The State Administration for Industry and Commerce (“SAIC”) recently promulgated the Interim Measures for the Administration of the List of Dishonest Enterprises Committing Serious Illegal Activities (“the Interim Measures”) which will take effect on April 1, 2016. Enterprises which commit certain illegal activities, including commercial bribery offences, can be added to a blacklist published in the Enterprise Credit Information Publicity System provided by the SAIC (“Blacklist”).
This is an important development as companies on the Blacklist can be sanctioned to operational and licensing restrictions which can severely restrict their business operations. Our alert will discuss the key features of the Interim Measures and implications on companies doing business in the PRC.
Implications for Enterprises
The Interim Measures apply to all companies registered in the PRC, including state-owned-enterprises, private companies and foreign-invested-enterprises. One of the key implications of the Interim Measures is that repeat offenders can be subject to specific business sanctions. Blacklisted companies which repeatedly violate an administrative law may be subject to joint sanctions imposed by multiple government authorities, in addition to the penalties provided in the administrative law. Such sanctions may include, among other things, restrictions or prohibitions in relation to business operations, investment and financing, acquisition of lands, import and export, market entry and exit, registration of new companies, project bidding, government procurement, and safety and production licensing.
The Interim Measures also bolster the government’s continuing anti-corruption crackdown by sanctioning repeat offenders of commercial bribery. Commercial bribery may occur if an enterprise illegally offers money, property, or secret rebate, kickback or commission to its counterpart or middleman for selling or purchasing products, as set out in the Anti-Unfair Competition Law (“AUCL”). A blacklisted company may receive additional sanctions under the Interim Measures for repeated violations, even if the violations had not resulted in significant administrative penalties under the AUCL, e.g. where the bribe amount was relatively small.
Key Features of the Interim Measures
1. Enterprises which commit illegal activities falling within the scope of ten “serious illegal activities” can be added to the Blacklist. Such activities include companies which:
a. have been subject to administrative sanctions on three or more occasions within two years for offences under the AUCL, including commercial bribery;
b. registration has been revoked due to previously obtaining a modified registration or deregistration by submitting false materials or by other fraudulent means in concealment of material facts;
c. planned or conducted a pyramid scheme, or are subject to administrative sanctions on three or more occasions within two years for aiding a pyramid scheme;
d. have been subject to administrative sanctions on three or more occasions within two years for publication of false advertisements, or caused physical injury or highly adverse social impact due to the publication of false advertisements;
e. have been subject to administrative sanctions on two or more occasions within five years due to trademark infringement;
f. have violated other laws, administrative regulations and department rules promulgated by the SAIC.
2. The Administration for Industry and Commerce (“AIC”) may share the Blacklist with other government authorities such as the Ministry of Commerce, National Development and Reform Commission, State Food and Drug Administration and Ministry of Justice. Joint sanctions may be imposed by the other government authorities depending upon the situation.
3. Companies in the Blacklist will be subject to specific supervision and administration by the AIC. A blacklisted enterprise will be reviewed every five years and removed from the Blacklist if it has not committed the applicable illegal activity within this five year period.
Actions to Consider
In view of the comprehensive application of the Interim Measures and the consequences of being blacklisted, we recommend that enterprises carefully review and supervise their daily business activities to ensure full compliance with industry and commerce administrative laws and regulations. Good corporate governance including a robust compliance program, continual monitoring, and regular compliance training for executives and relevant staff, continue to be of the utmost importance.
The promulgation of the Interim Measures is part of the PRC government’s reform measures to improve an organisation’s integrity and eradicate dishonest activities. This is enhanced by the ability to share the Blacklist across various government authorities. In combination with existing regulations such as the Memorandum of Collaborative Supervision and Joint Sanction on Dishonest Enterprises, the Interim Regulation on Enterprise Information Disclosure and the Interim Measure for the Administration of List of Enterprises with Abnormal Business Operations, the Interim Measures significantly strengthen the government’s ability to penalize repeat offenders. We will be keeping a close watch on how the Interim Measures will be applied to specific cases after it takes effect on April 1, 2016.