China’s National People’s Congress (“NPC”) recently adopted the ninth amendment to the PRCCriminal Law (“CL”, latest revised and effective on February 25th, 2011), which will come into effect on November 1, 2015, “Amendment No. 9”.
Among others, the Amendment No. 9 further moves to fight against bribery. Below we have summarized the highlights relevant to compliance standards of multinational companies operating in China.
New offense – offering bribes to persons close to (ex) state functionaries
Normally but not always, bribery offenses come in pairs – an offense of offering bribes often corresponds to an offense of receiving bribes. However there are a few exemptions – e.g. for the act of receiving bribes by persons close to (ex) state functionaries, only the recipients have been punished in the past (section one of Art. 388 of the CL, the offense of taking bribes by taking advantage of influence).
The Amendment No. 9 now eliminates this exemption by adding a new offense, which is now also targeting the offerors.
Bribe recipients of the new offense are close relatives or other individuals close to an (ex) state functionary (as the definition of “close relatives” is not included in the CL, the definition of “close relatives” as used in Art.106 of the “Criminal Procedure Law of the People’s Republic of China (Revised in 2012)” may be used as a reference: “Close relative” in this regard means a person’s husband or wife, father, mother, son, daughter, and brother and sister born of the same parents).
In practise, “other individuals close to an (ex) state functionary” may become a “catch all” clause, if interpreted broadly.
Penalties include (1) up to 10 years imprisonment + fine (no cap) on natural persons; or plus (2) fine (no cap) on entities if an entity crime is concerned.
This new offense shows the determination of the NPC, Chinas highest legislation body, to crack down bribery also from a different perspective. Offering bribes used to be viewed as less serious or even “safer” compared to receiving bribes and so far the treatment of close relatives or other individuals close to an (ex) state functionary was not even a crime under the CL from the offerors perspective.
Mandatory fines for all individuals involved in corruption/bribery-related crimes
In the past monetary fines (up from RMB 1,000, no cap) were applicable to entities only in most of the cases. The Amendment No. 9 makes monetary fines now mandatory for all individual criminals (including individual offenders and responsible persons of entity offenders) under all bribery related offenses even in parallel to an imprisonment.
Plea of guilty in exchange for exemption? Hurdles will be set higher!
Under the current CL, there used to be a general principle that bribe offerors may confess in exchange for a milder punishment or even an exemption (Art. 390 of CL).
The Amendment No. 9 now clearly states that an exemption or a substantial reduction of penalties only applies to (i) unserious criminal acts; (ii) in case the disclosure has played a key role in the investigation of a major criminal case, or (iii) through the disclosure significant contributions to investigations of other cases have been made.
Such amendment therefore sets a much higher hurdle to a potential confessor, who can only make use of a plea of guilty against reduction or even exemption of penalty under any of the above circumstances. In practice this might also have impact to whistle-blowers who have been involved in criminal activities themselves. They might even more carefully consider potential actions as they cannot expect exemptions from punishment anymore in a wider sense as it was provided for by Art. 390 CL up to now.
Removal of specific monetary thresholds for embezzlement crimes
Under the current CL, criminal punishment for embezzlement by state functionaries has been linked to specific value thresholds (e.g. RMB 5,000, RMB 50,000, and RMB 100,000, see Art. 383 of CL).
The Amendment No. 9 now eliminates such specific values and replaced them by a more general description: “large value”, “huge value” and “extra-huge value”.
Through such revision a judicial interpretation of the law will become necessary; however, it’s also a way to keep the law more flexible and consistent with the economic/social development, which is in line with the general approach of Chinas legislation body. Otherwise, the fixed ranking of different levels of punishment will not work and most of the cases may end up in the most serious ranking simply by exceeding the RMB 100,000 threshold (see commentary published by NPC).
In practise the threshold for pursuing embezzlement (including thresholds for each category of punishment) may raise along with the development of the economy and society.
No parole for the most corrupt official
Based on the Amendment No. 9, state functionary criminals convicted on serious corruption charges (i.e. for embezzlement of “extra-huge values”) shall nevertheless serve life-time imprisonment and be deprived the possibility of a parole.
Under the Amendment No. 9, if a person has been sentenced for taking advantage of his or her position or has been violating specific obligations required by such position, the People’s Court may, according to the situation of the crime concerned and the necessity of preventing re-commitment of such crime, bar such person from engaging in all related professions/occupations for three to five years from the date of completion of the applicable criminal punishment or since the kick-off date of a parole.
The big challenge in this regard will be on how such ban is to be supervised in practice.
By pursuing bribe offerors regarding treatments of close relatives or other individuals close to an (ex) state functionary, imposing mandatory monetary fines, enhancing requirements for punishment exemption/reduction, eliminating the chances of a parole of certain serious criminals and imposing occupational bans, the Amendment No. 9 clearly reflects China’s determination to crack down corruption and bribery also from angles so far not seen in the CL.Businesses operating in China should be aware of the stricter regulatory regime coming in force at the beginning of November this year and the potential compliance risks, especially when dealing with third parties or seeking new business opportunities.
It is advisable to re-visit existing compliance policies against the Amendment No. 9 and train staff accordingly, so as to properly identify and mitigate relevant risks.