User Name:     Password:        Join Us
  • 1
  • 2
  • 3
  • 4
▪ China is to award whistleblowers heavily – foreign companies are more vulnerable t
▪ 130 Chinese headhunters arrested, involving breach of 200 million pieces of person
▪ Corporate Compliance Programs Evaluation Issued by US DOJ (Chinese Translation)
▪ The prospect is promising to commercialize Level-3 autonomous driving in China
▪ Intelligent and digital infrastructures are scheduled to accompany automatic vehic
▪ Will China illegalize VIEs?
▪ You cannot miss the gold rush under China's new Foreign Investment Law
▪ Data must stay in China to get classified protection under Cyber Security Law
▪ China is to fast-track law-making in autonomous driving
▪ What compliance obligations to meet to transfer data from within China?
▪ Chinese government uses digital forensics technology to dig bribery evidence
▪ A Chinese medical device distributor fined CNY 50,000 for bribing with Moutai
▪ How would Chinese E-commerce Law affect you (1)?
▪ Conflict between the culture and the Party’s rules: $70 gift money got a director
▪ "Excessive Pricing" from perspective of Competition Law
▪ Does China prohibit cross-border transfer of scientific data?
▪ Hypermarket Caesar jailed for ten years for giving “reward for go-between”
▪ How is environmental protection tax collected in China?
▪ China Redefined Bribery Anticompetitive in Nature
▪ China is to amend its Constitution
▪ Chinese government vowed to crack down on bribe givers more harshly
▪ China has its own Dodd-Frank; the award for whistleblower could be US$ 80K
▪ Chinese government may LIUZHI a suspect of wrongdoing
▪ Cooking clinical trial data is rampant and now criminally punishable in China
▪ 5th Viadrina Compliance Congress
▪ Does a compliance bird eat nothing?
▪ How Are Drugs Being Sold in China Despite the Anti-Corruption Crusading
▪ Chinese whistle-blower lauded while French boss fled out of China
▪ Life Sentence for Deputy Chief Justice of China
▪ Why Is Chinese Anti-bribery Law a Very Important Compliance Obligation?
▪ The Report on Corporate Compliance Management in China (2016)
▪ Use of "predictive coding" in eDiscovery document review…best friend or job replac
▪ Civil Fraud v. Criminal Fraud: Criminal Proceedings Not a Silver Bullet to Resolve
▪ Corrupt Chinese drug administrators jailed or executed, whose family members ended
▪ Tone from the middle cannot be ignored
▪ Is bribing a Chinese doctor bribing an FCPA governmental official?
▪ Criminal and Administrative Liability under China's Competition Laws
▪ Model Standards for Trade Association Compliance with China's AML
▪ Double Exposure to Legal Risk Under China's Competition Laws: Comments Upon the Ex
▪ New Privacy Standards for New Data
▪ Chinese Police Are Foxhunting Corrupt Officials
▪ Transfer of Personal Data Overseas from Singapore: Recent Enhanced Provisions
▪ New Guidance on Antitrust Notifications in China
▪ China Issued the Standards on the Quality Management of Using Medical Devices (Dra
▪ China Imposes Harsher Liabilities for Environmental Non-Compliance
▪ GSK Faces Two Corruption Fights in East and West
▪ European Court of Justice Abrogates Data Retention and Allows Data Detention
▪ China Is to Adopt Risk-based Supervisory Rules on Medical Devices
▪ China to Set Food & Drug Police
▪ Don't Put All Medical Eggs into One Blacklisted Basket
 
Home > Anti-Bribery & Fraud
China Redefined Bribery Anticompetitive in Nature

There are two primary laws in relation to bribery in China: one is Criminal Law; another is Anti-Unfair Competition Law (“AUCL”).  The Criminal Law provides for criminal liabilities for corruptive bribery; the AUCL provides for administrative liabilities about commercial bribery (and some other anti-competitive practices) that is anti-competitive in nature and not severe enough to be punished under the Criminal Law.


The AUCL was promulgated and took effect in 1993 (“1993 AUCL”).  The AUCL has been seeking to regulate an array of practices that would impede the competitive orders of the market, with provisions governing the passing off and misappropriation of trade secrets, predatory pricing and tie-ins, abuse of administrative powers, misleading advertising and the organization of lotteries as well as commercial bribery.


To tackle the complaints and confusion that the 1993 AUCL caused to the business community and also to upgrade the law after 14 years of legal evolution, China amended the AUCL and the amended version has become effective from January 1, 2018 (“2018 AUCL”). 


