New Rules Offer Greater Protection and Incentives to Whistleblowers in China

Compliance & Investigations Beijing/Hong Kong/Shanghai Client Alert New Rules Offer Greater Protection and Incentives to Whistleblowers in China Recent developments On 30 March 2016, the Supreme People’s Procuratorate (“SPP”), Ministry of Public Security and Ministry of Finance released Several Provisions on Protecting and Rewarding Whistleblowers for Reporting Duty Crimes (“New Regulations”) offering greater protection and incentives to the whistleblower. This is likely to encourage more whistleblower reports and further strengthen the government’s efforts to crackdown on corruption involving government officials. What’s new? The New Regulations aim to protect whistleblowers providing tips about state working personnel committing crimes such as corruption, official bribery, embezzlement and malfeasance. The New Regulations provide increased protective measures to whistleblowers: • Greater confidentiality - A comprehensive set of confidentiality protection measures to protect whistleblowers through the whole process of handling whistleblower reports, as well as rewarding the whistleblower. • Retaliation more broadly defined - The definition of retaliation has been extended to cover not only threats to the safety or property of the whistleblowers and their close relatives but also other covert measures such as terminating employment, demotion or withholding approval of applications without proper justification. • Increased safety and protection of assets - The protection of whistleblowers and their close relatives has been enhanced, including protecting their safety and property, proposing rectification measures to authorities and coordinating with relevant authorities for assistance or subsidies. The New Regulations, jointly issued by the Ministry of Public Security and the Ministry of Finance, also indicate that the local police will play an important role in protecting whistleblowers and their close relatives, and that rewards to whistleblowers will be supported by government funding. Recap of whistleblowing regime PRC Constitutional Law grants Chinese citizens the right to report misconduct by government officials and provides protection against April 2016 www.bakermckenzie.com Beijing Suite 3401, China World Office 2 China World Trade Centre 1 Jianguomenwai Dajie Beijing 100004, PRC Tel: +86 10 6535 3800 Fax: +86 10 6505 2309 Hong Kong 14th Floor, Hutchison House 10 Harcourt Road Central, Hong Kong Tel: +852 2846 1888 Fax: +852 2845 0476 Shanghai Unit 1601, Jin Mao Tower 88 Century Avenue, Pudong Shanghai 200121, PRC Tel: +86 21 6105 8558 Fax: +86 21 5047 0020 2 Baker & McKenzie | April 2016 retaliation. Other PRC laws and regulations provide more details on the incentives, protection mechanisms and reporting channels for whistleblowers: 1. Whistleblowers are incentivized by the potential to earn social honors and monetary rewards of up to RMB 200,000, and between RMB 200,000 to RMB 500,000 for significant contributions. With SPP’s approval, rewards can be unlimited for “extraordinarily significant contributions”. 2. Whistleblowers are protected under the retaliation provisions of the Criminal Law which provide that a government official that retaliates against the whistleblower can be subject to a fixed-term imprisonment of up to seven years. 3. To facilitate and encourage reporting, the government has set up various whistleblowing channels. The Central Commission for Discipline Inspection (“CCDI”) launched an official website in 2013 for whistleblowers to report government corruption and other wrongdoings. In 2015 and 2016, the CCDI created a mobile phone application and a social media account on “WeChat” as additional platforms to encourage reporting. 4. In relation to economic crimes, including commercial bribery, public security bureaus may award monetary rewards between RMB 500 to RMB 50,000 to whistleblowers. For reports involving commercial bribery activities, some local administration for industry and commerce authorities may grant monetary rewards ranging from RMB 300 to RMB 300,000. 5. PRC Labor laws also specifically prohibit retaliation against whistleblowers. The Regulation on Labor Security Inspection provides that an employer who retaliates against whistleblowers should correct its wrongdoings and can be subject to administrative penalties or even criminal penalties. Actions to consider Although the New Regulations target Chinese officials, multinational companies (“MNCs”) doing business in China need to be vigilant given the current enforcement climate. MNCs can still be implicated in whistleblower complaints alleging that the MNC is involved in a bribery scheme. This may attract an investigation by Chinese authorities or the attention of foreign enforcement bodies such as the US Department of Justice, SEC or the UK’s Serious Fraud Office. The release of the New Regulations is a timely reminder for businesses to assess and improve their internal policies and compliance efforts. An effective compliance program and a sound compliance culture are key to preventing corporate officers, employees, and third-party agents from engaging in illegal practices such as bribery, collusion and fraud. For a compliance program to function and be successfully implemented, employees must feel empowered to ask questions and report problems with confidence that the company will investigate their complaints and take decisive action where required. We recommend the following steps: • Establish comprehensive and effective whistleblower and nonretaliation policies and ensure they are well understood by PRC employees and third parties engaged by the business. April 2016 | Baker & McKenzie 3 • Conduct thorough, credible and where possible, independent investigations of significant whistleblower complaints and remediate business practices as necessary. • Devise and implement protocols for swiftly and comprehensively responding to PRC regulatory investigations or dawn raids. • Seek legal advice on employment policies and before taking disciplinary or termination action resulting from whistleblower allegations to ensure that you do not violate China’s laws and regulations or expose yourself to employee litigation. Conclusion The New Regulations are a strong signal that whistleblowing continues to play an important role in the Chinese government’s anti-corruption campaign against government officials. Organizations doing business in China need to ensure that they are in a position to respond to and manage internal complaints swiftly and in a credible manner. In addition to compliance with Chinese laws, it is also imperative that compliance programs are aligned with standards laid down by global regimes (such as the US Foreign Corrupt Practices Act and the UK Bribery Act) as Chinese whistleblowers have been known to report complaints further afield1 if they feel aggrieved or believe that potential rewards are greater. 1. U.S. Securities and Exchange Commission 2015 Annual Report to Congress on the DoddFrank Whistleblower Program Should you wish to obtain further information or want to discuss any issues raised in this alert with us, please contact: Mini vandePol +852 2846 2562 [email protected] Simon Hui +86 21 6105 5996 [email protected] Vivian Wu +86 10 6535 3860 [email protected] This publication has been prepared for clients and professional associates of Baker & McKenzie. 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