Compliance can be viewed on two main dimensions: (1) ensuring that the operational and managerial actions of a company and its personnel adhere to normative requirements including laws, regulations, regulatory guidelines, industry standards and articles of association; and (2) involving the implementation of governance measures to achieve the above-mentioned objectives.
Indigenous criminal compliance
As a branch of the compliance landscape, the concept of criminal compliance is not inherent in the US legal system. Instead, it has emerged in recent years due to a confluence of factors including the increasingly intricate patterns of economic crimes, the pressing need for entrepreneurs to safeguard against criminal risks, legal professionals’ innovative approaches based on compliance principles, and reform initiatives by prosecution authorities.
Criminal compliance revolves around the criminal risk exposure faced by businesses and their associated individuals. It distinguishes itself from both conventional criminal proceedings and general compliance strategies. The approach to properly managing this risk encompasses three key phases: prevention, response and remediation.
Prevention. In the realm of criminal offences, prevention assumes paramount importance. This is largely due to the unique nature of criminal procedures. On the one hand, as a criminal investigation advances, the potential for a company or its personnel to evade charges gradually diminishes. On the other hand, once a business is implicated as a criminal suspect, it inevitably bears the adverse repercussions of a tarnished reputation and operational disruptions.
Preventing criminal risks entails two distinct layers of approach:
- Sustained prevention and control. Criminal risk prevention and control constitute a pivotal facet of compliance risk management. Enterprises with robust operational foundations can prevent potential criminal risks by establishing comprehensive compliance management systems, identifying and evaluating criminal compliance risks, formulating and refining risk control measures, and nurturing a culture of compliance.
- Targeted crime-related risk prevention and control. Criminal risks often send discernible signals, manifesting as inquiries and penalties from external regulatory authorities, or as instances of internal personnel breaching regulations. Swift action becomes imperative in such scenarios. Engaging criminal compliance professionals promptly aids businesses in effectively halting the transition of general risks into criminal offences. When an enterprise comes under regulatory scrutiny, a criminal compliance lawyer can assist it to assess the risk of a criminal offence, prepare defence material, apply for and participate in a hearing, and negotiate with regulatory authorities to avert the transfer of cases to the public security authority.
Response. Once a criminal investigation process is initiated, the focus of criminal compliance shifts to the second phase – responding to the criminal investigation.
In traditional criminal defence practices, lawyers primarily review case documents.
This involves scrutinising the evidence material generated during the investigation (after the public security authorities conclude their inquiries and transfer the case to the prosecution authority) to identify errors and omissions within the investigative material and subsequently present defence viewpoints.
However, criminal compliance places the core of its efforts in the investigative stage:
- To comprehend the substance of objective evidence retrieved by the public security authority, analyse investigative approaches and locate key conviction circumstances;
- To conduct targeted compliance investigations, gather objective evidence relevant to the elements of the conviction circumstances, and meticulously reconstruct the factual circumstances of the case; and
- To produce an investigative report that truthfully reflects the facts of the case. This report can be submitted directly to the case-handling authority or serve as a basis for subsequent applications to the prosecution authority, requesting evidence retrieval and presenting defence viewpoints.
The responsive strategy of criminal compliance diverges from the conventional mode of passive defence and picking faults after the fact. Instead, it adopts a proactive approach by directly presenting a comprehensive overview of the case’s facts to the case-handling authorities. This strategy aims to overturn presumptions of guilt and maximise opportunities to establish a defence of innocence.
Remediation. Since 2020, the Supreme People’s Procuratorate has launched a pilot initiative known as the Reform of Compliance for Enterprises Involved in Cases. This reform has presented a chance for enterprises that have stumbled during their operations by introducing a third phase – the post-facto remediation of implicated enterprises.
This new third stage typically encompasses the following components:
- Submitting a compliance application to the case-handling authority tailored to the circumstances of the implicated enterprise;
- Assisting enterprises in devising and implementing compliance plans to establish effective compliance management systems; and
- Aiding enterprises in undergoing evaluation assessments on the conclusion of the compliance inspection period.
For enterprises involved in cases, constructing a robust compliance system yields more lenient sentencing recommendations. This process serves as both a remediation and a starting point for future sound business practices.
Traditionally, criminal legal activities have focused on criminal defence and reporting. Criminal businesses are expanding with the escalating proportion of economic crimes in the overall crime landscape and the increasing complexity of economic crime patterns.
Novel business models like criminal compliance, victim representation in litigation, applications by third parties with significant interests to participate in litigation, and unified civil and criminal representation in cross-border cases are emerging, which is also a result of the trend towards the non-litigation of criminal business.
By incorporating compliance practices into criminal procedures, criminal compliance equips parties with diverse avenues to safeguard their rights at different stages and is poised to become a novel weapon for enterprises seeking self-protection.
Wang Weining is a deputy director and founding partner and Fu Xuehang is an associate at Starrise Law Firm