Executive Summary

Anti-corruption is still a mission of severity and complexity all over the world.  According to public statistics, the China disciplinary inspection and supervision organs at different levels filed a sizable amount of cases in 2020.  Meanwhile, extraterritorial law enforcement agencies, such as the US Department of Justice (“DOJ”) and the US Securities Exchange Commission (“SEC”), have taken actions to enforce the US Foreign Corrupt Practices Act (“FCPA”) through its built-in extraterritorial application provisions[1](long-arm jurisdictions). In November 2018, the DOJ released the China Initiative, which prioritized the enforcement actions against the Chinese companies that compete with U.S. companies, and by the end of 2020, there are more than 60 FCPA enforcement cases involving China according to public statistics[2]. In addition, the DOJ and SEC released the second edition of the FCPA Resource Guide in July 2020, 8 years after the release of the first version, heralding the further strengthening of FCPA enforcement actions.

When the same act of commercial bribery attracts the attention of multiple law enforcement authorities at home and abroad, how to comprehensively analyze the constituent elements and defenses in various jurisdictions, and accurately and effectively identify and respond to the risks under the current sophisticated international environment is an important issue that multinational companies are confronting with.

The definitions of bribe-taking party under the FCPA, namely, “foreign official” and “instrumentality” etc., have been continuously refined and developed in US case laws while there remains to be uncertainty and ambiguity in determining whether some individuals would fall into the scope in complicated situations.  In the meantime, the concept and scope of “state functionary” under the PRC Criminal Law and “supervised individual” under the PRC Supervision Law are still under heated discussions among Chinese scholars and judicial practitioners.  Therefore, subject to the legal requirements of both China and US laws, how to make proper distinctions and identifications before the interaction with those types of personnel would be the very first though a tough step for multinational companies for the purposes of achieve compliance.  In practice, we have received dozens of inquiries from the clients for questions including “whether an employee of a Chinese enterprise with state-owned capital participation is a ‘foreign official’ under the FCPA?”, “whether the act of receiving commission based on prescription amount by a doctor possessing managerial authority of a public hospital constitutes the crime of bribery under Chinese law?”, “what is the nature of trade associations and their management staff in China?”, “whether an officer of villagers’ committee or residents’ committee in China would be deemed as a ‘state functionary’ under the PRC laws and/or a ‘foreign official’ under the FCPA?”, and “under what circumstances would a labor union president in China be categorized as a ‘state functionary’ under the PRC laws?”

With extensive experience in handling multi-jurisdictional cross-border investigations and compliance projects, the Compliance and Investigation Team of Global Law Office has launched a series of research and studies on the disputed issues encountered in real practice with respect to cross-border compliance and investigations. This article mainly analyzes the scope of bribe-taking parties under both the US and PRC laws with the aim to provide a more comprehensive and in-depth perspective on cross-border compliance investigations. While it is still important to note that whether a violation is committed would need to be determined in conjunction with other relevant factors, besides the analysis of bribe-taking parties, under relevant US and PRC laws. 

I. “Supervised Individual” under the PRC Supervision Law and “State Functionary” under the PRC Criminal Law

The enactment of the PRC Supervision Law and the establishment of supervisory organs represent a major change in China's anti-corruption system. As the reform of the supervision mechanism has been going deeper, issues and conflicts stemming from the inconsistencies among the legislations have become prominent. A typical one is whether the scope of “supervised individual” under the PRC Supervision Law should be the same as that of “state functionary” under the PRC Criminal Law, subject to different views in practice.

1. “Supervised Individual” under the PRC Supervision Law

(1) Overview of the PRC Supervision Law

On March 20, 2018, the PRC Supervision Law was enacted at the first session of the 13th National People’s Congress of China and came into effect on the same day. The purpose of the PRC Supervision Law is mainly to deepen the reform of the national supervision system, strengthen the supervision on all public officials exercising public powers (“supervised individuals”), and implement in-depth anti-corruption work.

In accordance with the PRC Supervision Law, the Supervisory Commission is exclusively responsible for exercising state supervisory functions, investigating duty-related offenses and crimes, carrying out integrity enhancement and anti-corruption work, and maintaining the dignity of the PRC Constitutional Law[3]. Moreover, the Supervisory Commission is empowered with independent supervisory authorities, free from interference by administrative organs, entities or individuals. In addition, when handling cases regarding duty-related offenses and crimes, the Supervisory Commission should cooperate with the judiciary, procuratorial organs, and law enforcement agencies, with mutual restraint[4].

(2) Scope of “Supervised Individual”

Under the PRC Supervision Law, “supervised individual” refers to any public official exercising public power. The Interpretation of the PRC Supervision Law further clarifies that the key to determining whether a person is a public official is whether he or she is exercising public power and performing public duties, not whether he or she has a public office. As for “public power”, it refers to “state power or public power, which is the compulsory power exercised by a specific subject over the management of public affairs for the purpose of safeguarding public interests as stipulated by laws and regulations[5].”

