Anti-Corruption in China

By  Mini vandePol*, Simon Hui* and Vivian Wu* (Baker McKenzie China)

1.      Domestic bribery (private to public)

1.1      Legal framework

Bribery of public officials is regulated under the PRC Criminal Code (the “Criminal Code”).

1.2      Definition of bribery

Under Articles 389, 390, 390A and 393 of the Criminal Code, “bribery” means giving money or property to an incumbent or former public official, or the person related to the public official (i.e., a close relative or any other person closely related to the incumbent or former public official) for the purpose of securing illegitimate benefits..

1.3      Definition of public official

The Criminal Code has a broad definition of public official. “Public official” refers to personnel performing public service in state organs, as well as the following:

  • Personnel engaged in public service in state-owned corporations, enterprises, institutions and people’s organizations
  • Personnel who are assigned to non-state-owned corporations, enterprises, institutions and social organizations by state- owned corporations, enterprises and institutions
  • Other working personnel engaged in public service in accordance with law

1.4      Consequences of bribery

The Criminal Code establishes the penalties, as described below, for individuals and companies or legal entities committing bribery.

(a) For the individuals involved

Individuals who are found to be guilty of bribery are subject to the following:

  • Up to lifetime imprisonment;
  • Confiscation of property or criminal fine.

Bribe recipients can also be liable. A public official who receives a large amount of bribes can be sentenced to imprisonment or given the death penalty.

Individuals who are found to be guilty of offering bribes to former public officials and persons related to public officials are subject to the following:

  • Up to 10 years’ imprisonment
  • Criminal fine

A bribe recipient who is a former public official or related to a public official and uses such relationship or influence to receive bribes is subject to the following:

  • Up to 15 years’ imprisonment
  • Confiscation of property or criminal fine

(b) For the company / legal entity involved

Companies that offer bribes to public officials or persons related to public officials, as well as the responsible persons who are directly in charge of those companies and directly responsible for such offenses, are subject to the following:

  • Criminal fine levied on the company
  • Up to five years’ imprisonment and a criminal fine for the responsible persons for offering bribes to public officials
  • Up to three years’ imprisonment and a criminal fine for the responsible persons for offering bribes to former public officials or persons related to public officials

1.5      Political contributions

There is no direct equivalent of the concept of “political contribution” under the Criminal Code.

1.6      Limitation applicable to hospitality expenses (gifts, travel, meals, entertainment, among others)

While the Criminal Code does not establish quantitative nor qualitative limitations on hospitality expenses, there is a threshold amount for the prosecution of official bribery, as follows: RMB 30,000 for individual bribe-givers; RMB 200,000 for corporate bribe- givers; and RMB 30,000 for bribe-recipients. However, within the PRC central government, there is an internal regulation issued in 1995 applicable to public officials of central party and government organs, which provides reference for the limitation of gifts, as follows:

(a) Public officials shall hand over the gift to the government if the value of the gift exceeds RMB 200 per person per occasion.

(b) If the cumulative value of all the gifts received by the public officials exceed RMB 600 per person per year, the public official shall hand over such gifts to the government.

In other words, if a person or company provides to a public official of central party and government organs a gift or gifts the total value of which exceed the limitations set out as above, the gift(s) may be considered “in violation of state regulations” according to the 1995 internal regulation.

From our experience, due to inflation, RMB 200 is no longer considered a sizable gift in the PRC. As a result, the 1995 internal regulation mentioned above has only been loosely followed. Whether a hospitality expense can be considered as bribery will need to be determined on a case-by-case basis, taking into account all the facts and circumstances surrounding the case, and applying 1.6(a) and 1.6(b) referred to above. In practice, most multinationals in China adopt a threshold amount of around RMB 200 to RMB 500 (approximately USD 30 to USD 73) for courtesy gifts or entertainment by meal, per occasion, per person. Many companies also provide for a frequency limit; for example, no gifts can be given to the same person over three to four times per year. Some industry associations have set up benchmarking rules on gifts, meals and entertainment, for consideration by the members to level the playing field.

2.      Domestic bribery (private to private)

2.1      Legal framework

Private bribery is regulated by the Criminal Code and the PRC Anti- Unfair Competition Law (AUCL).

