By: Jianwei (Jerry) Fang
Published with China Law & Practice on August 10, 2015 with minor modification.
MNCs must understand Chinese anti-bribery laws and that violations on the ground can have severe extra-jurisdictional effects under the FCPA and UK Bribery Act, examine business practices and have compliance controls checked by both foreign and local counsel.
Chinese authorities have been taking a hard-line approach against bribery. This unprecedented focus on anticorruption enforcement has reverberated throughout China, from the top of the Communist Party hierarchy to government offices at all levels, and even to executive board rooms across the country.
The government has made its stance clear through enhanced prosecution and punishments (with more legislative amendments to further penalise acts of bribery in the pipeline), as well as a shift from its traditional focus on prosecuting bribe-receivers to prosecuting bribe givers as well.
Increased bribery investigations and prosecutions
According to the 2014 Work Report of the top prosecuting office in China, the Supreme People’s Procuratorate (SPP), a total of 7,826 individual bribe-givers were prosecuted, up 37.9% from the previous year. In 2013, 5,515 individuals were prosecuted, an increase of 18.6% from 2012.
The trend continues in 2015. During the first three months of the year, the SPP opened cases to investigate 1,891 individuals for suspected bribe giving. SPP statistics indicate this figure reflects a 6.1% increase from the same period in 2014.
In addition to increased criminal prosecutions, the State Administration for Industry and Commerce (SAIC) and its local offices have also opened more investigations into commercial bribery, especially in the healthcare sector. For example, Bloomberg reported in May 2015 that the SAIC is preliminarily investigating whether several foreign companies achieved dominance of the Chinese market for large medical equipment by making improper payments to Chinese hospitals.
Bribe-giving Crime Record System
On February 16 2012, the SPP launched an online unified database, the Bribe-giving Crime Record System (检察机关行贿犯罪档案查询系统). This system was established to disseminate bribe-giving crime data, including the nature of the charge, the name of the company offering the bribe, the amount and punishment, of all bribery-related cases successfully prosecuted nationwide since October 1997. A written application by an individual or organisation to check the their own or a third party’s bribe-giving crime record can be made with the relevant procuratorate.
In practice, the nationwide database has improved the system of sanctions and prevention against corruption and has enhanced market supervision. More importantly, the system can serve as an indispensable source of reference for the ethics of a business. For example, a company with a bribery record may be disqualified from competing in government procurement and bidding, and at the very least, it will suffer serious reputational harm in the eyes of the Chinese public.
The Chinese public has reacted positively to the instant availability of bribe-giving crime data. From its launch in February 2012 to November 2014, the SPP’s online system received 4.34 million electronic inquiries. As a result, for a company doing business in China, avoiding being included in the bribe-giving record system and the resulting public shaming may be a powerful incentive to obey anti-bribery laws.
What the new PRC Criminal Law brings
First released for public comments by the Standing Committee of the National People’s Congress (NPC) on November 3 2014, the ninth draft amendment to the PRC Criminal Law has since been revised twice and is expected to be passed in the next few months. While the draft is still being debated and finalised, there are several key developments related to bribery and corruption worth watching out for.
Exemption from punishment
The current Criminal Law provides for mitigation of, or even exemption from, punishment for the bribe-giver if he, prior to being investigated, confesses to his act of bribery. The draft amendment proposes to retain this avenue to clemency through confession, but adds additional requirements that must be met before the confessor can be exempted from punishment, including: (i) the crime committed is relatively minor; and (ii) the bribe-giver exposes the corrupt activities of others, plays a crucial role leading to the successful investigation of a major case or performs some other major meritorious service. If adopted, the amendment would make it more difficult for a potential confessor to take advantage of this get-out-of-jail-free card, including, presumably, a corporate whistle-blower who was involved in a bribe-giving scheme.
Mandatory fines for all individuals
Under the current Criminal Law, criminal fines are usually not applicable to individual bribe-givers, but are prescribed for entities engaged in bribe giving. It is worth mentioning that the draft amendment proposes to impose a monetary fine on all individuals convicted of offering bribes.