Article 15 of the PRC Supervision Law provides a list of examples for “supervised individuals”, as supplemented by the Interpretation of the PRC Supervision Law, “supervised individuals” could be divided into six categories as follows:

a. Civil servants and staff members managed with reference to the PRC Civil Servant Law

According to the PRC Civil Servant Law, civil servants are staff members who perform public duties in accordance with the laws, are included in the state administrative establishment, and have their salaries and benefits covered by the state treasury[6]. They include civil servants of the organs of the Communist Party of China, the organs of the People's Congress and its Standing Committee, the People's Government, the Supervisory Commission, the People's Court, the People’s Procuratorate, the organs of the committees of the Chinese People’s Political Consultative Conference at all levels, the organs of democratic parties and the organs of the Federation of Industry and Commerce. In contrast, staff members who are managed with reference to the Civil Service Law refer to staff members of institutions authorized by laws or regulations to manage public affairs, other than administrative staff, who are approved to be managed with reference to the PRC Civil Servant Law. For example, the China Securities Regulatory Commission, is an institution managed with reference to the PRC Civil Service Law.

b. Staff members performing public duties in institutions authorized by laws, regulations, or entrusted by state organs

This category mainly refers to the staff members of institutions that manage public affairs other than those managed with reference to the PRC Civil Service Law, such as the Centers for Disease Control and Prevention, etc.

c. Management staff of state-owned enterprises

This category mainly includes the management team of wholly state-owned enterprises, state-controlled enterprises (including wholly state-owned financial enterprises and state-controlled financial enterprises) and their branches, middle-level and ground-level managers of state-owned enterprises with management responsibilities for state-owned assets, staff members working in important positions such as management and supervision of state-owned assets, and management team of institutions affiliated with state-owned enterprises, enterprises with state-owned capital participation and financial institutions with management responsibilities for state-owned assets.

d. Management staff of state-run institutions in education, scientific research, culture, health care and sports, etc.

This category mainly includes members of the leadership team of such institutions and their branches, as well as “state functionaries” of such institutions and their branches, middle-level and ground-level managers (employees above level 6 of management position), employees engaged in management affairs linked to their authority, staff members working in important positions such as management and supervision of state-owned assets, and staff members temporarily engaged in management affairs linked to their authority.

e. Management staff of ground-level self-governance organizations

This category mainly includes the directors, deputy directors and members of villager’ committees and residents’ committees, as well as other staff engaged in management. “Engaged in management” mainly refers to assisting the government and other state organs to management affairs at ground-level self-governance organizations.

f. Other persons performing public duties in accordance with the law

This miscellaneous clause is set in case the list of “supervised individuals” is incomplete. The key standard for determining a person “performing public duties” is whether he or she exercises public power and whether the suspected violation or crime undermines the integrity of public power.

(3) Key Characteristics for the Scope of “Supervised Individual”

Key characteristics for the scope of “supervised individual” could be summarized as follows:

a. Multiple standards applicable to different types of “supervised individuals”

According to the above classification, the criteria used to identify different types of “supervised individuals” are different. For example, civil servants and staff members managed with reference to the PRC Civil Servant Law are directly classified as “supervised individuals” because of their apparent “public authority” attributes. As for the determination of staff members performing public duties in institutions authorized by laws, regulations, or entrusted by state organs, it is a two-step process: 1) to determine whether an entity is an organization authorized by law or regulation or entrusted by a state organ to manage public affairs; and 2) if so, to determine whether the person performs public duties.

As for management staff of state-owned enterprises, management staff of state-run institutions in education, scientific research, culture, health care and sports, and management staff of ground-level self-governance organizations, the criteria adopted could be summarized as “identity + position/duties”, which is also a two-step process: 1) to determine whether they are in state-owned enterprises, public institutions, ground-level self-governance organizations; and 2) if so, to determine whether they have been placed in certain positions or perform management duties.

As for the other persons under the miscellaneous clause, the criterion adopted is whether they perform public duties[7].

b. Entities are not subject to the PRC Supervision Law

The draft version of the PRC Supervision Law once proposed to include entities into the scope of supervision, while the promulgated version stipulates that “the accredited or dispatched supervisory agencies or supervisory commissioners shall, as authorized and within the limit of authority, lawfully conduct supervision of public officials and give supervision suggestions, and shall investigate and punish ‘supervised individuals’ in accordance with the laws”, which correspondingly could be deemed as the exclusion of entities under the PRC Supervision Law.

2. “State Functionary” under the PRC Criminal Law

(1) Overview of the PRC Criminal Law

The PRC Criminal Law was adopted at the Second Session of the Fifth National People’s Congress on July 1, 1979 to punish crime and protect the people, has been in force since January 1, 1980, and was revised in 1997.  As of May 2021, there are a total of 11 amendments to the PRC Criminal Law.

“State functionary” under the PRC Criminal Law mainly corresponds to the elements of duty-related crimes, for example, as a subject element of certain crimes, such as the crime of taking bribes (Article 385), the crime of using influence to take bribes (Article 388); or as an object element of certain crimes, such as the crime of offering bribes (Article 389), the crime of offering bribes to influential persons (Article 390), the crime of introducing bribery (Article 392), and the crime of offering bribes by unit (Article 393).

(2) Scope of “State Functionary”

Article 93 of the PRC Criminal Law stipulates that state functionaries are those who perform public duties in state organs. Staff members perform public duties in state-owned companies, enterprises, institutions and people’s organizations and staff members appointed by state organs, state-owned companies, enterprises and institutions to perform public duties in non-state-owned companies, enterprises, institutions and public organizations, as well as other persons perform public duties in accordance with the laws, are treated as “state functionaries”[8]. It was further clarified in the Minutes of the National Symposium on the Trial of Economic Crime Cases by Courts (“Economic Crime Minutes”) that “performing public duties” means to perform the duties of organization, leadership, supervision, and management on behalf of state organs, state-owned companies, enterprises, institutions, and people's organizations, etc.  Public duties are mainly manifested as public affairs linked to the supervision and management of state-owned property.  Those labor services and technical services such as those performed by salesmen, are generally not considered to be official duties[9].

