China Amends Its Bribery Laws On August 29, 2015, the Standing Committee of the National People’s Congress of China passed the ninth set of amendments to the country’s Criminal Law (“Amendment IX”), which will come into force on November 1, 2015.1 Amendment IX makes significant changes to the existing Criminal Law, including with regard to bribery (encompassing commercial bribery,2 bribery of a state functionary,3 and bribery of an organization,4 both in terms of bribe payers and bribe takers). As detailed below, Amendment IX appears to equalize the treatment of bribe payers and bribe takers, potentially signaling a future shift in the focus of the current anticorruption campaign, which has largely focused on bribe takers. Amendment IX explicitly criminalizes the giving of bribes to close relatives of state functionaries.5 It also narrows the circumstances under which a bribe payer can seek leniency.6 With regard to both bribe takers and bribe payers, Amendment IX expands the availability of criminal fines, which can be imposed concurrently with imprisonment on individuals.7 Amendment IX also moves towards equalizing prohibitions and (in most cases) penalties for bribe payers and bribe takers.8 Continued on page 15 1. National People’s Congress of China, “Amendment to the Criminal Law of the People’s Republic of China (IX)” [in Chinese: Zhong Hua Ren Min Gong He Guo Xing Fa Xiu Zheng An (Jiu)], XinhuaNet (Aug. 30, 2015), http://news.xinhuanet.com/legal/2015-08/30/c_1116414724. htm?t=123. Unofficial draft translation available at Westlaw China, http://app.westlawchina.com/maf/china/app/document?&src=nr&doc guid=i000000000000014e6674ca111002816e&lang=en (unless otherwise indicated, quoted language from Amendment IX is derived from this translation). Criminal Law of the People’s Republic of China as amended by Amendment IX is hereinafter referred to as “Criminal Law as Amended by Amendment IX.” 2. “Criminal Law of the People’s Republic of China” [in Chinese, Zhong Hua Ren Min Gong He Guo Xing Fa] (“Criminal Law before Amendment IX”), Arts. 163 and 164, criminalizing the paying or taking of a bribe to or by an employee of a company or an organization who does not qualify as a state functionary. A “state functionary” is defined as any person who performs public service in a state organ, including any person who performs public service in a state-owned company, enterprise, institution or a people’s organization, or who is assigned by such entities to a non-state-owned company, enterprise or institution to perform public service according to law. See Criminal Law before Amendment IX, Art. 93. 3. Criminal Law before Amendment IX, Arts. 382, 383, 385, 386, 389 and 390, criminalizing official bribery, i.e., the paying or taking of a bribe to or by a state functionary. 4. Criminal Law before Amendment IX, Arts. 387 and 393, criminalizing bribery of an organization, i.e., the paying or taking of a bribe to or by an organization. 5. Amendment IX § 46. 6. Amendment IX § 45(2). 7. Amendment IX §§ 10, 44-49. 8. It remains the case, however, that only state functionaries who take bribes are eligible for the most severe penalties for bribery, including the death penalty. See Amendment IX § 44, expanding the possibility of capital punishment for state functionaries who accept “especially huge” bribes causing “especially serious loss to the interests of the state.” www.debevoise.com FCPA Update 15 September 2015 Volume 7 Number 2 In particular, Amendment IX broadens the language relating to penalties for state functionaries who accept bribes, replacing the monetary thresholds used to define severity for sentencing standards with a set of more general criteria, roughly parallel to the pre-existing language for bribe payers.9 The new and vaguer language grants courts and prosecutors greater discretion, which may lead to more severe punishment, especially in cases involving smaller bribes. Bribing Relatives of State Functionaries Amendment IX adds a new Article 390(a) to the Criminal Law. The amendment provides that if any person, “for the purpose of securing illegitimate benefit, offers bribes to any of the close relatives of a state functionary or other persons closely related to a state functionary,” or any ex-state functionary, or any of the close relatives of or other persons closely related to an ex-state functionary, the person commits a crime of bribery.10 Article 390(a) does not expressly require a link between the illegitimate benefit and the state functionary/ex-state functionary’s duties, but such a link is likely to be considered by a court, as is common in the context of commercial bribery.11 The penalties for the offense include criminal fines, detention or imprisonment, as determined by the severity of the crime, qualified as “serious”12 or “especially serious”13 cases, or by the loss caused to state interests, whether a “heavy loss” or an “especially heavy loss.”14 As with other bribery offenses under the Criminal Law, corporate entities or other organizations can also be indicted for committing this crime.15 Punishment for Continued on page 16 China Amends Its Bribery Laws Continued from page 14 9. Compare Amendment IX § 44 with Criminal Law before Amendment IX, Art. 390(1). 