Expanded scope of bribe-givers
In 2009, the Criminal Law was amended to expand the categories of bribe-receivers to include close relatives of, and individuals that have a close friendship with, state officials. Nevertheless, the revision did not impose criminal penalties on individuals who offer bribes to such relatives and friends of officials. To correct this oversight, the draft amendment proposes to extend the scope of the bribe-giving offense to parallel that of bribe receipt.
It should be noted that the PRC Criminal Law is broadly applied to bribery of both state officials and private actors. On the other hand, the US Foreign Corrupt Practices Act (FCPA) prohibits bribery of only foreign (i.e. non-American) government officials, including officials of an "instrumentality" of a foreign government (in China, a state-owned enterprise (SOE) has been deemed an "instrumentality" of the Chinese government. As a result, bribes paid to an employee of an SOE or an institute funded or operated by the government, such as hospitals, generally fall within the scope of the FCPA).
What to watch out for
China is in the midst of a significant and nationwide anticorruption drive that shows no sign of ending any time soon. In light of this complicated political phenomenon and the increased scrutiny of bribe-givers by Chinese officials, MNCs in China should exercise more caution in their business dealings.
In today’s uncertain regulatory environment, Chinese bribery investigations could have broader implications under the FCPA and the UK Bribery Act, as illustrated in the GSK case. Chinese anticorruption investigators are forging close working relationships with their counterparts abroad and evidence of wrongdoing may be shared across jurisdictions.
Published with China Law & Practice on August 10, 2015 with minor modification.
MNCs must understand Chinese anti-bribery laws and that violations on the ground can have severe extra-jurisdictional effects under the FCPA and UK Bribery Act, examine business practices and have compliance controls checked by both foreign and local counsel.
Chinese authorities have been taking a hard-line approach against bribery. This unprecedented focus on anticorruption enforcement has reverberated throughout China, from the top of the Communist Party hierarchy to government offices at all levels, and even to executive board rooms across the country.
The government has made its stance clear through enhanced prosecution and punishments (with more legislative amendments to further penalise acts of bribery in the pipeline), as well as a shift from its traditional focus on prosecuting bribe-receivers to prosecuting bribe givers as well.
Increased bribery investigations and prosecutions
According to the 2014 Work Report of the top prosecuting office in China, the Supreme People’s Procuratorate (SPP), a total of 7,826 individual bribe-givers were prosecuted, up 37.9% from the previous year. In 2013, 5,515 individuals were prosecuted, an increase of 18.6% from 2012.
The trend continues in 2015. During the first three months of the year, the SPP opened cases to investigate 1,891 individuals for suspected bribe giving. SPP statistics indicate this figure reflects a 6.1% increase from the same period in 2014.
In addition to increased criminal prosecutions, the State Administration for Industry and Commerce (SAIC) and its local offices have also opened more investigations into commercial bribery, especially in the healthcare sector. For example, Bloomberg reported in May 2015 that the SAIC is preliminarily investigating whether several foreign companies achieved dominance of the Chinese market for large medical equipment by making improper payments to Chinese hospitals.
Bribe-giving Crime Record System
On February 16 2012, the SPP launched an online unified database, the Bribe-giving Crime Record System (检察机关行贿犯罪档案查询系统). This system was established to disseminate bribe-giving crime data, including the nature of the charge, the name of the company offering the bribe, the amount and punishment, of all bribery-related cases successfully prosecuted nationwide since October 1997. A written application by an individual or organisation to check the their own or a third party’s bribe-giving crime record can be made with the relevant procuratorate.
In practice, the nationwide database has improved the system of sanctions and prevention against corruption and has enhanced market supervision. More importantly, the system can serve as an indispensable source of reference for the ethics of a business. For example, a company with a bribery record may be disqualified from competing in government procurement and bidding, and at the very least, it will suffer serious reputational harm in the eyes of the Chinese public.