“State functionaries” could be divided into six categories as follows:

a. Staff members of state organs

This category includes staff members performing public duties at all levels of state power organs, administrative organs, judicial organs and military organs; staff members performing public duties in organizations exercising state administrative authority in accordance with laws and regulations; staff members performing public duties in organizations entrusted by state organs to exercise authority on behalf of the state; staff members performing public duties in state organs although not included in the staffing of state organs; and staff members performing public duties in organs of the Communist Party of China and organs of the Chinese People's Political Consultative Conference above the township[10].

b. Staff members performing public duties of state-owned companies, enterprises, public institutions, people's organizations

Under this category, state-owned companies and enterprises refer to wholly state-owned companies and enterprises. Enterprises with state-owned capital participation and state-controlled enterprises are not state-owned companies and enterprises under the PRC Criminal Law[11]. 

State-owned institutions mainly include public schools, hospitals, scientific research institutions, etc.  People's organizations usually refer to the eight people's organizations participating in the Chinese People's Political Consultative Conference, including the Communist Youth League of China, the Chinese Association for Science and Technology, the Workers’ Federation, the All-China Women’s Federation, the Federation of Industry and Commerce, the Federation of Returned Overseas Chinese, the All-China Youth Federation, the Taiwan Compatriots’ Association[12].

c. Staff members performing public duties in non-state companies, enterprises, institutions, social groups delegated by state organs, state-owned companies, enterprises, institutions

As long as the staff members are delegated by state organs, state-owned companies, enterprises, institutions, to perform organizational, leadership, supervisory, management and other work on behalf of state organs, state-owned companies, enterprises, institutions in non-state companies, enterprises, institutions, social groups, they can be identified as the delegatees[13]. It is worth noting that a delegatee can only be recognized as a state functionary when he or she is performing public duties, i.e., when he or she is exercising the duties of organizing, leading, supervising, and managing the affairs of the non-state companies, enterprises, institutions, social groups on behalf of the will of the delegating party. This is to say, if the delegatee is performing other general affairs of the non-state companies, enterprises, institutions, social groups, he or she will not be deemed as a “state functionary”.

d. Other persons performing public duties in accordance with the laws

The main principles for the determination include 1) exercising state management functions under specific conditions and 2) performance of public duties in accordance with the laws. People's deputies to the people's congresses at all levels who perform their duties in accordance with the laws, people’s jurors who perform their trial duties in accordance with the laws, and staff members of ground-level self-governance organizations such as villagers’ committees and residents’ committees who assist the government are recognized as other persons who perform public duties in accordance with the laws[14].

(3) Key Characteristics for the Scope of “State Functionary”

a. The criteria of “position + public duties”

Pursuant to the PRC Criminal Law and Economic Crime Minutes, the criteria of determining whether a person is a “state functionary” mainly include 1) whether the person is placed in certain position; and 2) whether the person is performing public duties.  For example, a department chief is placed in the management level in a state-owned institution, but whether he or she is a deemed as a “state functionary” usually depends on whether his or her conduct involves public duties.  If the chief increases the prescription amount in the course of treating patient in exchange for bribes from a drug manufacturer, then he or she would be considered as a “non-state functionary” for such conduct in practice. However, if the chief takes bribes from the drug manufacturer and uses the authority to include the drug into the procurement list of this public hospital, then the chief would be considered as a “state functionary” due to the involvement of public duties.

b. Entity could be a bribe-taking party under the PRC Criminal Law

Compared with the FCPA and the PRC Supervision Law, the PRC Criminal Law regulates the conducts of offering bribes to an entity and taking bribes by an entity, subject to corresponding criminal penalties.  Entities here refer to state organs, state-owned companies, enterprises, institutions and people's organizations and according to the explanation of the Supreme People’s Procuratorate, any internal department of the above entities can also be a bribe-taking party[15]. It should be noted that the relevant interpretation is not clear as to whether an enterprise with state-owned capital participation or state-controlled enterprise can be a bribe-taking party under the PRC Criminal Law. There are different approaches in judicial practice, with some courts considering that the state-owned companies and enterprises only include wholly state-owned enterprises and companies[16], and some courts identifying an enterprise with state-owned capital participation as a bribe-taking party[17].

II. “Foreign Official” and “Instrumentality” under the FCPA

1. Overview of the FCPA

FCPA was enacted by the US Congress in 1977 and was amended in 1988, 1994, and 1998, intended to halt corrupt practices committed by (1) “issuers” and their officers, directors, employees, agents, and stockholders acting on behalf of an issuer; (2) “domestic concerns” and their officers, directors, employees, agents, and stockholders acting on behalf of a domestic concern; and (3) certain persons and entities, other than issuers and domestic concerns, acting while in the territory of the US to offer corrupt payments to a foreign official, foreign political party or official or candidate for foreign political office or official in order to obtain or retain business.