A.    Revise the definition and scope of commercial bribery


Article 8 of the 1993 AUCL provides a blanket prohibition on a business from giving a bribe in the form of property or other means for the purpose of selling or buying goods.  To implement the 1993 AUCL, the enforcement agency of the AUCL, the State Administration for Industry and Commerce (“SAIC”), enacted the Interim Rules of the State Administration for Industry and Commerce on Prohibition of Commercial Bribery (the “Commercial Bribery Rules”).  The Commercial Bribery Rules defines commercial bribery as businesses giving a bribe in the form of property or other means for the purpose of selling or purchasing goods.  “Property and other means” includes promotion costs, publicity expenses, sponsorship, research costs, remuneration, consultation fees, commissions and advantages other than property.


As the result of such a blanket prohibition, a bribe recipient in commercial bribery could be a business (vis-à-vis the individual employees of a business), and the legitimate payments common in everyday commerce between business to business such as payment of consultation fees and commissions, risk being caught as acts of bribery.  For the convenience of understanding, we may call the bribery between business to business as B2B bribery.


Case 1: In June 2006, and February and September of 2007, a general contractor of Tsingtao beer in Wenling signed several agreements with other five companies paying them monetary incentives for exclusive distributions.  The payments were described as “buyout fee” and “exclusive fee” totaling RMB 1.205 million for the purpose of obtaining trade opportunities.  The parties together were fined up to RMB 1.727 million by Wenling Administrations for Industry and Commerce (AIC).


Case 2: In July of 2006, AIC Luoyang found, that Tsingtao paid from RMB 2,000 to RMB 70,000 to 30 hotels and restaurants respectively and required them to solely sell Tsingtao beer, and determined that such conduct constituted commercial bribery.


Case 3: The Foshan AIC determined that Pepsi Guangzhou had committed commercial bribery by paying “entrance fees” and “display fees” to some stores in the amount of RMB 247,900 to aid the selling of its products with better shelf display.  As a result, Pepsi Guangzhou was fined RMB 50,000, and its profits were confiscated.


The above cases (and some other similar ones) were criticized for wrongful law enforcement as well as legislative chaos.


The 2018 AUCL redefines the bribery to the effect that B2B bribery may not be viewed as bribery.  Article 7 of the 2018 AUCL provides that a business shall not resort to bribery, by offering properties or by any other means, to any of the following entities or individuals, in order to seek a transaction opportunity or competitive advantage: (1) any employee of the counterparty in a transaction; (2) any entity or individual entrusted by the counterparty in a transaction to handle relevant affairs; or (3) any other entity or individual that is to take advantage of powers or influence to influence a transaction.  From the definition, we may see some significant changes.


First of all, the 2018 AUCL requires the element of purpose of "seeking transaction opportunities or competitive advantage" rather than a broad-brushed purpose element under the 1993 AUCL: “for the purpose of selling or buying goods”.


Second of all, a transaction counterparty is no longer expressly listed as a potential bribe recipient as the 1993 AUCL did.  As such, the B2B bribery such as the three case studies indicated above may no longer be investigated and punished under the 2018 AUCL.


Third of all, a business or transaction counterparty may still be a bribe recipient, but seemingly limited to the third parties engaged by a transaction counterparty.  For example, if a school purchases uniforms from a supplier, the students are the de-facto purchasers and users.  The school is deemed to be entrusted by the students to make the purchase, and falls within above item (2) of bribe recipient.  For another example, two parties employ an appraisal agency to appraise the quality of the goods, and one party bribes the agency to make the appraisal result beneficial to the bribing party.  The appraisal agency may fall within the above item (3) of bribe recipient as having power or influence to influence a transaction.  Although both bribery recipients above are still businesses (vis-à-vis individuals), the briberies seemingly take place with the agent causing detriments to its principal or fiduciary harming its beneficiary.  Under both scenarios, the duty of loyalty is breached.


B.    Clarify corporate liability for commercial bribery and distinguish it from individual responsibility


The Commercial Bribery Rules provides for vicarious liability so that if a business’s employee engages in commercial bribery, the employee’s activity will be viewed as the conduct of the business.  The 2018 AUCL reiterates the vicarious liability – the act of an employee of a business bribing any others shall be deemed an act of the business itself, unless otherwise proven by the business with evidence that such act is not related to its efforts in seeking a transaction opportunity or competitive advantage.


The above provision under the 2018 AUCL provides businesses with an affirmative defense or safe harbor – if a business can prove that the employee’s activity does not relate to the business’s objective of obtaining specific business transaction opportunities or other competitive advantages, then the business may be exonerated from the liabilities under the AUCL.


