Asia Pacific | China criminalises foreign bribery

June 3, 2014

The amendment adds a paragraph to the pre-existing provision of the criminal law that “Whoever, for the purpose of seeking illegitimate commercial benefits, gives money or property to any foreign public official or official of an international public organization” shall be punished in the same manner as someone who bribes any Chinese public official. It appears that no affirmative defences or exemptions have been provided under the amendment, thus the penalties in violation of the amendment could be severe. An individual offender can be fined, or have other sanctions imposed, including a fixed prison term of up to ten years. If an entity is convicted of such a crime, the company may be fined, as well as punishing the individuals directly involved.

The jurisdiction of the amendment is quite broad. It applies to all Chinese citizens, wherever located; all individuals of any nationality within China; and all entities organised under Chinese law, which generally incudes Sino-foreign joint ventures, wholly foreign-owned enterprises and representative offices, in addition to domestic companies. While the impact of the amendment will not directly affect non-PRC(People’s Republic of China) companies, it can certainly reach these companies if they conduct business operations in China.

The primary criticism in respect of the amendment is that it is silent in many areas that have caused interpretative difficulties, such as whether employees of state-owned enterprises are regarded as “foreign public officials”, or which type of benefits offered are illegitimate, etc. Similar to other provisions provided under the criminal law, the ultimate effectiveness of the amendment will depend on interpretation and enforcement. It is necessary and critical for companies that conduct business in China to continue to monitor any updates related to the amendment.

The key terms used in the amendment are not defined within the criminal law; however, some interpretations issued by the Supreme People’s Court (SPC) and the Supreme People’s Procuratorate (SPP) for pre-existing provisions of the criminal law can be helpful references for the following definitions:

  • “Illegitimate benefits” have been defined as any advantage in terms of breaching laws, regulations, rules, policies, or industry codes of practice. The amendment narrows down illegitimate benefits to “illegitimate commercial benefits”. In a sense, this narrowed definition in the amendment may actually widen the scope of permissible activities in a foreign context. It is yet unclear what “commercial” actually means under this law.
  • “Money or property” has been accepted to include a broader concept of property whose value may be calculated in monetary terms, such as the provision of home decoration, membership cards with monetary value, token cards, and travel expenses.
  • “Public officials”, in the context of domestic bribery, can be referred to as any officials working in the government, state-owned enterprises, medical institutions, and education institutions.

In general, the significance of the terms above remains to be seen. Companies need to rely upon the pre-existing laws and definitions for guidance on how the amendment is to be interpreted.

Nearly all American companies that engage in international business recognise the importance of compliance with the Foreign Corrupt Practices Act(FCPA). There are some major differences between the amendment and the FCPA:

  • Firstly, the amendment does not contain an exception for “facilitating payments”. Given that Chinese companies have a large presence in developing countries, for example South Africa, where facilitating payments are often seen as necessary for conducting business, it is possible that China will have a higher tolerance on such payments.
  • Secondly, the amendment does not specify any exceptions regarding “reasonable and bona fide expenditures”; however, given the culture of hospitality prevalent in China, it is possible that modest payments for hospitality and gifts won’t be interpreted as seeking “illegitimate commercial benefits”.

The ultimate effectiveness of the amendment will depend on interpretation and enforcement, which adds a lot of uncertainties to foreign business. To date, there is no further interpretation released by any of the authorities regarding foreign bribery, nor any relevant enforcement action notified by the public.

The relevance for foreign companies operating in China is significant. It is common for foreign companies in China (whether wholly owned or joint ventures) to be operating outside of Chinese borders, either because products made in China are exported elsewhere or that the Chinese entity is acting as a regional hub for Asia. In both circumstances, it is possible that the amendment may reach to activities that the Chinese company does outside of China. Foreign companies registered in China that conduct business outside of China, by securing products or by exporting and selling products, should closely review their operations and ensure greater focus on anti-corruption compliance. This is an additional consideration now that the amendment exists and liability may arise – both at home and now in China – for foreign bribery.

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