The FCPA contains two types of provisions (1) the anti-bribery provisions, which prohibit individuals and businesses from bribing foreign government officials in order to obtain or retain business; and (2) the accounting provisions, which impose record keeping and internal control requirements on issuers.  Violations of the FCPA can lead to civil and criminal penalties, sanctions, and remedies, including fines, disgorgement, and/or imprisonment.[18]

2. Scope of “Foreign Official” and “Instrumentality”

(1) Statutes

The FCPA prohibits bribery payments to: (1) any “foreign official”; (2) any foreign political party or official or any candidate for foreign political office; or (3) any person, while knowing that all or a portion of the corrupt payments will be offered or promised to offer to any “foreign official”, foreign political party or official thereof, or any candidate for foreign political office[19].  Further, “foreign official” refers to any officer or employee of a foreign government or any department, agency, or “instrumentality” thereof, or of a public international organization[20], or any person acting in an official capacity for or on behalf of any such government or department, agency, or “instrumentality”, or for or on behalf of any such public international organization[21].

Notably, the determination of a “foreign official” under the FCPA is basically a two-step process: 1)   to determines whether the entity is part of a foreign government or any of its department, agency or “instrumentality” or a public international organization; and 2) to determine whether the bribe-taking party is an officer, employee, or any person acting on behalf of any of the above four types of entities.

(2) Case Law

The FCPA does not provide a definition of “instrumentality” which has led the DOJ and SEC to adopt a broad interpretation for a long term, generally through a comprehensive analysis of the foreign government’s ownership and control of the involved entities, as well as the entity’s nature and functions.  For instance, in USA v. Alcatel-Lucent France, SA, et al., No. 1:10-cr-20906 (S.D. Fla. Dec. 27, 2010), the DOJ accused Alcatel-Lucent of violating the FCPA by making corrupt payments to employees of a local telecommunications company that was owned by the Malaysian government. Although the Malaysian government only owned 43 percent of shares of the company, the DOJ argued that the Malaysian government, as a “special shareholder”, had veto power over all major expenditures and controlled important operational decisions. 

Later, in the United States v. Esquenazi, et al., Case No. 11-15331 (11th Cir. May 16, 2014), the US Court of Appeals for the Eleventh Circuit (“Eleventh Circuit”) for the first time addressed the particular question about “instrumentality”, and interpreted “instrumentality” to be an entity that: (1) is controlled by the government of a foreign country; and (2) performs a function the controlling government treats as its own.  The Eleventh Circuit emphasized that both of the two elements are inherently fact-bound questions, and set out a list of factors (though non-exhaustive) to assist the determination, which include:

a. Whether it is controlled by the government of a foreign country:

• The way the foreign government designates that entity;

• Whether the foreign government has a majority interest in the entity;

• Whether the foreign government has ability to hire and fire the entity’s principals;

• The extent to which the entity’s profits go directly to the government fiscal accounts and the extent to which the government funds the entity if it fails to break even; and

• The length of time these indicia have existed.

b. Whether it performs a function the controlling government treats as its own:

• Whether the entity has a monopoly over the function it exists to carry out;

• Whether the government subsidizes the costs associated with the entity providing services;

• Whether the entity provides services to the public at large in the foreign country; and

• Whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.

The Eleventh Circuit applied the facts to the above factors and made the following analysis:

a. Whether it is controlled by the government of a foreign country:

• Haiti’s national bank owned 97 percent of Teleco (the entity of the bribe-taking individuals, a telecommunication company) during the time period in question; and

• Teleco’s principals were chosen by the Haiti government.

b. Whether it performs a function the controlling government treats as its own:

• The Haiti government granted Teleco a monopoly over telecommunication services;

• Teleco received tax advantages from the Haiti government; and

• The Haiti government and Teleco’s officials all considered Teleco to be a public administration.

Based on the above analysis, the Eleventh Circuit concluded that Teleco was an “instrumentality” of a foreign government and that the Teleco employees who received the corrupt payments were therefore “foreign officials” under the FCPA.

3. Key Characteristics of the Bribe-Taking Parties under the FCPA

In addition to the above, the key characteristics of the bribe-taking parties under the FCPA could be summarized as follows:

(1) The FCPA applies to corrupt payments to any officer or employee of a foreign government

As discussed above, the determination of a “foreign official” under the FCPA is basically a two-step process, therefore, once an entity is determined as part of a foreign government or any of its department, agency or “instrumentality” or a public international organization, any of its officer, employee would be deemed as a “foreign official”, regardless of his or her position or job function.

(2) The FCPA does not prohibit the foreign official’s acceptance of corrupt payments

The FCPA only prohibits the act of offering or making corrupt payments while it does not regulate the foreign official’s acceptance of corrupt payments. Nonetheless, in recent years, the DOJ prosecuted “foreign officials” for accepting bribes through other charges.  For instance, in 2017, the former Minister of Mines and Geology of the Republic of Guinea was convicted for money laundering due to his involvement in bribery cases[22].

III. Comparative Analysis for Scenarios Involving “Foreign Official”, “Supervised Individual”, and “State Functionary”

Based on the above analysis, while there is a certain degree of overlap among the scope of “foreign official” under the FCPA, “supervised individual” under the PRC Supervision Law, and “state functionary” under the PRC Criminal Law, substantial differences could be still identified upon in-depth analysis. To facilitate our readers’ understanding, we have selected a few typical scenarios that are frequently consulted by in-house legal and compliance officers in practice for comparative analysis.

