Practical issues regarding commercial bribery

By Zhang Haixiao, AnJie Law Firm
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Q: Does commercial bribery have different traits in different industries? Take pharmaceutical companies and hospitals for example; to what extent will their close interaction be qualitatively defined as commercial bribery?

Zhang Haixiao
Senior partner
AnJie Law Firm

A: “Commercial bribery” is a behaviour by which the briber and the bribee use their power or influence to seek transaction opportunities (to induce transactions), or an edge in competition, and obtain unreasonable benefits. The author should note that commercial bribery is condemnable, but not all offering and acceptance of benefits and assistance can be defined as commercial bribery.

Commercial bribery can have different forms in different industries. Take the pharmaceutical industry as an example; pharmaceutical companies will sponsor hospitals and scholars for academic meetings, but if they sponsor the doctors for a tour in the course of the meeting, or the sponsorship money is transferred to private accounts, such sponsorship can be deemed as commercial bribery.

Different industries focus on different aspects of commercial bribery. A company should be clear of the elements of commercial bribery and understand the reprehensibility. On these bases, it can inspect for any commercial bribery behaviour.

Q: How will a company define the boundary between commercial bribery and public order and good custom? What are the risks of gift giving?

A: China is a country where the society values “personal relations”. Ordinary gifts of small value generally will not be deemed as commercial bribery as long as they are within the “reasonable limit”. In other words, there is no legal risk in small-value gifts given out of the related trading practice.

In practice, it should first be decided whether the parties are engaged in a normal business co-operation, such as the small-value advertising gifts given at science and technology fairs. Second, it would be better if the accompanying gifts bear the logo of the company to indicate that the gifts are for advertising purposes, and to prevent confusion. Last, the value of the accompanying gifts generally should not be more than RMB200 (US$28).

Q: Is there a risk of commercial bribery in the rewards of brand enterprises giving to their retailers?

A: No matter whether there is a distributor or not, the rewards that brand enterprises give to their retailers carry a risk of commercial bribery. If the rewards are specifically given in the form of a “discount”, the risk of commercial bribery can be reduced, but the parties are required to specify their agreement by written contract, and record the rewards faithfully in their books.

In addition, the recipient of the rewards, no matter whether it is the distributer, retailer or a salesperson of the distributer or retailer, will not affect the determination of commercial bribery. For example, no matter whether an app is provided for the use of the sales department, or rebates are given to encourage purchase of the products of the brand, if the salespersons themselves obtain the calculable benefits, there may be a risk of commercial bribery. However, unlike distributors, if the retailers shift any of their discounts and rebates directly to the end consumers in full, the discounts and rebates will not be deemed commercial bribery.

Q: For anti-corruption overseas, what are the differences between the US Foreign Corrupt Practices Act (FCPA) and the law of China on commercial bribery?

A: By reviewing and comparing the FCPA and the law of China on commercial bribery, one can tell that they differ in strictness in different aspects. From the angle of the taxation and accounting system, China requires companies to keep and produce complete trading books and transaction documents, especially the transaction invoices. The US, however, confirms whether the companies fully and accurately record the transactions by reviewing their annual accounts. Invoices are not required to prove the transactions.

In China, the focus of the administrative law enforcement agencies on invoices and other transaction documents in practice will increase the risk for a company to be determined to have conducted commercial bribery.

The FCPA has strict provisions on the subject of jurisdiction, with broad scope. As long as a subject has committed commercial bribery behaviour, no matter whether such behaviour occurs in or outside of US territory, and no matter whether the behaviour is conducted via the post system of the US, or any cross-state commercial methods and means, such behaviour constitutes the crime of commercial bribery as set out in the FCPA.

In addition, for a parent company that holds more than 50% of the shares in its subsidiary, even though commercial bribery is found on the book of the subsidiary, it will be deemed that the parent company “should have known of the behaviour”, and is required to take responsibility for such behaviour if the parent company does not prevent such commercial bribery.

The Amendment (VIII) to the Criminal Law of the People’s Republic of China, promulgated by the Standing Committee of the National People’s Congress on 25 February 2011, covers issues concerning overseas anti-corruption. It provides that a Chinese company commits the crime of commercial bribery by offering a bribe to a foreign civil servant.

Although the Chinese law provides a limited scope for punishment, it does not mean that Chinese law is “lenient” towards commercial bribery. In fact, China has a lower punishment threshold for commercial bribery. In accordance with the Opinions of the Supreme People’s Court and the Supreme People’s Procuratorate on Certain Issues Concerning the Application of Law in Handling Criminal Cases of Commercial Bribery, promulgated by the Supreme People’s Court and Supreme People’s Procuratorate on 20 November 2008, the person who gives or accepts a bribe of between RMB10,000-30,000 will be punished, and the threshold of incrimination is lower.

In addition, the US has designed a “deferred prosecution agreement system”. According to the system, the district attorney’s office and the company suspected of bribery will reach a conditional non-prosecution agreement, under which the company may pay a large sum of penalty in exchange for withdrawal of the case.

The company suspected of bribery, and its senior management, may avoid the consequences of conviction. In China, there is no such “space for negotiation”. However, the punishment imposed on the company suspected of bribery may be reduced if the company “turns itself in” or “confesses”.

In comparison to the FCPA, the criminal punishment for commercial bribery is more likely imposed on the “individuals” of senior management in China. Although the FCPA also sets out the punishment of personal imprisonment, this can be avoided through plea bargaining in most cases, in practice. In China, the punishment system is stricter for “both enterprises and individuals”.

Zhang Haixiao is a senior partner at AnJie Law Firm, admitted in both the PRC and New York.

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