Commercial crime targeted in eighth amendment to the PRC Criminal Law

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Commercial crime targeted in eighth amendment to the PRC Criminal Law, 中国刑法第八次修正商业犯罪成关注焦点

The eighth amendment to the PRC Criminal Law was adopted by the Standing Committee of the National People’s Congress on 25 February and came into force on 1 May. The Certain Issues Concerning the Specific Application of the Law in Handling Criminal Cases of Illegal Fund-raising Interpretation was issued by the Supreme People’s Court on 13 December 2010 and came into effect on 4 January this year. Below is a summary of the new provisions relating to economic crimes in the Interpretation and the Amendment.

The judicial interpretation

Illegally collecting deposits from the public

The Interpretation clarifies the four constituent elements in clause 176 of the Criminal Law, “the crime of illegally collecting deposits from the public”:

  1. collecting funds without the legal approval of relevant departments or under the guise of a legitimate business;
  2. conducting publicity through the media, presentations, flyers, SMS messages and other channels;
  3. promising within a certain period of time, in money, in kind or in equity, to pay back principal with interest or to pay a return; and
  4. collecting funds from the general public without targeting a specific group.

Collecting funds from a specific target group without conducting publicity, and among friends and relatives or within a work unit, does not amount to collecting deposits from the public illegally or in disguised form as stipulated by the PRC Criminal Law.

Those carrying out any of the following actions, consistent with the four elements mentioned above, will be liable to conviction and punishment under the charge of illegally collecting deposits from the public:

  1. illegally collecting funds while promising a sales rebate, after-sales rental guarantees, repurchase agreements, sales of shares in properties, etc., without actually selling real estate, or without the primary purpose of selling real estate;
  2. illegally collecting funds under the guise of transferring forest property and managing and protecting it on behalf of the transferee;
  3. illegally collecting funds under the guise of planting or cultivating on someone’s behalf, planting or cultivating under lease, or joint planting or cultivating;
  4. illegally collecting funds while promising a rebate of goods or sale of goods stored without actually selling goods or providing services, or without the primary purpose of selling commodities or providing services;
  5. illegally collecting funds through the fictitious transfer of stocks or the sale of false bonds, without actually issuing stocks or bonds;
  6. illegally collecting funds by pretending to be using an offshore fund or by selling fabricated funds without actually raising funds;
  7. illegally collecting funds by pretending to be an insurance company or by forging insurance documents without actually selling insurance;
  8. illegally collecting funds in the guise of equity investment;
  9. illegally collecting funds in the guise of offering wealth management;
  10. illegally collecting funds under the guise of civil associations or other non-governmental organizations;
  11. other acts to take in funds illegally.

Fund-raising frauds

Whoever uses fraudulent methods to commit the abovementioned acts of “illegally collecting deposits from the public” with the aim of illegal possession, shall be convicted and punished for the crime of fraudulent fund-raising, as laid down in article 192 of the PRC Criminal Law. Conduct in any of the following
circumstances can be identified as “having the aim of illegal possession”:

  1. where after the fund-raising the funds are not used in productive or commercial activities or where the proportion of funds used in such activities is significantly less than those raised and the latter are not repaid;
  2. where the raised funds are squandered and not repaid;
  3. where the raised funds are absconded with;
  4. where the raised funds are used for illegal and criminal activities;
  5. where funds are surreptitiously withdrawn or transferred or property concealed to evade repayment;
  6. where accounts are concealed or destroyed or sham bankruptcy or sham closure is engaged in to evade repayment;
  7. where there is a refusal to explain where funds have gone to evade repayment; and
  8. other circumstances in which the intention of illegal possession can be established.

Unauthorized stocks and bonds

The Interpretation clarifies the concept of “unauthorized issue of stocks and company or enterprise bonds” in article 179 of the PRC Criminal Law to mean the issue or the disguised issue through the transfer of stock options or company or enterprise bonds to the general public rather than a specific target group, or the issue or the disguised issue of stocks or company or enterprise bonds to more than 200 specific targets – all without the approval of the relevant state authorities.