1. Doctors of Public Hospital

(1) Doctors in management positions of public hospitals (such as a chief of procurement department in public hospital)

a. Usually fall into the scope of “supervised individuals”

Doctors in management positions of public hospitals are generally considered to be “management staff of state-run institutions in education, scientific research, culture, health care and sports”, and therefore, fall into the scope of “supervised individuals”.

b. Usually fall into the scope of “state functionaries”

Doctors in management positions of public hospitals are generally considered to be “staff members performing public duties in state-owned companies, enterprises, public institutions, people's organizations”, and therefore, fall into the scope of “state functionaries”. However, it should be noted that if the suspected criminal act does not involve the management position, for example, a doctor only takes kickbacks based on prescription amount, then he or she would not be deemed as a “state functionary” for such act.

c. Usually fall into the scope of “foreign officials”

As discussed above, the determination of a “foreign official” under the FCPA is basically a two-step process: 1) to determines whether the entity is part of a foreign government or any of its department, agency or “instrumentality” or a public international organization; and 2) to determine whether the bribe-taking party is an officer, employee, or any person acting on behalf of any of the above four types of entities. Therefore, if an entity is deemed as a foreign government or any of its department, agency, “instrumentality” or a public international organization, then any of their employees would likely be deemed as a “foreign official” under the FCPA.

As public hospitals in China could likely meet both elements of 1) controlled by the government of a foreign country; and (2) perform a function the controlling government treats as its own, they are likely be deemed as “instrumentalities”, correspondingly, any of its employees would likely be deemed as a “foreign official”. However, whether a violation of the FCPA is committed will be determined in conjunction with all other factors to be considered.

(2) Doctors not in management positions of public hospitals

a. Usually not fall into the scope of “supervised individuals”

Although doctors not in management positions of public hospitals could satisfy the requirement of “identity”, namely, they are working in public institutions, they are not placed in certain positions or perform management duties. Therefore, doctors not in management positions of public hospitals usually do not fall into the scope of “supervised individuals”.

b. Usually not fall into the scope of “state functionaries”

Although doctors not in management positions of public hospitals could satisfy the requirement of “identity”, namely, they are working in public institutions, they do not perform public duties.  Therefore, doctors not in management positions of public hospitals usually do not fall into the scope of “state functionaries”.

c. Usually fall into the scope of “foreign officials”

Same as above, as public hospitals in China could likely meet both elements of 1) controlled by the government of a foreign country; and 2) perform a function the controlling government treats as its own, they are likely be deemed as “instrumentalities”, correspondingly, any of its employees would likely be deemed as a “foreign official”.

2. Persons of other State-run Public Institutions

(1) Management Staff of Public Schools (such as Principals, Procurement Directors, Recruitment Directors)

a. Usually fall into the scope of “supervised individuals”

Management staff of public schools are generally considered to be “management staff of state-run institutions in education, scientific research, culture, health care and sports”, and therefore, fall into the scope of “supervised individuals”.

b. Usually fall into the scope of “state functionaries”

Management staff of public schools are generally considered to be “staff members performing public duties in state-owned companies, enterprises, public institutions, people's organizations”, and therefore, fall into the scope of “state functionaries”. However, it should be noted that if the suspected criminal act does not involve the management position, for example, a procurement director does not utilize the authority in procurement, then he or she would not be deemed as a “state functionary” for such act.

c. Usually fall into the scope of “foreign officials”

Same as above, as public schools in China could likely meet both elements of 1) controlled by the government of a foreign country; and (2) perform a function the controlling government treats as its own, they are likely be deemed as “instrumentalities”, correspondingly, any of its employees would likely be deemed as a “foreign official”. However, whether a violation of the FCPA is committed will be determined in conjunction with all other factors to be considered.

(2) Staff Members Managed with Reference to the PRC Civil Servant Law (such as Officers in the China Securities Regulatory Commission)

a. Usually fall into the scope of “supervised individuals”

Staff members managed with reference to the PRC Civil Servant Law are deemed as civil servants, and therefore, fall into the scope of “supervised individuals”.

b. Usually fall into the scope of “state functionaries”

Staff members managed with reference to the PRC Civil Servant Law refer to staff members of institutions authorized by laws or regulations to manage public affairs, other than administrative staff, who are approved to be managed with reference to the PRC Civil Servant Law[23]. Pursuant to the Economic Crime Minutes, staff members performing public duties in the institutions authorized by laws or regulations to manage public affairs are deemed as state organ employees, and therefore, fall into the scope of “state functionaries”[24].

c. Usually fall into the scope of “foreign officials”

As institutions managed with reference to the PRC Civil Servant Law could likely meet both elements of 1) controlled by the government of a foreign country; and (2) perform a function the controlling government treats as its own, they are likely be deemed as “instrumentalities”, correspondingly, any of its employees would likely be deemed as a “foreign official”.

(3) Members of Government Procurement Bid Evaluation Committee

a. Usually fall into the scope of “supervised individuals”

In practice, a government procurement bid evaluation committee is usually not a legal entity, but an organization formed on an ad hoc basis in government procurement process. Such committee is generally composed of representatives of the purchaser and experts in the relevant technical and economic fields, and is responsible for evaluating the bids and recommending the winning candidate to the purchaser. Members of such committees are generally identified as “management staff of state-run institutions in education, scientific research, culture, health care and sports”, and therefore, fall into the scope of “supervised individuals”.

b. Usually fall into the scope of “state functionaries”

Members of government procurement bid evaluation committee are generally considered to have been entrusted with certain public duties under specific conditions and perform public duties in accordance with the laws and are therefore be deemed as “other persons performing public duties in accordance with the laws” and fall into the scope of “state functionaries”.

c. With high risk to all into the scope of “foreign officials”

As introduced above, a government procurement bid evaluation committee is not a legal entity, but an organization formed on an ad hoc basis in government procurement process. Although such non-legal entity may satisfy the two elements of 1) controlled by the government of a foreign country; and (2) perform a function the controlling government treats as its own, there are still some uncertainties as to whether such committee would be deemed as an “instrumentality”.  Nevertheless, we believe that there is high risk that committee would be deemed as a “instrumentality” and therefore, members in the committee would likely fall into the scope of “foreign officials”.

