Regulatory compliance issues in the region

  • Anti-money laundering (AML) rules similar across Asia but regulators take different perspectives and apply different levels of enforcement depending on local policies
  • Tax evasion and anti-corruption issues are increasingly on regulators’ radars
  • Data privacy and security becoming more important - useful to test employees with email phishing exercises
  • Businesses with head offices outside the region should ensure company-wide compliance policies can be implemented locally
  • Tips for being ready for investigations:
  1. prepare for the worst;
  2. document everything;
  3. ensure employees have clearly defined roles;
  4. include contact person and invest in interview technique training;
  5. understand client/attorney privilege; and
  6. demonstrate policies and monitoring programmes are in place

Anti-corruption in China

  • Global clampdown on anti-corruption, with China, Hong Kong, Singapore, South Korea, Indonesia modelling their own laws on America’s Foreign Corrupt Practices Act (FCPA)
  • Not many new laws coming in but more enforcement of existing laws on commercial bribery
  • Businesses increasingly adding anti-corruption role for staff in business functions; important to give digestible bits of information when training and keep communication channels open
  • In the event of dawn raids, regulators more lenient if they can see business has internal policies in place; essential to have localised protocols
  • Corruption might provide a false sense of security and short-term gain but is no way to grow a business; compliance is intrinsic to growth and business can fail on a small compliance issue
  • Compliance standard for foreign businesses is one bar higher; there tends to be more sympathy for local companies

Korea: Trends in M&A activities and PMI issues

  • Korea attractive to private equity funds because of stability, sound legal system and liquid banking sector
  • Strong growth prospects for consumer brands, especially to scale business into China; popular sectors are cosmetics/skincare, healthcare and business services
  • Private equity funds prefer controlling stakes and look for companies with strong positions but are undermanaged
  • Stringent tax measures to watch out for and tax authority is getting more aggressive on enforcement
  • Watch for Supreme Court rulings on overseas investment vehicles and whether look-through basis is available based on the tax treaty status of investors
  • Foreign parent companies with Korean subsidiaries should be aware of 10% value added tax if subsidiary is a dependent agent that provides services within Korea as tax is not creditable in home jurisdiction

How to manage your foreign direct investment into China

  • Negative list filing system in place gives clear indication of what sectors government wants to support; foreign investment law aims to loosen restrictions but still in draft form
  • Technology is the hottest sector in region, especially China
  • Challenging times for attracting inbound investment but release of capitalisation requirements and increase in shareholding percentage of investment helping
  • Foreign investors need to comply with joint venture/wholly foreign owned entity (WFOE) laws; buffer in extra time for negotiations with Chinese partner and filing process
  • Beware of joint ventures triggering Ministry of Commerce (MOFCOM) national security review
  • Investors concerned with foreign exchange control and repatriation of funds out of the country
  • For Chinese outbound transactions, companies are seeking funding sources outside of China to get around funding issues, but higher costs for acquirer
  • Break fees more common in transactions but may be difficult to enforce; better to ask for deposits

Focus: Doing business in the Philippines

  • Consumption levels and deposit rates with banks increasing with the rise of the middle class
  • Growth rates high but not enough opportunities as top conglomerates not interested in selling
  • Hottest sectors are healthcare, consumer/retail, tourism, real estate and infrastructure
  • Chinese investment into the Philippines on the rise, especially in infrastructure
  • Consolidation ahead for insurance and banking sectors with capital bar raised
  • Early days of competition law; expect to see some delays in transactions but hopes are high for diversification in markets
  • Decrease of highest income tax to 25% from 32% but plans to increase excise tax
  • More liquidity and less corruption can help to boost investment sentiment

Monitoring technology, cybercrime and data protection issues in the region

  • Hong Kong’s Securities & Futures Commission (SFC) released consultation on cybersecurity requirements for internet trading in early May
  • With Manager in Charge (MIC) regime in place for listed companies in Hong Kong, IT officer in charge is responsible for getting business up to standard of cybersecurity care needed
  • With China’s cybersecurity law coming into effect on June 1, more restrictions on critical information infrastructure operators and network operators; businesses transferring data out of the country will need to obtain security assessment from government
  • Taiwan has draft cybersecurity law; will require critical sectors such as energy, healthcare and technology to report to government on incidents and how they are resolved
  • Awareness and training, especially for phishing, increasingly important with more cyber attacks

Developments in arbitration and dispute resolution

  • Costs deterring people from using arbitration, including tribunal, organisation, parties and legal costs
  • Tips for minimising costs:
  1. Use sensible amount of documentation,
  2. Use short form arbitration for low value disputes,
  3. Minimise length of discovery process,
  4. Use same tribunal for multiple contracts,
  5. Use younger, less experienced arbitrators who may still know the law better
  • Third-party funding to pick up in Singapore and Hong Kong with supportive legislation
  • Third-party funding offers option for access to justice for parties with funds tied up and helps to minimise risk
  • Parties using third-party funders should be aware of the relationship between the arbitrator and any economic interest in the award; undisclosed ties of parties of third-party funders may be grounds for challenge; good to follow International Bar Association (IBA)’s guidelines on conflicts of interest

Investing into and out of China: What you must be aware of

  • Going outbound has been direction of investment for the past 24 months, but more competitors and higher priced deals
  • High tech and real estate outbound investments into US and Europe popular
  • Internet and fintech hot sectors with each round getting more expensive; consumer and life sciences also popular
  • Variable interest equity (VIE) structures being scrutinised to see through to ultimate beneficiary and to make sure negative list is upheld
  • Liquidation process has been simplified, as long as debts and taxes are cleared and employees have been settled
  • Arbitration is often preferred over court because of ability to enforce award and potential of courts for local protection