China’s most recent amendment to its Criminal Law updates the sentencing framework for non-state functionaries charged with corruption. Under the current framework, non-state functionaries are subject to lighter sentences than state-functionaries for corrupt acts. The amendment addresses this imbalance and aims to render greater protection to the private sector.

On December 26, 2020, China’s National People’s Congress ("NPC") promulgated the Eleventh Amendment to China’s Criminal Law (the "Amendment"). The Amendment, which takes effect on March 1, 2021, increases penalties against non-state functionaries (i.e., those not engaged in public duties, as opposed to state-functionaries) for taking or soliciting bribes, embezzling company assets, and grafting company funds. Currently, the Criminal Law penalizes non-state functionaries less than state-functionaries for corrupt conduct. The Amendment updates the sentencing framework addressing this imbalance. This client alert discusses this updated sentencing framework and its effect on private companies operating in China.

Increased Penalties for Non-State Functionaries

Under the current framework, the Criminal Law sets two sentencing tiers for taking or soliciting bribes, embezzling company assets, and grafting company funds: "relatively large amount" and "huge amount." The Amendment creates a third, new sentencing tier for these offenses. As a result of this third, new sentencing tier, the Amendment increases the maximum criminal penalties for these offenses.

To illustrate, under the current framework, the maximum penalty for taking or soliciting bribes in a "huge amount" is more than five years imprisonment, plus confiscation of property if needed. The Amendment creates a third, new sentencing tier for taking or soliciting bribes in an "especially huge amount" or in situations that are "especially serious." This new sentencing tier increases the maximum penalty for taking or soliciting bribes to more than ten years imprisonment or life imprisonment, plus a fine. Similarly, the current maximum penalty for embezzlement of a "huge amount" is more than five years imprisonment, plus confiscation of property if needed. The Amendment creates a third, new tier for embezzling an "especially huge amount," and increases the maximum penalty for embezzlement to ten years imprisonment or life imprisonment, plus a fine. Finally, the current maximum penalty for graft is ten years imprisonment for misappropriation of a "huge amount" or a "relatively large amount without returning the funds." The Amendment creates a third, new tier for misappropriating an "especially huge amount," and increases the maximum penalty for graft to more than seven years in prison.

As mentioned above, particularly for the crime of taking or soliciting bribes, the Amendment introduces non-monetary considerations, i.e. "serious circumstances" or "especially serious circumstances," to the sentencing standards for non-state functionaries who take or solicit bribes.1 The current framework only considers whether the amount of the bribe involved is "relatively large" or "huge." Under the new framework, even if the amounts of the bribes involved do not meet the respective relevant monetary thresholds, if "serious circumstances" or "especially serious circumstances" exist, a non-state functionary would still be held criminally liable for the corresponding level of imprisonment and criminal fine. Thus, for crimes involving non-state functionaries who take or solicit bribes, the updated sentencing standards afford judges a degree of flexibility that was previously unavailable.

Current guidance from the Supreme People’s Court ("SPC") and the Supreme People’s Procuratorate ("SPP") provides monetary thresholds for the two sentencing tiers under the current framework.2 For instance, under the current regime, the threshold for "relatively large amount" and "huge amount" for non-state functionaries taking or soliciting bribes is RMB 60,000 (approximately USD 9,300) and RMB 1,000,000 (approximately USD 155,000), respectively. It is unclear whether the foregoing thresholds still apply to the Amendment or whether updated interpretations may be issued to establish the monetary thresholds under the Amendment’s updated framework.

Harshest Penalties Reserved for State-Functionaries

Despite this new sentencing framework for crimes of corruption involving non-state functionaries, state functionaries are still subject to the severest penalties for corrupt conduct. For instance, state-functionaries may be sentenced to death (for taking or soliciting bribes and embezzlement) or life imprisonment (for graft). State-functionaries are also held to lower monetary thresholds when compared to non-state functionaries for the same sentencing standard. According to the Interpretation, for a bribe to qualify as "relatively large" or "huge," a non-state functionary must take or solicit a bribe that is two times the amount taken by a state-functionary.3 Thus, while the Amendment constructs an anti-corruption framework for non-state functionaries more closely aligned with that for state-functionaries, differences remain.

Interpretive Gaps and Anticipated Guidance

The Amendment’s anti-corruption framework begets interpretive gaps that may require updated guidance from the SPC and the SPP. For example, the Amendment creates new sentencing standards for non-state functionaries without defining their constituent terms, i.e., "especially huge amount," "serious," and "especially serious." The Interpretation defines these terms for state functionaries, but not non-state functionaries, who engage in corrupt conduct. In addition, while the Interpretation prescribes monetary thresholds for corrupt conduct by state and non-state functionaries, these thresholds apply to an earlier version of the Criminal Law. Therefore, it is anticipated that the SPC and the SPP may issue updated guidance on the Amendment after it takes effect in March this year.

Takeaways for Companies

The Amendment updates China’s anti-corruption framework for non-state functionaries, making it more comparable to that for state functionaries. Private companies operating in China would be well served to incorporate this updated framework into their training materials. Doing so may dis-incentivize their employees from engaging in corrupt conduct. In addition to updating their training materials, companies can also take the following measures to guard against corruption in the workplace:

  • perform pre-employment background screening on candidates;
  • make explicit in employment contracts and handbooks that bribery and corruption in any form is cause for disciplinary action up to and including termination;
  • obtain regular certifications of compliance with anti-corruption law from key personnel; and
  • conduct risk-based due diligence of third parties and create mechanisms for dealing with conflicts of interest.