New NHFPC donation regulations
Permitted and prohibited donations
Procedural requirements
Notable provisions requiring further clarification
Compliance controls and monitoring regarding donations and grants


While travel and entertainment expenses have presented significant compliance challenges for life sciences companies operating in China, donations and grants can also pose notable risks. China's increased level of anti-corruption enforcement in recent years has been well publicised, and regulators have taken an interest in grants and donations in the life sciences sector. For example, in early 2015 the State Administration for Industry and Commerce (SAIC), which enforces commercial bribery regulations, published specific guidance on this issue for the pharmaceutical industry. More recently, the National Health and Family Planning Commission (NHFPC), China's healthcare services sector regulator, also enacted specific measures on donations for healthcare-related organisations. These trends suggest potential impending scrutiny from enforcement officials regarding grants and donations. As such, the matter may warrant additional attention from legal and compliance professionals in the life sciences sector.

New NHFPC donation regulations

On October 20 2015 the NHFPC published the Measures for Administering the Receipt of Public Welfare Donations by Health and Family Planning Organisations. Despite being announced in October, the measures became effective as of August 26 2015 and replaced the previous Interim Measures for the Administration of the Acceptance of Social Donations and Financial Aid by Healthcare and Health Institutions, which had been enacted in 2007.

The new measures apply to donations received by hospitals, healthcare institutions and other healthcare organisations (eg, medical associations, funds and charities) overseen by the NHFPC, regardless of whether the donations are made by domestic or foreign life sciences companies. The types of donation that are subject to the new measures include funds and tangible property, although they are not necessarily exclusive. In particular, the new measures provide detailed guidance on what donations are considered appropriate, partly by expressly listing acceptable purposes for donations and prohibited types of donation. Further, the new measures require that healthcare institutions establish appropriate controls and procedures regarding the acceptance of donations.

Although the new measures technically apply to health and family planning institutions and organisations receiving donations, the detailed guidelines may indirectly affect how life sciences companies provide donations to those organisations and institutions. In turn, foreign and domestic life sciences companies may want to ensure that their internal controls are consistent with the new measures.

Permitted and prohibited donations

Unlike the previous measures, the new measures expressly enumerate the types of donation that recipients are permitted to accept. These include donations relating to:

  • public healthcare education;
  • the training of healthcare professionals;
  • academic activities and research studies;
  • medical treatments; and
  • other non-profit programmes.

Simultaneously, the new measures expressly prohibit the acceptance of certain categories of donation, including donations that:

  • relate to profit-seeking commercial activities;
  • relate to the procurement or purchase of products or services;
  • involve a donor that has an interest in the economic benefits, IP rights, research results or industry data of the donation;
  • do not conform to laws and regulations; or
  • involve potential unfair competition and commercial bribery.

The prohibition against commercial bribery appears to create a link to the SAIC and local administrations for industry and commerce (AICs). As noted above, while the new measures directly apply to healthcare-related institutions, their list of expressly permitted and prohibited donations could potentially affect local AICs' interpretations in commercial bribery enforcement actions.(1)

Procedural requirements

The new measures establish certain procedural requirements for donations, many of which are extensions of the previous measures. For example, donations must still be documented via a written agreement, but the new measures expressly require that certain information be specified, such as:

  • the type, quantity, quality and value of the donated items;
  • the intention and purposes of the donation; and
  • any restrictions on the management and use of the donated items.

Further, the new measures provide clear requirements on making donations, including that:

  • monetary donations be made via bank transfers; and
  • donations in the form of tangible property (eg, products or equipment) undergo fair market valuation, preferably by a third-party appraiser.

The new measures also appear to expand the transparency requirement. A donation recipient must, on its website or via mainstream news media, publicise its written policies on accepting donations and disclose donations that it has accepted, including:

  • the nature of the donated item;
  • the value of the item; and
  • how the item is used.

Donation recipients must also report accepted donations in their annual financial statements, along with detailed explanations. Further, recipients must answer public inquiries about donations that they have accepted.

Notable provisions requiring further clarification

The new measures contain two provisions that are unclear, but may be particularly relevant to life sciences companies in China. The first is a requirement that donations for the training of healthcare professionals, academic activities or scientific research cannot designate the specific recipient or beneficiary. However, it is unclear whether the scope of this restriction includes:

  • company sponsorships of specific healthcare professionals to attend academic meetings or professional training; or
  • the sponsorship of a particular principal investigator in conducting certain medical studies or clinical trials.

The second requirement is an express ban on donations relating to 'profit-seeking commercial activities', which is not further defined. It is unclear whether this provision can be interpreted broadly to preclude donors from allowing display booths, spaces or other product promotion or marketing at an event.