The Chinese public has reacted positively to the instant availability of bribe-giving crime data. From its launch in February 2012 to November 2014, the SPP’s online system received 4.34 million electronic inquiries. As a result, for a company doing business in China, avoiding being included in the bribe-giving record system and the resulting public shaming may be a powerful incentive to obey anti-bribery laws.
What the new PRC Criminal Law brings
First released for public comments by the Standing Committee of the National People’s Congress (NPC) on November 3 2014, the ninth draft amendment to the PRC Criminal Law has since been revised twice and is expected to be passed in the next few months. While the draft is still being debated and finalised, there are several key developments related to bribery and corruption worth watching out for.
Exemption from punishment
The current Criminal Law provides for mitigation of, or even exemption from, punishment for the bribe-giver if he, prior to being investigated, confesses to his act of bribery. The draft amendment proposes to retain this avenue to clemency through confession, but adds additional requirements that must be met before the confessor can be exempted from punishment, including: (i) the crime committed is relatively minor; and (ii) the bribe-giver exposes the corrupt activities of others, plays a crucial role leading to the successful investigation of a major case or performs some other major meritorious service. If adopted, the amendment would make it more difficult for a potential confessor to take advantage of this get-out-of-jail-free card, including, presumably, a corporate whistle-blower who was involved in a bribe-giving scheme.
Mandatory fines for all individuals
Under the current Criminal Law, criminal fines are usually not applicable to individual bribe-givers, but are prescribed for entities engaged in bribe giving. It is worth mentioning that the draft amendment proposes to impose a monetary fine on all individuals convicted of offering bribes.
Expanded scope of bribe-givers
In 2009, the Criminal Law was amended to expand the categories of bribe-receivers to include close relatives of, and individuals that have a close friendship with, state officials. Nevertheless, the revision did not impose criminal penalties on individuals who offer bribes to such relatives and friends of officials. To correct this oversight, the draft amendment proposes to extend the scope of the bribe-giving offense to parallel that of bribe receipt.
It should be noted that the PRC Criminal Law is broadly applied to bribery of both state officials and private actors. On the other hand, the US Foreign Corrupt Practices Act (FCPA) prohibits bribery of only foreign (i.e. non-American) government officials, including officials of an "instrumentality" of a foreign government (in China, a state-owned enterprise (SOE) has been deemed an "instrumentality" of the Chinese government. As a result, bribes paid to an employee of an SOE or an institute funded or operated by the government, such as hospitals, generally fall within the scope of the FCPA).
What to watch out for
China is in the midst of a significant and nationwide anticorruption drive that shows no sign of ending any time soon. In light of this complicated political phenomenon and the increased scrutiny of bribe-givers by Chinese officials, MNCs in China should exercise more caution in their business dealings.
In today’s uncertain regulatory environment, Chinese bribery investigations could have broader implications under the FCPA and the UK Bribery Act, as illustrated in the GSK case. Chinese anticorruption investigators are forging close working relationships with their counterparts abroad and evidence of wrongdoing may be shared across jurisdictions.
MNCs are advised to examine their local business practices and implement local policies in accordance with both Western and Chinese bribery laws and regulations. Furthermore, local compliance functions need to be adequately funded and independently structured from business operations to ensure that anti-bribery policies and programmes are properly implemented. If possible, these compliance policies should be vetted in advance by both Western and Chinese counsel. In any event, external counsel should be retained as soon as a red flag indicating a possible violation of anti-bribery laws is discovered. (The End)
Jianwei (Jerry) Fang is a partner with Global Law Office, practicing in Shanghai and Beijing office. His practice focuses on compliance, risk management and dispute resolution, as well as general corporate and regulatory matters. Mr. Fang has extensive experience in compliance and anti-corruption matters relating to technology, manufacturing, real estate, oil and gas, pharmaceutical and financial services industries. Mr. Fang studied at Columbia Law School and is admitted to practice law in China and New York State. Earlier in his career, Mr. Fang was a Chinese judge in a court in Zhejiang Province. (E-mail: jfang@glo.com.cn)
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