2.2      Definition of private bribery

Under Article 164 of the Criminal Code, “private bribery” means giving money or property to any employee of a company, enterprise or other entity for the purpose of seeking improper interests and benefits.

Under Article 8 of the AUCL, “private bribery” means giving money or property, or secret and off-the-book kickbacks to a business counterparty or its employee, or using other means to bribe a business counterparty or its employee for selling or purchasing goods. The Interim Provisions on Prohibition of Commercial Bribery also describe the forms of private bribery under the AUCL, which include any money or property provided to the business counterparty or its employee for promotion, publicity, sponsorship, scientific research, labor, consultancy, commission, reimbursement, or any other benefits such as trips or visits.

2.3      Consequences of private bribery

2.3.1      Under PRC Criminal Law

The Criminal Code establishes the penalties for the individuals and the company/legal entities committing private bribery when the amount of the bribe is relatively large. The penalties are as follows:

(a) For the individuals involved

  • Up to 10 years’ imprisonment
  • Criminal fine

(b) For the company / legal entity involved

  • Criminal fine for the legal entity
  • Up to 10 years’ imprisonment and a criminal fine for persons who are directly in charge and other persons who are directly responsible for the offense.

2.3.2      Under the AUCL

The AUCL establishes administrative penalties for business operators committing private bribery in circumstances where the violations have not constituted criminal offences. The penalties are as follows:

  • Administrative fine up to RMB 200,000
  • Confiscation of illegal gains

2.4       Limitation applicable to hospitality expenses (gifts, travel, meals, entertainment, among others)

While the Criminal Code does not establish quantitative nor qualitative limitations on hospitality expenses, there is a threshold amount for the prosecution of private bribery, as follows: RMB 60,000 for individual bribe-givers; RMB 200,000 for corporate bribe- givers; and RMB 60,000 for bribe-recipients.

Whether a hospitality expense could be considered as private bribery will need to be determined on a case-by-case basis, taking into account all the facts and circumstances surrounding the case, and applying 1.6(a) and 1.6(b) referred to above.

In the healthcare sector, a donation could be considered as private bribery if it is provided in an inappropriate way for purchasing or selling goods. The Administrative Measures on Accepting Donations for Public Welfare by Healthcare Entities (for Trial Implementation) (the “New Donation Rules”) promulgated in 2015 provide specific guidance on donations to healthcare and family planning entities for the non-profit purpose of public welfare such as training, academic or research. The New Donation Rules prohibit donations to these entities if used for any illegal or commercial purpose, or as commercial bribery or an incentive to purchase the goods.

3.      Corruption of foreign public officials

3.1      Legal framework

Corruption of foreign public officials is regulated under the Criminal Code.

3.2      Definition of corruption of foreign public officials

Under Article 164 of the Criminal Code, “corruption of foreign public officials” means the giving of money or property to foreign government functionary or officials of international public organizations for the purpose of seeking improper commercial interests.

3.3      Definition of foreign public official

For the purpose of this offence, “foreign public official” means any of the following:

  • A foreign government functionary
  • An official of an international public organization.

3.4     Consequences of corruption of foreign public officials

(a) For the individuals involved

  • Up to 10 years’ imprisonment
  • Criminal fine

(b) For the legal entity

  • Criminal fine for the legal entity
  • Up to 10 years’ imprisonment and criminal fine for persons who are directly in charge and other persons who are directly responsible for the offense

3.5     Limitation applicable to hospitality expenses (gifts, travel, meals, entertainment, among others)

While the Criminal Code does not establish quantitative nor qualitative limitations on hospitality expenses, there is a threshold amount for the prosecution of offering bribes to foreign public officials, as follows: RMB 10,000 for individual bribe-givers; and RMB 200,000 for corporate bribe-givers.

Whether a hospitality expense could be considered bribery will need to be determined on a case-by-case basis, taking into account all the facts and circumstances surrounding the case, and applying 1.6(a) and 1.6(b) referred to above.

4.      Facilitation payments

There is no direct equivalent of the concept of “facilitation payments” under the Criminal Code. Facilitation payments may be considered a bribe.