10. Amendment IX § 46. 11. See, e.g., “Opinion 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” (effective on Nov. 20, 2008), Art. 10, which states: “[b]ribery and donation shall be differentiated when handling criminal cases of commercial bribery. The following factors shall be mainly taken into consideration to make overall analysis and comprehensive judgment: . . . ; (3) the cause, time and manner of money or property transaction, whether the person offering money or property has brought forward official request towards the recipient or not; (4) whether the recipient secures benefits for the provider by taking advantage of his position or not.” 12. “Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate on Certain Issues Concerning Detailed Application of Law in Handling Criminal Cases Involving Bribery” (“Bribery Interpretation,” effective on Jan. 1, 2013), Art. 2, defining a “serious” case as involving a bribe amount of (i) RMB 200,000 up to RMB 1,000,000, or (ii) at least RMB 100, 000 and with other serious circumstances (e.g., bribes are offered to several persons, or they involve officials governing food, drugs, work safety or environment protection issues). 13. See Bribery Interpretation, Art. 4, defining an “especially serious” case as involving a bribe amount of (i) not less than RMB 1,000,000, (ii) at least RMB 500,000 and with other serious circumstances, or (iii) at least RMB 500,000 and a direct economic loss of not less than RMB 5,000,000. 14. See Bribery Interpretation, Art. 3, defining “heavy losses to the interests of the State” to be a direct economic loss of not less than RMB 1,000,000. 15. Amendment IX § 46(2). This situation often occurs in the context of undisclosed rebates, which are specifically mentioned in Articles 387 and 393 of the Criminal Law. www.debevoise.com FCPA Update 16 September 2015 Volume 7 Number 2 organizations convicted of bribery consists of fines and punishment of responsible individuals, including the employees who paid the bribes and their supervisors.16 The addition of a new crime of bribing a relative of state functionaries addresses the disparity in pre-existing Chinese law under which bribe takers were often punished more severely than bribe payers. The 2009 amendments to the Criminal Law prohibited the taking of bribes by state functionaries’ close relatives or relations. Amendment IX extends roughly parallel penalties17 to those who bribe the relatives of state functionaries. Qualifications for a Bribe Payer Seeking Leniency Under the existing Criminal Law, if a bribe payer voluntarily confesses their crime before being prosecuted, he or she could be fully exempted from punishment or receive mitigated penalties.18 Amendment IX narrows the circumstances in which such leniency is available. Now, a bribe payer must not only voluntarily confess, he or she must also demonstrate at least one of the following in order to receive leniency: (i) that the offense was relatively minor, (ii) that the bribe payer has played a key role in leading to a successful investigation of a major case, or (iii) that the bribe payer has otherwise “performed significant meritorious service” in the case investigation.19 China Amends Its Bribery Laws Continued from page 15 Continued on page 17 16. Amendment IX § 46(2). 17. Comparing Criminal Law before Amendment IX, Art. 388(2) and Amendment IX § 46, both a bribe taker and a bribe payer in cases of bribing relatives will be punished according to a three-tier sentencing standard, i.e., (i) in normal cases, criminal detention or imprisonment for up to 3 years, plus fines, (ii) in relatively serious cases, imprisonment for 3 to 7 years, plus fines, or (iii) in especially serious cases, imprisonment for more than 7 years (for bribe takers) /more than 7 years but not exceeding 10 (for bribe payers), plus fines. 18. Criminal Law before Amendment IX, Art. 390(2). 19. Amendment IX § 45. “Under the existing Criminal Law, if a bribe payer voluntarily confesses their crime before being prosecuted, he or she could be fully exempted from punishment or receive mitigated penalties. Amendment IX narrows the circumstances in which such leniency is available.” www.debevoise.com FCPA Update 17 September 2015 Volume 7 Number 2 More Flexible Sentencing Standards for State Functionaries Taking Bribes Before the enactment of Amendment IX, statutory penalties for a state functionary who accepted bribes were determined by monetary thresholds.20 These monetary thresholds, which were first adopted in 1988,21 are considered to be outdated and unsuitable for the current anti-bribery drive in China.22 Amendment IX abandons the monetary thresholds, and provides for criteria using more general descriptions to determine the statutory penalty for taking bribes. These are based on the size of the bribe, whether “relatively large,” “huge,” or “especially huge,” or the circumstance of the crime, whether “relatively serious,” “serious,” or “especially serious,” or the loss caused to state and public interest as the result of the bribery, including whether it is “especially heavy.”23 Although vague, these descriptions are roughly parallel to the language used in the statutory penalties set forth for those who bribe state functionaries, namely the circumstances and the extent of the loss of state interests.24 Moreover, Amendment IX increases the potential statutory sentencing range for accepting bribes, especially in cases involving small bribes.25 The statutory ceiling in less serious cases is raised from China Amends Its Bribery Laws Continued from page 16 Continued on page 18 20. Criminal Law before Amendment IX, Art. 383. 