smaller amounts allegedly were accepted by the local offices of McDonald's and Whirlpool, among others.

The reports were attributed to Shanghai police, who declined to comment. No formal charges have been announced, according to state-run media.

A McKinsey representative in Shanghai said Friday: "We do not have any other information than what we are also reading in the Chinese press. The company itself has not in any way been accused of any wrongdoing in this case."

Appliance maker Whirlpool, based in Benton Harbor, Mich., issued a similar statement.

A spokesman for McDonald's, which is based in Oak Brook, Ill., said Friday that the incident occurred several months earlier and that the company had immediately fired an employee detained in the investigation.

Although corruption cases are often reported in the Chinese media, allegations involving staff at foreign companies have been rare. In past years, some legal experts said, the Chinese government prevented domestic media from reporting negative news about multinational firms, wanting to protect their reputations in the interest of securing more foreign investment in China.

But the central government has identified fighting graft as a priority. Rampant corruption has sparked unrest in many places in China and threatens to undermine the Communist Party's authority. In recent months, Beijing has ousted a number of officials suspected of abusing their power, including Shanghai's party leader.

At the same time, scholars and lawyers say, the government is putting more attention on corruption in business cases.

"The current situation of commercial bribery in our country is quite serious," said Chen Baoku, a law professor at Nankai University in Tianjin.

Giving money and gifts is common in doing business in China, and Chen said that foreign companies can find it easy to adopt local practices.

Still, Larry Lang, professor of finance at Chinese University of Hong Kong, said he was surprised by accusations that employees of American companies such as McDonald's and McKinsey had accepted bribes, given the tough anticorruption laws under which they operate in the United States.

Although it's possible that the top executives of those firms didn't know what their employees were doing, Lang said, "Remember one thing. If the employee has a problem, the company at large will be responsible for this."

Details of the bribery scandal were sketchy, and the timing of the media reports puzzled many people. Chinese media said that Shanghai police were tipped off last May about the alleged bribery and that interrogation began about a week later.

But it wasn't until Jan. 11 that the official New China News Agency first reported that two employees with McKinsey's Shanghai office were involved in a commercial corruption investigation. That report said the two, from the company's information technology section and logistics department, were accused of taking tens of thousands of dollars from a suspect surnamed Wang. McKinsey has more than 300 consultants and support staff members in its Shanghai office.

On Friday, several Chinese news organizations said the two McKinsey employees had actually collected bribes from 2003 to 2006 from four computer network companies. Shanghai police said that they had recovered about $120,000 in illicit cash.

The status and whereabouts of the 22 people detained were not disclosed. Chinese legal experts say they were probably taken to detention houses, where their movement and outside contacts are restricted.

In recent months, Chinese media have reported more news critical of foreign firms operating in China. On Friday, for example, the Shanghai Daily said 17 international brands, including such posh names as Burberry, Armani and Dior, had failed quality inspections at some of Shanghai's most expensive malls.

"The government is telling the public that international brands are not without problems and that foreign and domestic investors should be treated the same," said Kevin Koo, an attorney in Shanghai.

*

don.lee@latimes.com

evelyn.iritani@latimes.com

Lee reported from Shanghai, Iritani from Beijing.

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