3. Staff Members of Ground-level Self-governance Organizations

(1) Management Staff of Villagers’ Committees and Residents’ Committees

a. Usually fall into the scope of “supervised individuals”

Directors, deputy directors and committee members of villagers’ committees and residents’ committees, as well as other persons entrusted with management authority (mainly including assisting the government and other state organs in management, such as disaster relief, rescue, tax collection and social donation management) are generally considered as “management staff of ground-level self-governance organizations”, and thus fall into the scope of “supervised individuals”.

b. Usually fall into the scope of “state functionaries”

Directors, deputy directors and committee members of villagers’ committees and residents’ committees, as well as other persons entrusted with management authority are generally recognized as “other persons performing public duties in accordance with the laws” and therefore fall into the scope of “state functionaries”. However, it should be noted that those of villagers’ committees, residents’ committees and other ground-level self-governance organizations generally undertake two types of duties: 1) to assist the government and other state organs to carry out management; and 2) to carry out management of the ground-level self-governance organizations. Only when these people are engaged in assisting the government and other state organs to carry out management will they be considered as “state functionaries”.

c. Whether fall within the scope of “foreign officials” requires a factual analysis

Villagers’ committees and residents’ committees are empowered with the authority to assist the government in specific administrative tasks and, therefore, can generally satisfy the element of performing a function the controlling government treats as its own. Although villagers’ committees and residents’ committees are ground-level self-governance organizations, there are cases in practice where the government or Communist Party of China appoint the management team of those ground-level self-governance organizations, and in such cases, there is a possibility that the other element of being controlled by the government of a foreign country could also be satisfied.  Thus, under certain conditions, officers or employees of such organizations may be considered as “foreign officials”. However, whether a violation of the FCPA is committed will be determined in conjunction with all other factors to be considered.

4. Staff Members of State-owned Enterprises

(1) Management Staff of State-controlled Enterprises (such as Chairman, Director, General Manager, Secretary of the Party Committee, Chairman of The Labor Union)

a. Usually fall into the scope of “supervised individuals”

Management staff of the state-controlled enterprises are generally recognized as “management staff of state-owned enterprises” and therefore fall into the scope of “supervised individuals”.

b. Usually not fall into the scope of “state functionaries”

Since state-controlled enterprises are not state-owned companies or enterprises under the PRC Criminal Law, management staff of those enterprises cannot meet the “identity criteria” of “state functionaries”. However, if the management staff could meet the conditions of “management staff delegated by state-owned enterprises to non-state-owned enterprises”, they would fall into the scope of “state functionaries”.

c. Whether fall within the scope of “foreign officials” requires a factual analysis

State-controlled enterprises can generally satisfy the elements of being controlled by the government of a foreign country, however, whether they could satisfy the element of performing a function the controlling government treats as its own would depends on the specific industry of a state-controlled enterprise and whether the business has a monopoly status, performs a public function, and other factors (e.g., state-controlled enterprises in industries such as energy, public services, and telecommunications are more likely to be deemed to have a monopoly status and perform a public function).  If the relevant factors are met, the state-controlled enterprise is likely to be deemed as an “instrumentality” to a foreign government under the FCPA, and therefore the employees of company would likely be deemed as “foreign officials”.

(2) Management Staff of Enterprises with State-owned Capital Participation

a. Usually not fall into the scope of “supervised individuals”

Only those who are responsible for the management and administration of state-owned assets in enterprises with state-owned capital participation and financial institutions would fall into the scope of “management of state-owned enterprises”.  For those who are not responsible for the management and administration of state-owned assets, they would not fall into the scope of “supervised individuals”.

b. Usually not fall into the scope of “state functionaries”

Since enterprises with state-owned capital participation are not state-owned companies or enterprises under the PRC Criminal Law, management staff of those enterprises cannot meet the “identity criteria” of “state functionaries”. However, if the management staff could meet the conditions of “management staff delegated by state-owned enterprises to non-state-owned enterprises”, they would fall into the scope of “state functionaries”.

c. Whether fall within the scope of “foreign officials” requires a factual analysis

From the PRC law perspective, an enterprise with state-owned capital participation is a concept relative to a state-controlled enterprise, and the two are distinguished by whether the state could control the enterprise. Similarly, from the FCPA perspective, whether an enterprise with state-owned capital participation can satisfy the element of being controlled by a foreign government needs to be viewed from the perspective of actual control, and therefore, an enterprise with state-owned capital participation generally cannot satisfy this element.  

Whether they could satisfy the element of performing a function the controlling government treats as its own would depend on the specific industry of a state-controlled enterprise and whether the business has a monopoly status, performs a public function, and other factors (e.g., state-controlled enterprises in industries such as energy, public services, and telecommunications are more likely to be deemed to have a monopoly status and perform a public function).  Therefore, it is less likely that an enterprise with state-owned capital participation would be deemed as an “instrumentality” to the foreign government under the FCPA, and thus employees of the enterprises are less likely to fall into the scope of “foreign officials”.