Where the circumstances are serious, the Interpretation provides for the conviction and punishment on the charge of illegal business in accordance with article 225 of the PRC Criminal Law of those who genuinely issue fund units or raise funds but violate state regulations and have not been authorized according to the law.

Liability of advertisers and publishers

Where advertisers or publishers use advertisements to gain false publicity for goods or services related to illegal fund-raising activities they are liable to be convicted and punished for false advertising in accordance with article 222 of the PRC Criminal Law in one of the four circumstances stipulated by the Interpretation. Where advertisers or publishers provide advertising or other publicity for other parties they know to be engaged in illegal fund-raising activities, they are liable to be punished as accomplices to the main offence.

Death penalty ended for 13 crimes

The Amendment abolishes the death penalty for 13 non-violent economic crimes for which it has been rarely, if ever, been applied in recent years. These include:

  • the offences of smuggling of cultural relics, smuggling of precious metals, smuggling of rare animals or products made from rare animals and the smuggling of ordinary goods and articles;
  • the offences of carrying out fraudulent activities with negotiable certificates, of carrying out fraudulent activities with financial instruments and letters of credit;
  • the offences of fraudulently issuing VAT invoices, and issuing invoices to obtain export tax rebates and tax reductions and deductions by deception, and of forging and selling forged VAT invoices;
  • the offence of imparting criminal methods;
  • the offences of theft, unauthorized excavation of ancient cultural sites and ancient tombs and of unauthorized excavation of ancient human fossils or of ancient vertebrate fossils.

Offences with lower criminal threshold

The offence of the manufacture and sale of counterfeit medicines under article 141 of the PRC Criminal Law has been widened. Originally a constituent element of this offence was that the counterfeit should be “sufficient to seriously endanger human health” but the Amendment abolishes this limitation so that simply to manufacture or sell counterfeit medicines constitutes an offence.

A constituent element of the offence of causing an accident leading to major environmental pollution under article 338 of the PRC Criminal Law was “causing an accident leading to major environment pollution, resulting in heavy losses to public and private property, or grave consequences of personal deaths and injuries”. The Amendment simplifies this to “seriously polluting the environment” and changes the name of the offence to “the offence of polluting the environment”.

Newly added offences

The offence of bribery of foreign public officials or the officials of international public organizations: Giving bribes to foreign public officials or officials of public international organizations in order to seek illegitimate commercial advantage is punishable under the provision concerning the bribery of non-governmental personnel of article 164 of the PRC Criminal Law.

The offences of issuing invoices fraudulently and of possessing forged invoices : If the circumstances are serious, the fraudulent issue of ordinary invoices (excluding special invoices for VAT or other invoices used to obtain export tax rebates or tax reductions or deductions fraudulently) constitutes the offence of issuing invoices fraudulently.

If the amount is large, to be in possession of what one knows to be forged invoices constitutes the offence of possessing forged invoices.

The offence of refusal to pay labour remuneration: The Amendment adds one provision to article 276 of the PRC Criminal Law: where somebody has evaded paying the wages of his workers by transferring property or absconding, or has not paid them although he had the ability to pay and where the amount is relatively large and he still does not pay although ordered by the relevant government departments to do so, this constitutes the offence of refusing to pay labour remuneration.

Forced transactions: The Amendment adds the following three actions as manifestations of the crime of forced transactions under article 226 of the PRC Criminal Law: employing violence or threats to compel others to participate in or withdraw from bids and auctions, to compel others to transfer or acquire the stocks, bonds or other assets of companies or enterprises and to compel others to participate in or withdraw from certain business activities. At the same time, the Amendment increases the statutory maximum penalty for the crime of forced transactions from three years to seven years in prison.

Business Law Digest is compiled with the assistance of Haiwen & Partners. The authors can be emailed at baochen@haiwen-law.com. Readers should not act on this information without seeking professional legal advice.