5.      Compliance programs

5.1     Value of a compliance program to mitigate/eliminate the criminal liability for legal entities

The Criminal Code and the AUCL do not specifically recognize a compliance program as an instrument to mitigate or eliminate liability for legal entities. However, if a legal entity can prove that it had exercised due control over its employees by means of a compliance program or by any other means, a company can seek leniency or mitigate the risk of liability arising from the corrupt behavior of its employees.

5.2     Absence of a compliance program as a crime

The Criminal Code and the AUCL do not recognize the absence of having a compliance program as a criminal or administrative offense.

5.3     Elements of compliance program

(a) Legal framework

The Criminal Code and the AUCL do not recognize or regulate the elements of a compliance program.

(b) Recommended practice

While having a compliance program does not offer a legal defence for the offense of bribery, it is recommended that legal entities adopt a robust compliance program to prevent internal corruption and bribery. It is also useful to draw a clear line between the legal entities’ liability and the employees’ individual liability in order to mitigate the potential legal risks of the legal entity.

6. Regulator with jurisdiction to prosecute corruption

The Public Security Bureau (PSB) has jurisdiction to investigate bribery related to non-public officials. The Procuratorate has jurisdiction to investigate and prosecute bribery related to public officials or private bribery. The Administration for Industry and Commerce has the power to investigate and sanction companies for private bribery.


Baker McKenzie
14th Floor, Hutchison House
10 Harcourt Road, Central Hong Kong,
SAR China

Mini vandePol

Mini vandePol is the chair of the Firm’s Global Compliance & Investigations Group. Based in Hong Kong and with more than 26 years’ experience, Mini is the trusted advisor of the board, legal, executive and operational personnel of the Firm’s most significant global clients, assisting them to establish and enhance their risk management programs and credibly investigate transgressions to support a strong commitment to a culture of compliance. Mini leads a global team of 900+ compliance and investigation team members, and her work engagements focus on anti- bribery and corruption investigations and risk mitigation in China, India and other parts of Asia in a variety of industries including the ITC and healthcare sectors. Mini has regularly appeared before enforcement bodies in Asia and also the US Department of Justice and SEC in relation to corruption investigations. Moreover, as part of her global outreach activities, Mini is the co-chair of the B20 Anti-Corruption Taskforce..

mini.vandepol@bakermckenzie.com

Tel: +852 2846 2562

Baker McKenzie
Unit 1601, Jin Mao Tower 88 Century Avenue,
Pudong Shanghai 200121,
PRC China

Simon Hui

Simon Hui leads the Firm’s Compliance & Investigations team in Shanghai. With more than 20 years of practice experience, his key practice areas include compliance, regulatory and commercial dispute resolution. Simon has in-depth experience in handling compliance/regulatory matters, including anti-bribery/anti-corruption and unfair competition issues. He has conducted complex internal investigations for various multinational companies across a range of industries, including pharmaceutical, life science, automotive, outsourcing and media. Simon has strong on-the- ground experience engaging with China regulators, including the local and state Administration for Industry and Commerce (AIC), the Ministry of Commerce and the People’s Procuratorate Office. He has also performed due diligence/risk assessment and provided training to multinational companies, focusing on anti-bribery/anti-corruption as well as anti-trust issues. Simon is admitted to practice in Hong Kong and in England & Wales. He speaks fluent English, Mandarin and Cantonese..

simon.hui@bakermckenzie.com

Tel: +86 21 6105 5996

Baker & McKenzie LLP – Beijing Representative Office
Suite 3401,
China World Office 2 China World Trade Center
1 Jianguomenwai Dajie Beijing 100004,
PRC China

Vivian Wu

Vivian Wu leads the Firm’s Compliance & Investigations team in Beijing, and her practice focuses on corporate regulatory and compliance matters, such as anti-corruption, anti-trust and environment. She has extensive experience in compliance investigations, risk assessment and compliance training. Vivian regularly assists multinational companies and has represented clients in external investigations initiated by Chinese regulators such as the National Development and Reform Commission (NDRC), local and state AICs, and the Food and Drug Administration. Vivian was seconded to the Firm’s Washington DC office in 2014, where she worked closely with the Firm’s North American Compliance and Investigations Practice Group on FCPA cases. She is qualified to practice in China and in New York. She speaks fluent English and Mandarin.

vivian.wu@bakermckenzie.com

Tel: +86 10 6535 3860