(3) Management Staff Delegated by State-owned Enterprises to Non-state-owned Enterprises

a. Whether fall within the scope of “supervised individuals” requires a factual analysis

If the delegatees exercise public powers entrusted by the state-owned enterprises, they may fall into the miscellaneous clause for the “supervised individuals” and fall into the scope of “other persons performing public duties according to the laws”.

b. Usually fall into the scope of “state functionaries”

Management staff delegated by state-owned enterprises to non-state-owned enterprises usually belong to the category of “management staff delegated by state organs, state-owned companies, enterprises and institutions to non-state-owned companies, enterprises, institutions and social organizations to perform public duties”, and thus fall into the scope of “state functionaries”.  However, it should be noted that the delegatees would only be considered as “state functionaries” if they perform public duties to organize, lead, supervise, and manage the affairs of the non-state-owned enterprise on behalf of the will of the state-owned enterprise. If they only perform duties to manage the general affairs of the non-state-owned enterprise, they would not fall into the scope of “state functionaries”.

c. Whether fall within the scope of “foreign officials” requires a factual analysis

Additional facts are required before further analysis can be made to determine whether the two elements could be met, such as the employment relationship of the management staff and the state-owned enterprise, the industry of the non-state enterprise and the business in which it is engaged, and the degree of control of the state-owned enterprise or the government over the non-state enterprise, etc.

5. Management Staff of Trade Associations

(1) Background

Trade associations in China had been for a long time linked to the government in various manners such as undertaking certain public administrative functions, receiving government funding support, and designation of key principals by the government. In July 2015, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued the General Plan for the Decoupling of Trade Associations and Administrative Organs, requiring all regions and departments to gradually implement the “de-administration” of trade associations on a pilot basis, abolish the sponsorship, supervision, association and affiliation of administrative organs with trade associations and chambers of commerce, divest trade associations and chambers of commerce of their existing administrative functions, separate assets and finances, regulate property relations, and complete the separation of personnel management, regulate employment relations, etc. In June 2019, ten government departments, including the National Development and Reform Commission, the Ministry of Civil Affairs and the Central Organization Department, issued the Implementation Opinions on Comprehensively Promoting the Reform of the Decoupling of Trade Associations and Chambers of Commerce from Administrative Organs, requiring the full implementation of the decoupling reform of trade associations and chambers of commerce to be mostly completed by the end of 2020.  As for the progress of the reform, in February 2021, the Ministry of Civil Affairs introduced in a press conference that the reform of trade associations has achieved remarkable results, and as of the end of December 2020, a total of 728 national trade associations and 67,491 local trade associations and chambers of commerce have completed the decoupling reform as required, with completion rates of 92% and 96% respectively.  Under such circumstances, there are a lot of uncertainties as to whether the management staff of such associations would be deemed as “supervised individuals”, “state functionaries” or “foreign officials”.

(2) Analysis

a. Lack of clarity on whether fall within the scope of “supervised individuals”

Here, it mostly depends on whether the management staff of the trade associations, such as the presidents and vice presidents of the associations, exercise public power.  Before the decoupling reform of trade associations, different associations were assigned with specific public powers because of their linkage to the government in terms of finance, personnel and the performance of public administration functions. Therefore, the management staff would likely fall into the miscellaneous clause for the “supervised individuals” and be deemed as “other persons performing public duties according to the laws”.

After the completion of the decoupling reform, although most of the trade associations may have completed the reform on the surface, there may be some lingering issues in terms of the responsibilities of personnel and the allocation of public powers in their daily operation. It needs to be clarified that the PRC Supervision Law requires that “other persons” in the miscellaneous clause for “supervised individuals” should “perform their public duties in accordance with the laws”, therefore, even if there are situations where trade association management staff are still performing public duties in practice, whether such performance is “in accordance with the laws” is subject to dispute.  Thus, there still lacks clarity on whether the management staff of trade associations would fall into the scope of “supervised individuals”.

b. Lack of clarity on whether fall within the scope of “state functionaries”

Same as the above analysis, before the decoupling reform of trade associations, the management staff of trade associations may fall into the scope of “state functionaries”, for example, there is one case in practice where the secretary-general of the insurance association was identified as a “state functionary” and convicted of embezzlement[25]. Nevertheless, after the completion of the reform, there still lacks clarity on whether the management staff of trade associations would fall into the scope of “state functionaries”.

In addition, it is noteworthy that in practice, it is common for retired or departed former “state functionaries” or family members of “state functionaries” to take certain management positions in the trade associations, and therefore other crimes under the PRC Criminal Law, such as offering bribes to influential persons, need to be considered for evaluation of commercial bribery risks.

c. Whether fall within the scope of “foreign officials” requires a factual analysis

Additional facts are required before further analysis can be made to determine whether the two elements could be met, such as the whether the association has been decoupled from the government, whether the association still undertakes some public administration functions, and whether the association receives financial subsidies and financial incentives from the government, so as to further determine whether the management staff of the association would be deemed as “foreign officials”.

It is important to note that in practice, trade association management staff may also take on many other social roles, so a comprehensive analysis is also required when considering the FCPA risks in individual cases.

IV. Conclusion

Based on above analysis, while there is a certain degree of overlap among the scope of “foreign official” under the FCPA, “supervised individual” under the PRC Supervision Law, and “state functionary” under the PRC Criminal Law, substantial differences could still be identified upon comparative analysis on above key examples we have illustrated. In addition, given the evolving nature of the US case laws as well as the legislative techniques of using the Miscellaneous Clauses for “supervised individual” and “state functionary” under China laws, the concepts of the bribe-taking parties under the two jurisdictions are likely to be further expanded and developed in practice.