The leader of the Anti-Monopoly and Anti-Unfair Competition Bureau of the SAIC commented in a recent interview conducted by the PRC Industry and Commerce News, that business operators may have a valid defense against the vicarious liability offence if they can demonstrate that they: (1) have adopted proper compliance policies and measures; (2) have implemented effective measures to supervise and control its employees’ activities; and (3) do not indulge either openly or in a disguised form, its employees’ bribery activities.


C.     Strengthen enforcement agency’s investigative power


The 1993 AUCL did not provide SAIC and its subsidiaries (collectively as “AIC”) with investigative powers to seal or detain cash and property in relation to breaches of the AUCL.  


The 2018 AUCL grants the AIC the necessary powers to seal or detain cash and property.  The AIC has also been granted additional powers to inquire into bank accounts of businesses which have allegedly committed unfair competition activities.


Specifically, the 2018 AUCL provides and refines the investigation procedures that the AIC may use during investigations of potential commercial bribery violations, including:

l   Entering business premises to conduct inspections;

l   Questioning businesses and other related entities and individuals, and requiring them to explain relevant situations and to provide evidentiary materials or related information;

l   Accessing or copying related evidentiary materials;

l   Sealing and/or detaining property related to suspected unfair competition;

l   Inquiring about bank accounts of businesses suspected of unfair competition;


D.    Increase administrative penalties


The 1993 AUCL provides for fines ranging from RMB 10,000 to RMB 200,000 on commercial bribery as well as confiscation of illegal gains.  In comparison, Article 19 of the 2018 AUCL sets forth that, in cases of commercial bribery violations, administrative authorities can “confiscate illegal gains resulting from illegal conduct, and impose a fine of between RMB 100,000 and RMB 3 million.”  What is more serious, the AICs may revoke a business’s business license in cases of severe misconduct.


In addition, Article 26 of the 2017 AUCL provides that if a business receives an administrative penalty for engaging in commercial bribery, enforcement agencies will record the penalty in the business’s public credit record.  Such credit record documentation could not only harm the business’s credibility rating, but also cause reputational damages.


Conclusions


For the companies doing business in China, the compliance risks in relation to commercial bribery are more severe than before the 2018 AUCL was put into effect.  With the increased power of investigation, AICs tend to launch dawn raids more often than before to investigate bribery (as well as other anti-competitive activities).  The companies may face more severe punishments ranging from monetary fines, confiscation of illegal gains to revoke of business licenses. 


However, the new AUCL provides a safe harbor to companies.  Those who established and operated a robust compliance management (which certainly shall not be window dressing) will be then entitled to meaningful credits.  As such, companies should re-examine their business operational risk and compliance controls to ensure that they catch up with the new AUCL not only in terms of knowledge, but also risk management.  For example, companies may consider reviewing their existing business arrangements with, including counterparties and third parties such as agents, distributors or other intermediaries.  The companies may also conduct compliance and due diligence investigation before hiring third-party vendors to facilitate transaction.  To establish an effective and robust company management system, training of their employees in line with the law and corporate policy is indispensable.


Henry Chen's training in Shanghai on January 30: Compliance Management System Guidelines, Guidance on Identification and Assessment of Compliance Risks and new Anti-Unfair Competition Law: http://mp.weixin.qq.com/s/vO6iIFx9z6oqvwAbseS_dQ?scene=25#wechat_redirect 

陈立彤培训(上海/1月30日):《合规管理体系 指南》、《合规风险的识别与评价》、新《反不正当竞争法》: http://mp.weixin.qq.com/s/vO6iIFx9z6oqvwAbseS_dQ?scene=25#wechat_redirect


*The author, Henry Chen, is a senior partner of Dentons Shanghai Office, before which Henry Chen was the AP Compliance Director of Ford Motor Company.  Henry Chen is licensed to practice law in both China and the New York State of the U.S.  Henry is the author of the book Risk Management on Commercial Bribery in China.  Henry is accessible via henry.chen@dentons.cn  


Tweet Like Email LinkedIn
There are no comments for this journal entry. To create a new comment, use the form below.
    Enter your information below to add a new comment.
Author:   
Email:    (optional)
URL:    (optional)
Content:  
Code: *
    
  Comment Moderation Enabled
Your comment will not appear until it has been cleared by a website editor.
The Compliance Reviews COPYRIGHT © 2013-19 All Rights Reserved. Supported by International Risk and Compliance Association and International Risk and Compliance Institute Limited. 沪ICP备10034943号-8

31010502002477