Exploring the reality, foreseeing the future of criminal compliance

By Kevin Dong, AllBright Law Offices

This past year, 2020, could be called “the first year of China’s corporate criminal compliance practice”. After years of accumulated experience, the practical exploration of criminal compliance for Chinese enterprises has expanded greatly in the past year, like a wild prairie fire. During the year, the Supreme People’s Procuratorate issued its guiding cases on corporate compliance, while six procuratorates of different regions launched “non-prosecution for corporate compliance” pilot programmes, and several judicial authorities issued guiding opinions on corporate compliance.

董凯华, Kevin Dong, Associate, AllBright Law Offices
Kevin Dong
AllBright Law Offices

Current corporate criminal compliance awareness in China is showing the following characteristics:

(1) Becoming more practical. In recent years, criminal compliance has gradually moved from academic circles of theoretical discussion to practice circles of judicial case handling, and has been accepted and recognised by front-line judicial personnel and judicial authorities;

(2) Being accepted by domestic institutions. Corporate compliance originates from abroad, but is receiving increasing attention from domestic companies, regulators and judicial authorities. For example, to guide companies’ overseas business expansions, China has issued important guiding documents, such as the Code of Conduct for Overseas Investment and Operation of Private Enterprises, and the Guidelines for Compliance Management in the Overseas Operations of Enterprises. From the current domestic research status, one of the research methods is the localisation and transformation of foreign practical experience;

(3) Becoming more universal. Chinese corporate compliance was initially only for commercial banks, insurance companies, securities companies and investment fund companies, and also the “going abroad” strategy of domestic enterprises. But corporate compliance is showing a trend of criminalisation, and is not limited to specific practices and industries, becoming a requirement of all enterprises for compliant operation;

(4) The effect is becoming clearer. How should a company improve the construction of compliance system in order to obtain acceptance and recognition, and to mitigate punishment by regulators and judicial authorities? How are the roles and responsibilities of enterprises, regulators, judicial authorities and third-party institutions configured? And how is an effective connection made with existing criminal laws and criminal procedural laws? At present, there is still a lack of unified understanding and authoritative regulation. But with deeper exploration occurring on issues such as “non-prosecution for corporate compliance” action, the effects on prevention, guidance, consultation and branding created by the construction of compliance systems are becoming clearer.

Although China’s exploration of corporate criminal compliance has made progress, it is still in its initial stages. There are problems such as an unclear understanding of the connotation and extension of corporate criminal compliance. Practical exploration is mostly limited to the review and prosecution process, and non-prosecution decisions of procurators, with different measures and understanding among local judicial authorities, and criminal-related legislation still requiring development.

The significance of building a corporate criminal compliance system is not limited to individual cases. Of more far-reaching significance is changing the cultural ecology of corporate operation as a whole, constructing rules of conduct and market environment for fair competition and compliant operation, thus promoting the formation of the value of compliance, and the social norm of honesty and trustworthiness in society.

It can be foreseen that China’s corporate criminal compliance will evolve to a deeper level, and the changes brought to the legal practice will be well rounded.

First, criminal compliance needs to be confirmed at the legislative level. The current guiding opinions on corporate criminal compliance are still being formulated by local judicial authorities on their own initiative, with different content and practices, and are lacking uniform provisions at the national legislative level. In this regard, in January 2021, Procurator General Zhang Jun, of the Supreme People’s Procuratorate, clearly requested and proposed to the legislature amendments to relevant laws at the 15th National Procuration Conference. The trend will be to further establish a corporate criminal compliance system, at procedural and substantive law levels, by fixing and refining the exploration experience of pilot units through legislation.

Second, judicial practice is in full swing. At present, in addition to the above-mentioned six pilot units of non-prosecution for corporate compliance, more judicial authorities have joined the “corporate compliance exploration club”, such as the Procuratorate of Ningbo city, the People’s Procuratorate of Liaoning province. Other authorities have issued relevant opinions on compliance inspection of enterprises involved in crime. With the promotion of corporate compliance nationwide and the confirmation of legislation, evaluating and supervising the construction of corporate criminal compliance systems will definitely become important work for judicial authorities.

Third, the demand for corporate criminal compliance has increased. With the advancement of legislation and practice, corporate criminal compliance in China will no longer be limited to specific industry fields and types of enterprises, but will be a common demand of all enterprises, and such demand will cover different stages of investment decision, daily operation and risk disposal. Therefore, the demand of enterprises for criminal compliance legal services will show growth.

Fourth, the demand for professionalism of third-party institutions has increased. From a practical point of view, the judiciary is more in the role of supervisor and evaluator, and enterprises have to rely more on their own input and promotion to build a perfect compliance system. From the enterprise’s own situation, although some enterprises have legal personnel or a compliance management department, not many have professional criminal, tax and other practical legal experience. They still need co-operation and support from law firms and other third-party professional institutions. For example, the Procuratorate of Daishan county requires that “professional compliance supervisors should be selected from law firms, accounting firms, taxation firms, etc.”

In order to adapt to the compliance requirements of enterprises and meet the evaluation requirements of judicial authorities in handling cases, third-party institutions and personnel need to be equipped with professional skills and qualities.

Kevin Dong is an associate at AllBright Law Offices

Carl Li AllBright Law Offices customs

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