Most Americans do not understand court corruption. Otherwise they would not so frequently say there is no point in bringing a lawsuit in such and such a court because it’s corrupt. Corruption influences (sometimes greatly) court cases, but neither as often nor as much as widely believed.
When dealing with court corruption, one has to be sensitive to location, type of case, and relative influence of the parties. In other words, a $300,000 breach of contract case between a foreign company and a Chinese private company is much more likely to get a “fair trial” in a Chinese court in Shanghai than a case against a massive China State Owned Entity involving stolen trade secrets that might have military applications in the small Chinese city in which that SOE is based and employs a large percentage of the town. Sometimes this is due to corruption and sometimes this is due to what lawyers commonly call getting “hometowned.” There are Wall Street lawyers who are as afraid of going to trial in a rural Alabama court as US companies are of going to trial in China.
But when Americans think of a corrupt court they usually think of the opposing party paying a judge for the ruling of their dreams. But it is rarely that simple. I was taught the “finer points” of court corruption by a smart and honest Russian lawyer friend of mine who practiced law in the Russian Far East. What he explained to me works pretty much the same way in most countries with a less than pristine court system.
My schooling on Russian court corruption was in “real time” as it involved a real case and a real client. It has been many years so I may be a bit off on the numbers and it is possible things have changed in Russia since then and it is also possible this information held true only for this one region in Russia. It is also possible the Los Angeles Lakers will sign me to a multi-million dollar contract within the next few months.
My client had a contract with a Russian company under which the Russian company clearly owed my client $2 million, but the Russian company was refusing to pay and all but challenging my client to sue it in a Vladivostok court, the only place my client could pursue its claims. Legally, my client’s case was about as close to a slam-dunk winner as you are likely to see in a business dispute. But my client was rightfully concerned how corruption would influence its case.
Our trusted Russian counsel explained how we should view the case, corruption and all, and he did so by explaining the following:
Nine of the fifteen judges are corrupt, six are not. But I still like our case even if it goes before one of the corrupt ones. First off, there is a good chance the opposing side will not offer any bribe at all. Second, our case is so strong it is possible that even if the other side offers a bribe, none of the corrupt judges will take it. Third, if any do take the bribe, it will need to be a really high bribe because no judge wants to be thought of as corrupt and ruling against our client in this case will definitely raise eyebrows.
The Russian company will probably need to pay the lower court judge approximately $300,000 for the ruling it wants. And then we can appeal that ruling to a three judge appellate panel, made up of judges from throughout the province. A lower percentage of the appellate judges are corrupt and those that are corrupt tend to require really large payments, especially on a case like this. The odds of all three of our appellate judges being corrupt are quite low. The odds of the Russian company having close connections with any of the appellate judges are lower than when all of the judges are based in its home city. This means that to try to bribe two of the three judges will be risky and expensive. Risky because even in Russia people sometimes go to jail on bribery charges. Expensive because we are talking about three appellate judges. So in the end, I estimate that for the Russian company to be assured of winning through the appellate level, it will need to pay around a million dollars. And that ignores our ability to at least try to appeal to the Supreme Court in Moscow.
These numbers are just estimates but this means that even though corruption is a factor, we cannot allow our client to panic in the face of it. We can settle this case on good terms and that is what we should try to do. The Russian company would rather pay us to eliminate risk than pay a bunch of judges and take on new risks.
We ended up settling the case and at a figure not that much lower than what it would have been in the United States.
I am not by any means trying to minimize the impact of corruption; I am merely trying to show that it oftentimes is not as overwhelming as it may initially appear.
Note also that we never discussed our client paying a bribe to anyone. That is always the worst alternative because it puts people at real risk of going to jail without anything close to a guarantee it will even work. When our Russian lawyer said that people in Russia rarely get arrested for bribery, he was talking about Russians, not foreigners. Do you really think you have the savvy to engage in risk-free bribery in a foreign country? I can tell you that none of our firm’s China lawyers would ever make that claim.
When I talked about the above at a talk I gave in Cleveland, an audience member, Kimberly Kirkendall, commented that in her experience many of the times where someone paid a bribe in China they had done so essentially because they wanted to, not because it was necessary they do so. We then talked of how some companies seem almost to delight in paying bribes but that our China lawyers — believe it or not — had never once been asked to pay a single bribe in China, even though we are constantly dealing with the Chinese government to register trademarks and copyrights and WFOEs and Joint Ventures. Kimberly commented on how foreigners sometimes brag about paying bribes and how troubled she was by that. I then mentioned how stupid and risky it is to pay bribes in China.
I spoke with Kimberly after the event and learned of her extensive experience and of how she had recently written on China bribery. When I got back to my computer I read what Kimberly had written and I loved it, and with her permission, I am running an excerpt from it below.
When I hear that a company has used bribes I start wondering about the reason for the bribe. Was it a payment to someone to do his or her job or a payment for them not to do their job? In almost every instance these days, it seems it is the foreigner who initiates the bribe. The below are examples of matters on which I personally worked that highlight the important difference between these two reasons.
Example: A U.S. company was importing components from China, using both its own team in China to find suppliers and control the orders and a trading company. The US management came to me for help in figuring out why some in their company were claiming they needed to use a trading company their China business, even though the trading companies were increasing costs by taking their own payments from the transactions. They wanted to know why they were paying a trading company to buy and export goods when they could do all that themselves. It turned out that a group within the company wanted to utilize lower HTS custom codes for export to save money and Chinese Customs didn’t agree with that custom code classification. The US company was using the trading company to pay China customs a bribe so they could export their products under the “wrong” code and save money. In other words, there was no need to pay bribes, just a desire.
Example: A company was setting up a factory in China and the local government was concerned about air emissions from its manufacturing process. In the United States, the company had shown its emissions met EPA guidelines. The local Chinese agency was not convinced and asked for more tests and documentation. The company was left with options – see if there was an “economic incentive” that would encourage the regulatory official to approve the paperwork, or spend a few months and thousands of dollars doing the research to prove their manufacturing met the guidelines. They chose the “economic incentive” route. Again, an example of a company choosing to pay a bribe out of a desire to get a government official not to do their job, not a bribe necessary to get that official to actually do their job.
The point I am trying to make here is that the excuse foreigners make about having no choice but to pay a bribe is rarely true. The foreign companies I hear about paying bribes chose to do so. They were not responding to a request for money; they were offering money as an incentive for a Chinese worker to deviate from their professional responsibilities.