March 19, 2012 / 8:53 AM / 6 years ago

Dun & Bradstreet halts China unit operations amid probe

(Reuters) - Dun & Bradstreet (DNB.N), a global business information firm, said some of its local employees in China may have violated U.S. anti-bribery laws and it has suspended operations at one of its local units pending an inquiry.

Dun & Bradstreet, formed from a 1933 merger of two rival credit reporting agencies, said it is investigating allegations that data collection practices at Shanghai Roadway D&B Marketing Services Co, which it formed in 2009, may violate Chinese consumer data privacy laws.

In a statement, Dun & Bradstreet said the Shanghai Roadway unit had 2011 revenue of around $23 million and operating income of $2 million. Total group revenue last year was $1.76 billion.

In addition to the data collection practices, D&B said it was reviewing complaints that local employees may have violated the U.S. Foreign Corrupt Practices Act (FCPA) and other laws at its China operations.

The company gave no specific details of the allegations, but said it was cooperating with a Chinese investigation and has voluntarily reported the matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission.

Calls to the Shanghai Roadway D&B Marketing Services unit went unanswered on Monday and attempts to access the company’s website generated an error message.

A report in the Shanghai Daily newspaper cited Shanghai police as saying they had confiscated four computer servers at the unit’s headquarters and questioned three senior executives.

State television said the company had private information, including income levels, jobs and addresses, for some 150 million Chinese residents and had sold individuals’ details for 1.5 yuan (23 cents) each to companies involved in marketing or phone sales, the newspaper reported.

The report said the company had collected personal information from banks, insurance companies and real estate agents as well as from cold-call companies.

Wendy Wysong, a foreign legal consultant at Clifford Chance in Hong Kong, said U.S.-based businesses operating in China are regularly scrutinized by U.S. anti-corruption officials, adding that cases of alleged bribery are increasing faster in China than in other countries.

“Very often, as appears here, as a result of internal investigations of other types of non-compliant conduct, possible corrupt conduct is also discovered,” she said.

Other U.S. firms operating in China have been accused of violating the Foreign Corrupt Practices Act, including IBM, which agreed last March to pay $10 million to settle a complaint, without admitting guilt, that its employees bribed South Korean and Chinese officials.

Law enforcement officials are currently investigating whether Avon Products (AVP.N) used bribes to win the first-ever license given by China to a Western company to sell products door-to-door, and a $135 million donation by Wynn Resorts (WYNN.O) is also under scrutiny in Macau, China’s gambling hub.

Dun & Bradstreet filings with the SEC describe the firm as “the world’s leading source of commercial information and insight on businesses.”

It said its global database and proprietary analytical functions create reliable information that “is the foundation of our global solutions that customers rely on to make critical business decisions.”

Dun & Bradstreet operates several other majority-owned joint ventures in China.

In 2007 it took a majority stake in a venture with Huaxia International Credit Consulting Co Ltd called D&B Huaxia; in 2008 it bought a majority stake in a joint venture with Huicong International Co Ltd; and last year it acquired nearly all of MicroMarketing Co, a direct marketing service with offices in Beijing and Shanghai.

In 2009, Dun & Bradstreet acquired a 90 percent stake in Roadway International Ltd, the leading provider of integrated services of direct marketing in China, and transferred D&B Huaxia’s sales and marketing business to the Roadway unit.

That same year, Dun & Bradstreet described in an SEC filing the range of risks the company faced throughout its global operations.

“A failure in the integrity of our database, whether inadvertently or through the actions of a third party, which may be on the rise, could harm us by exposing us to customer or third-party claims or by causing a loss of customer confidence in our solutions,” the statement said.

It did not make specific mention of its China operations, but the company noted “there is increasing awareness and concern among the general public and companies regarding marketing and privacy matters.”

“Nonetheless, future laws and regulations with respect to the collection, management and use of information, and adverse publicity or litigation concerning the commercial use of such information could result in limitations being imposed on our operations, increased compliance or litigation expense and/or loss of revenue, which could have a material adverse effect on our business and financial results.”

Dun & Bradstreet’s Asia Pacific region, which also includes ventures in Australia and Japan, accounted for nearly 15 percent of the company’s revenue in 2011, company reports show.

Shares in Dun & Bradstreet, valued at around $4.1 billion, have gained 48 percent in the past six months and last week hit a 13-month high.

Reporting by Sakthi Prasad in BANGALORE, Ken Wills and Beijing newsroom in BEIJING, Rachel Armstrong in HONG KONG; Editing by Muralikumar Anantharaman, Ian Geoghegan and Matt Driskill

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