21. “Supplementary Provision of the Standing Committee of the National People’s Congress Concerning the Punishment of the Crimes of Embezzlement and Bribery” (effective on Jan. 21, 1988) § 2. 22. National People’s Congress of China, “Explanation of Amendment to People’s Republic of China (IX) (Draft)” [in Chinese: Zhong Hua Ren Min Gong He Guo Xing Fa Xiu Zheng An (Jiu) (Cao’an) De Shuo Ming], npc.gov.cn (Nov. 3, 2014), http://www.npc.gov.cn/npc/lfzt/rlys/2014-11/03/ content_1885123.htm. 23. Amendment IX § 44. 24. Criminal Law before Amendment IX, Art. 390(1). 25. Amendment IX § 44. www.debevoise.com FCPA Update 18 September 2015 Volume 7 Number 2 two years to three years of imprisonment.26 In general, Amendment IX will give prosecutors and local courts greater discretion, which also serves the national goal of strengthening the enforcement of anti-bribery laws. Additional Monetary Fines Applicable to Individuals Amendment IX also broadens the range of situations in which monetary fines are likely to be imposed. Prior to Amendment IX, individual offenders would rarely face monetary fines. For example, while an organization could be fined for bribery, the law did not previously provide for such fines for senior managers or other responsible employees.27 Prior to Amendment IX, only the following individual non-functionaries could be fined: (i) individuals who paid “huge” commercial bribes,28 (ii) individuals who paid “huge” bribes to foreign officials,29 and (iii) close relatives of state functionaries taking bribes in “serious circumstances” China Amends Its Bribery Laws Continued from page 17 Continued on page 19 26. Id. Table I and Table II below compare the detailed sentencing standards set forth in Article 383 before and after Amendment IX. Table I - Sentencing Standards Prior to Amendment IX Monetary Thresholds (N: bribe value) Penalties N < RMB 5, 000 – Criminal detention or imprisonment for up to 2 years; or – In “minor” cases, no criminal penalties. RMB 5,000 ≤ N < RMB 50, 000 – Imprisonment for not less than 1 year but not exceeding 7 years; or – In “serious” cases, imprisonment for not less than 7 year but not exceeding 10 years; or – If the bribe value is between RMB 5,000 to RMB 10, 000 and the bribe taker has a good attitude, the bribe taker may be exempted from criminal penalties or receive a mitigated punishment. RMB 50,000 ≤ N < RMB 100, 000 – Imprisonment for not less than 5 years, possibly plus confiscation of property; or – In “especially serious” cases, life imprisonment plus confiscation of property. RMB 100,000 ≤ N – Imprisonment of not less than 10 years or life sentence, possibly plus confiscation of property; or – In “especially serious” cases, death penalty plus confiscation of property. Table II - Sentencing Standards After Amendment IX Criteria Penalties A “relatively large” amount or “relatively serious” circumstances – Criminal detention or imprisonment for up to 3 years, plus a fine. A “huge” amount or “serious” circumstances – Imprisonment for not less than 3 years but not exceeding 10 years, plus a fine or confiscation of property. A “especially huge” amount or “especially serious” circumstances – Imprisonment for not less than 10 years or life imprisonment, plus a fine or confiscation of property; A “especially huge” amount and “serious loss to the state and the people’s interest” – Life imprisonment or death penalty, plus confiscation of property. 27. Criminal Law before Amendment IX, Arts. 391 and 393. 28. Id., Art. 164(1). 29. Id., Art. 164(2). www.debevoise.com FCPA Update 19 September 2015 Volume 7 Number 2 or in “relatively large” amount.30 Once Amendment IX comes into effect, any bribe payer or bribe taker is subject to a fine (whether for commercial bribery or public bribery),31 as are individuals who introduce to a state functionary an opportunity to receive a bribe equal to or greater than RMB 20,000.32 Monetary fines are also extended to persons in charge of or directly responsible for an organization’s bribery, a form of vicarious liability for employees directly responsible for a bribe as well as their superiors for the organizations’ violation of the Criminal Law.33 The Criminal Law and relevant judicial opinions grant local courts and prosecutors great discretion in determining the amounts of fines.34 Conclusion In enacting these additional reforms, the Chinese government has signaled the possibility of enhanced risks for companies and individuals operating in the Chinese market. While the U.S. Department of Justice’s and Securities and Exchange Commission’s dockets continue to reflect a disproportionate share of FCPA cases with a China connection, these changes in Chinese law warrant careful review and, potentially, increased attention to anti-bribery compliance by multinational firms.