Since their announcement, there has been little public information about enforcement actions pursuant to the new measures, so it remains to be seen how the NHFPC will interpret these provisions. Nonetheless, some local hospitals and NHFPC-regulated entities have publicly announced that they will update their donation policies to comply with the new measures.(2) For now, life sciences companies should pay close attention to further guidance or enforcement signals from the NHFPC and local AICs regarding donations and grants.

Compliance controls and monitoring regarding donations and grants

While the ultimate effect of the new measures is unclear, the underlying compliance risks nonetheless warrant attention. In recent years, pharmaceutical and medical devices companies have made significant efforts to enhance compliance controls and monitoring around travel and entertainment expenses. However, donations and grants are not devoid of Foreign Corrupt Practices Act risks and can present unique compliance challenges. The most significant of these risks stem from third-party involvement, which means limited control and transparency. In response, similar controls and monitoring should be introduced where third parties are involved, including the following.

Clear policies and protocols
While most companies' general anti-corruption and anti-bribery policies include provisions relating to donations and grants, special attention regarding these issues may be warranted. For example, shielding the involvement of sales and marketing functions from the company's internal decision-making process, particularly with respect to selecting recipients, can minimise potential quid pro quo considerations that may influence decisions (or the optics thereof). Companies may want to limit the extent to which they designate the eventual use of donated funds or items to particular healthcare professionals who would derive a benefit therefrom. Decisions on donations and grants often involve business considerations and clear protocols can ensure that those decisions are subject to compliance controls.

Due diligence on recipient and third-party intermediaries
Due diligence should focus on uncovering any government relationships and assessing the reputation and appropriateness of the recipient. Bribery risks can arise where a donation can be deemed to benefit indirectly a government official linked to the recipient organisation. For example, if due diligence uncovers that the recipient is an organisation established by an influential government official whose position or office is relevant to the company's business, the company may wish to balance the potential risks and take additional steps to assess the donation's appropriateness and implement enhanced compliance safeguards.

Further, recipients – such as hospitals, medical associations and charitable organisations – are not impervious to fraud and misappropriation, as exemplified in accusations against the Red Cross Society of China regarding donations to aid victims of the 2008 Sichuan earthquake.(3) There may be additional reputational risks associated with providing donations to a recipient that is linked with improprieties and accusations of misconduct.

Finally, employees might collude with a recipient or third-party intermediaries to engage in misconduct. Best practices would involve performing due diligence on any third-party intermediaries that are involved. It may also be worthwhile to understand the level of compliance controls employed by the intermediary to assess third-party compliance risks.

Appropriate terms and safeguards in donation, grant or sponsorships agreements
The new measures already require that written donation agreements establish detailed terms of the donation. Accordingly, compliance terms should also be included, such as:

  • appropriate anti-bribery representations and warranties;
  • a covenant from the recipient that the donated funds or items will be used only in accordance with the stipulated purpose and will not be reassigned or transferred;
  • an obligation to provide any required supporting documents and information to show how the funds are actually used; and
  • audit rights (to the extent practicable).

Further, it is not uncommon in China for donation or grant recipients to solicit suggestions informally from company employees on the use of funds, including any preferences on selecting healthcare professionals who may benefit from the donation, which can increase bribery risk. Hence, companies may also wish to stipulate clearly their detachment and independence from the use of the funds.

Post-donation monitoring and verifications
Similar to travel and entertainment expenses, securing supporting documentation and conducting follow-up verification are important steps towards detecting and deterring misappropriation and fraud in the context of donations and grants. Because third parties are involved, detailed supporting documentation and information tend to be more challenging to obtain. As noted above, companies may wish to establish controls and protocols for follow-up verifications and include contractual obligations for the recipient and intermediary to provide necessary supporting documentation and information in the written agreement.


Given the recent regulatory attention regarding donations and grants, particularly within China's heightened anti-bribery enforcement climate, compliance professionals in the life sciences sector may wish to pay particular attention to how donations and grants are being provided and enhance their compliance programmes, where needed, to reduce compliance risks relating to donations and grants.

For further information on this topic please contact Katherine Wang at Ropes & Gray LLP by telephone (+86 21 6157 5200) or email (k[email protected]). The Ropes & Gray LLP website can be accessed at


(1) Local AICs have yet to publish cases that are instructive to this point and it remains unclear how the new measures will influence their enforcement behaviour.

(2) On January 10 2016 Peking University People's Hospital implemented a local policy regarding administering the receipt of non-profit donations based on the new measures. Similarly, on February 18 2016 Chongqing Cancer Hospital implemented a local policy regarding administering the receipt of non-profit donations based on the new measures. On May 10 2016 Tianjin Health and Family Planning Commission announced on its website that local districts/counties and hospitals should follow the new measures.

(3) For further details please see here and here.