Jul 21, 2010 04:40 PM

Payback Time for State Firms Tied to Payoffs

(Shanghai) - When the U.S. government announced last year that former executives at California-based valve manufacturer Control Components Inc. (CCI) had pleaded guilty to numerous counts of bribery, employees at dozens of companies in China heaved a huge sigh of relief.

Only six Chinese businesses had been implicated in the multimillion-dollar bribery case by the time the U.S. Department of Justice (DOJ) announced the convictions.

But, in fact, the pleas filed by CCI's ex-employees merely marked a stage, not the conclusion, for the illegal cash-for-contracts case. Eventually, U.S. officials charged dozens of other Chinese companies – including leading power concerns and design institutes – with accepting payoffs from CCI over several years.

And many of these alleged bribe-takers have extra reason to worry: DOJ's detailed disclosure has given authorities in China clear evidence that could be used to press domestic criminal cases and step up the nation's battle against corruption.

Regulators overseeing state-owned enterprises are apparently digging deep in search of unlawful practices. Indeed, the State-owned Assets Supervision and Administration Commission (SASAC) announced last year that it established a special unit to investigate enterprises that allegedly accepted CCI bribes.

However, nothing more has been released since SASAC's announcement in August 2009. And SASAC officials did not respond to a Caixin request for an interview.

Global Bribery

The DOJ probe exposed widespread bribery by CCI executives who traded cash gifts for business contracts with companies around the world.

CCI eventually pleaded guilty to three criminal counts and agreed to pay a US$ 182 million fine.

According to DOJ documents, CCI officials admitted paying bribes to public and private company workers as well as government officials between 1998 and 2007 in around 36 countries worldwide. The payments – totaling US$ 6.85 million – were in exchange for commercial contracts that added US$ 45.6 million to the company's earnings, DOJ said.

Headquartered in Orange County, CCI designs and manufactures control valves for oil and gas industry applications as well as power plants.

Its parent company IMI Plc., which launched an internal investigation into the bribery allegations in 2008 and cooperated with DOJ, said in a statement last year that CCI no longer employs any of the targeted executives.

DOJ withheld from the public some details of the 236 instances of bribery that it's documented. But it did not hold back from naming six Chinese enterprises in the original indictment: CNNC Jiangsu Nuclear Power Corp., China Guohua Energy Co. Ltd., CNPC Materials Co., Petrochina, Dongfang Electric Corp., and China National Offshore Oil Corp. (CNOOC).

Caixin later obtained an IMI internal document listing more than 50 Chinese companies that allegedly received bribes. Most are involved in power generation, nuclear power, or the oil and gas industry. They include large state-owned enterprises such as Shenhua Group Corp. Ltd., China Datang Corp., China Electric Power Technology Import & Export Corp., and Huaneng Power International Inc.

In addition, authorities said CCI employees often targeted Chinese design institutes for payoffs, since state-owned power companies frequently appoint and employ institutes for help in designing new plants. Designers can influence valve purchases.
Design institutes suspected of taking bribes from CCI include China Power Engineering Consulting Group's Central Southern China Electric Power Design Institute (CSEPDI) and those under the wings of China Civil Engineering Construction Corp. (CCECC).

Caught by DOJ's investigative net, CCI's former head of global factory sales Mario Covino and former finance chief Richard Morlok pleaded guilty to bribery charges in early 2009. Soon after, DOJ implicated four other executives in a 16-count indictment, including former CEO Stuart Carson and his wife Hong Rose Carson.

Carson was the sales director for CCI's China and Taiwan operations.

DOJ submitted court documents last October, including a letter from its case attorney Andrew Gelltin with details of the 236 bribery incidents including times, amounts, receivers and beneficiaries. The letter also made clear that a lot more than six companies in China accepted payoffs.

Chinese enterprises now suspected of accepting bribes are almost all state-owned and involved in monopolized industries, such as energy and power generation.

Most Chinese companies on the list have been unwilling to respond to the accusations.

But China Guodian's external communications department released a terse denial. "This case has no relationship to us whatsoever and is not our affair," the statement said.

Meanwhile, a source at CNNC Jiangsu Nuclear Power told Caixin the company has launched an internal investigation, although so far no results have been announced.

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