All these have imposed challenging requirements on multinational companies to evaluate the regulatory requirements in different jurisdictions, to identify and control risks and to operate business in a legal and compliant manner. Our suggestion is to adopt a relatively cautious and conservative approach, namely “error on the side of caution”, when analyzing the nature and identity of the relevant parties so as to apply a stricter standard to regulate the interaction with those personnel. Additionally, when carrying out some business activities with high compliance risks, companies are advised to conduct comprehensive analysis on the transactions to make an accurate judgement and to reduce the potential compliance risks. Finally, for those cases involving complex issues or more delicate situations, professional legal support should be sought in a timely manner.

Reference:

[1] In Morrison v Nat'l Australia Bank Ltd., 561 US 247, 255 (2010), the Supreme Court ruled that the US laws do not have extraterritorial effect unless the legislative intent of Congress indicates that the laws may be applied extraterritorially. The Foreign Corrupt Practices Act (FCPA) and the Export Administration Regulations (EAR), for example, have provisions indicating extraterritorial application.

[2] Richard L. Cassin, At Large: Are China companies beyond the reach of the FCPA? (August 2020)

[3] Article 3 of the PRC Supervision Law, adopted at the first session of the 13th National People's Congress on March 20, 2018, came into effective on March 20, 2018.

[4] Article 4 of the PRC Supervision Law, adopted at the first session of the 13th National People's Congress on March 20, 2018, came into effective on March 20, 2018.

[5] Interpretation of the PRC Supervision Law (15), Regulations Office of the State Supervision Commission of, Discipline Inspection Commission of the Central Committee of the Communist Party of China, March 2018.

[6] Article 2 of the PRC Civil Servant Law, adopted at the 15th meeting of the Standing Committee of the 10th National People's Congress on April 27, 2005, entered into force on April 27, 2005.

[7] Zong Tingting and Wang Jingbo, “Criteria for Identifying Supervised Individuals: Core Elements, Theoretical Framework and Field of Application”, Journal of the Party School of the Central Committee of the Communist Party of China (National School of Administration), Vol. 4, 2019.

[8] Article 93 of the PRC Criminal Law, promulgated by the Standing Committee of the National People's Congress on November 4, 2017, entered into force on November 4, 2017.

[9] Minutes of the National Symposium on the Trial of Economic Crime Cases by Courts I (IV), issued by the Supreme People's Court on November 13, 2003.

[10] Minutes of the National Symposium on the Trial of Economic Crime Cases by Courts I (I), issued by the Supreme People's Court on November 13, 2003.

[11] Reply of the Supreme People's Court on the Criminalization of the Illegal Possession of the Company's Property by the Personnel Engaged in the Management of a Joint Stock Company with State-owned Capital Holding or Participation, adopted by the Judicial Committee of the Supreme People's Court at its 1176th meeting on May 22, 2001, effective as of May 26, 2001.

[12] Zhu Ming, “Analysis of the Concepts of People's Groups, Mass Groups, and Group Organizations”, China Civil Affairs, No. 17, 2020.

[13] Minutes of the National Symposium on the Trial of Economic Crime Cases by Courts I (II), issued by the Supreme People's Court on November 13, 2003.

[14] Minutes of the National Symposium on the Trial of Economic Crime Cases by Courts I (III), issued by the Supreme People's Court on November 13, 2003.

[15] Reply of the Research Office of the Supreme People's Procuratorate on the Question of Whether Internal Bodies of State-owned Units Can Constitute the Subject of the Crime of Accepted Bribes by Units, promulgated by the Legal Policy Research Office of the Supreme People's Procuratorate on September 12, 2006.

[16] Shandong Province Wulian County People's Court (2017) Lu No.1121 Criminal First Trial.

[17] Guiyang Intermediate People's Court of Guizhou Province (2019) No. 540.Qian 01 Criminal Final Verdict.

[18] The FCPA Resource Guide, Second Edition (July 2020)

[19] Section 30A(a)(1)-(3) of the Exchange Act, 15 U.S.C.§ 78dd-1(a)(1)-(3); 15 U.S.C. §§ 78dd-2(a)(1)-(3), 78dd-3(a)(1)-(3).

[20] In 1998, the FCPA was amended to expand the definition of “foreign official” to include employees and representatives of public international organizations.  A “public international organization” is any organization designated as such by Executive order under the International Organizations Immunities Act, 22 U.S.C. § 288, or any other international organization that is designated by the President by Executive order for the purposes of this section, effective as of the date of publication of such order in the Federal Register.

[21] Section 30A(f)(1)(A) of the Exchange Act, 15 U.S.C.§ 78dd-1(f)(1)(A); 15 U.S.C. §§ 78dd-2(h)(2)(A), 78dd-3(f)(2)(A).

[22] https://www.justice.gov/opa/pr/former-guinean-minister-mines-convicted-receiving-and-laundering-85-million-bribes-china

[23] Article 112 of the PRC Civil Servants Law o, adopted by the Standing Committee of the Tenth National People's Congress at its Fifteenth Session on April 27, 2005, entered into force on April 27, 2005.

[24] Minutes of the National Symposium on the Trial of Economic Crime Cases by Courts I (I), issued by the Supreme People's Court on November 13, 2003.

[25] Nanjing Intermediate People's Court of Jiangsu Province (2020) Su 01, Criminal Final Verdict.