China has strengthened its commitment to investigate commercial bribery offences, as indicated by two recent legislative developments — the Guiding Opinions on Establishing a Mechanism for Third-party Supervision and Evaluation of the Compliance of Enterprises Involved in Cases (for Trial Implementation) (third-party mechanism guiding opinions, issued in June 2021) and the Opinions on Further Promoting the Investigation of Bribery and Acceptance of Bribes (opinions on dual investigations, issued in September 2021).
These significant developments indicate China’s latest enforcement trends with a renewed focus on bribe givers and commercial bribery, while balancing the need to protect legitimate business interests.
- The opinions on dual investigations demonstrates a shift in China’s anti-bribery enforcement approach, which will be more focused on bribe-giving and major commercial bribery offences targeting non-state functionaries.
- Chinese authorities will be empowered to establish a blacklist mechanism. Entities who are listed due to violation of anti-bribery or commercial bribery rules will face certain restrictions on their business operations.
- The third-party mechanism guiding opinions promotes the implementation of a non-prosecution mechanism in criminal compliance cases. The mechanism provides a practical framework to evaluate and improve the compliance status of enterprises implicated in criminal cases. It likewise endeavours to mitigate the negative consequences of bribery violations, pending an enforcement decision.
- Enterprises doing business in China should remain vigilant and review their compliance system and anti-bribery controls to ensure that they have a robust and effective compliance system that meets the continual upgrading of China’s compliance-related legislation.
The opinions on dual investigations is a major development in China’s campaign against bribery and corruption. Following the newly amended Criminal Law, released on 1 March 2021 (which aligned the sentencing standard for bribes received by non-state functionaries with bribes received by state functionaries), these rules demonstrate a shift from the traditional approach taken by PRC authorities, where investigations primarily focused on bribe recipients.
It is expected that major commercial bribery offences will be investigated and handled vigorously. Such offences broadly include both private-to-private bribery and private-to-public bribery, such as bribes offered to state functionaries, bribery involving high amounts, and bribery taking place in industries such as safety production, food, pharmaceutical and education.
The key points are as follows:
- Both the bribe giver and bribe recipient will be the focus of investigations.
- In terms of sanctions, the new rules allow Chinese authorities to take steps to implement a blacklist mechanism for punishing bribe givers, and imposing certain restrictions in relation to market access and operational qualifications.
- The opinions on dual investigations is careful to emphasise that during the course of the investigations, the relevant authorities are obliged to fully protect the legitimate rights and interests of implicated persons and enterprises.
Another important development is the third-party mechanism guiding opinions issued on 3 June 2021. This is the first time China has implemented a comprehensive non-prosecution compliance mechanism for third-party supervision and evaluation of enterprises implicated in criminal cases. The third-party mechanism is intended to mitigate the negative consequences of bribery violations and protect an enterprise’s rights and interests pending the prosecution decision.
The key points are as follows:
- The third-party mechanism provides a framework for evaluating the compliance status of enterprises, and encourages enterprises to operate in a legitimate and compliant way.
- The mechanism’s scope includes companies and enterprises undergoing prosecution in economic criminal cases and duty-related criminal cases (i.e. offences that take advantage of a person’s function and duty, such as bribe-taking involving state functionaries) with regard to the production and operation activities of market players.
- An expert database consisting of compliance professionals (including lawyers) from various fields and industries will be established to assist with supervising the compliance status of implicated enterprises, and to facilitate improvements to their compliance system.
- Management institutions for the third-party mechanism will be established at both the central and pilot region levels. Central-level institutions include the Supreme People’s Procuratorate, the State-owned Assets Supervision and Administration Commission of the State Council, the Ministry of Finance, the Ministry of Justice, and the State Administration for Market Regulation. Pilot regions include more than 100 cities and districts in Beijing, Shanghai, Guangdong province and Zhejiang province. Management institutions at the pilot region level consist of people’s procuratorates, State-owned Assets Supervision and Administration Commissions, Departments of Finance and Federations of Industry and Commerce.
- Central level management institutions are responsible for formulating rules and legal policy, as well as supervising pilot region management institutions. Pilot region institutions are responsible for establishing and managing expert databases, and are in charge of the appointment, training, assessment and supervision of third-party supervisors, including the evaluation of organisations and their members in the pilot regions.
- The People’s Procuratorate is authorised to apply the third-party mechanism on its own initiative, based on its review of the underlying case. In addition, implicated enterprises, individuals and their lawyers are entitled to apply for the third-party mechanism, and the People’s Procuratorate shall review the application and make a decision accordingly.
- The evaluation results of the third-party mechanism provide an important reference for procuratorial authorities to guide how they may wish to proceed with a case, and what decision should be made. For example, a positive evaluation result may facilitate a less severe enforcement outcome for the implicated enterprise.
The above-mentioned rules provide a clear signal that China is committed to building a comprehensive anti-corruption regime, and that commercial bribery offences will be under increased scrutiny. There will be an increased focus on the use of the blacklist system in the implementation of the new rules. Companies doing business in China are advised to take the opportunity to review their compliance systems and take guidance from the new third-party mechanism and the upcoming blacklist system.
Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Howard Wu (Shanghai) at firstname.lastname@example.org