ERM responds to bribery allegation in China

Respected enviro consultancy steps up anti-corruption measures as MD of Chinese business resigns

Following recent damaging press reports about the conduct of its former managing director Wang Yong in China, ERM chief executive officer John Alexander has spoken with Environment Analyst about the findings of its internal investigation into an incident involving Dr Wang Yong, and a local environmental protection official. Alexander argues that ERM's board has confidence in the group’s code of business ethics.

In August 2009, a court in Shanghai heard that defendant Yan Shunjin alleged that he received €4,000 and US$20,000 from ERM’s Wang Yong. The alleged payments were among a series accepted by Yan from various companies while he was deputy director of Shanghai Environmental Protection Bureau, the court heard. Yan is thought to have received a total of 1.2 million yuan (about £100,000). During the case, Yan’s defence lawyer said his client had admitted guilt and returned the money to the state.

The case reportedly arose out of a wider investigation into the behaviour of government officials, although the Sunday Times alleges that ERM's payments to Yan were made during the period when the consultancy was seeking to gain a “class A” licence from the Chinese authorities. The class A licence was awarded to ERM in 2007, and allows the consultancy to carry out environmental impact assessment (EIA) work on a nationwide basis and on the most complex development projects.

Earlier this year, when interviewed for an Environment Analyst Market Briefing feature article about the challenges of operating in the environmental consultancy market in China, Dr Wang Yong proudly emphasised ERM's unique position, as the only foreign-owned company to have obtained a class A EIA licence. “In China, you have to have a licence to perform an EIA...this...positions us to do more permitting work,” he said. Other international environmental consultancies operating in China are more restricted, and generally must work in partnership with local Chinese design institutes or other bodies, which hold relevant licences (Environment Analyst 01-Mar-09).

According to a Chinese newspaper, Yan told the court: “Without my help it was impossible for ERM to get the upgrade because the Chinese administration is very strict in auditing foreign companies and it takes a long time.”

In an earlier statement about the case, ERM stated: “Dr Wang has not been charged with any wrong-doing and ERM Group had no advance warning of any of the alleged payments to the former deputy director of the Shanghai EPB. To suggest otherwise is damagingly inaccurate.”

John Alexander told Environment Analyst that as soon as the ERM board heard of the allegations “we took it very seriously and appointed a committee - independent of the management - of non-executive directors, and also lawyers Covington and Burling and financial auditors PriceWaterhouseCoopers, to conduct a thorough investigation of the allegations and financial transactions involving Dr Wang”.

The committee reported its findings to the ERM board “some weeks ago”. Summarising its conclusions, Alexander explained: “Whilst on a business trip looking at air pollution control technologies in Europe, Dr Wang was found to have made small payments associated with business expenses to that individual. Separately, and without ERM’s prior knowledge or approval, he also made a personal loan from his own money to the official, who was a long-held acquaintance.

“We are, of course, very disappointed. It is an accepted cultural practice in China to loan money to family and friends in such a way,” he said. “However, the payments and loan were clearly in contravention of ERM’s business ethics and in response we have had a management change.”

Wang Yong has since left ERM and has been replaced by new managing director, Shaun Xie, who has been with ERM for eight years, after studying and working in Canada.

The incident has also prompted ERM, which has offices in 40 countries and projects in 140 countries, to step up its internal business ethics training. Alexander is keen to stress that business conduct and ethics training to internationally-recognised OECD standards have been in place at ERM since 2005/06, but that ERM has in recent weeks made additional provisions, including personal anti-bribery and corruption training for all staff in China, in both Mandarin and English.

“We have taken additional action to ensure that we are confident in our ability to operate within our code of business ethics going forward,” said John Alexander. He added that ERM has been in dialogue with some of its multinational corporate clients about the case in recent months. “Of course, many have come back to us satisfied that the appropriate actions have been taken and they have no further interest in the case – which is a vote of confidence for us.”

The Sunday Times report about the court case also raised questions about the appointment of ERM by the Shanghai Environmental Protection Bureau to conduct an EIA relating to development at Hangzou Bay. Two firms on ERM’s blue-chip client list, BP and Sinopec, are big investors in a petrochemical complex on the site.

Responding to the suggestion about a potential conflict of interest relating to the EIA about Hangzou Bay development, Alexander stated: “We absolutely don’t believe there were any conflicts of interest, but because it involves confidential projects for individual clients we cannot comment any further.”

ERM’s recent experience will certainly sound warning bells for many other large environmental consultancies looking to do more business in the Far East. In a recent case involving corruption in South Korea during construction of newly-opened Incheon bridge, Amec was found liable to pay almost £5 million in relation to a series of “irregular payments” received by a company it then partially owned (Environment Analyst 29-Oct-09).

ERM plans to release an official media statement about the case later this week.

• Sunday Times article
• Visit CHN article