In recent years, the market for commercial prepaid cards has been growing rapidly in China. There are two types of prepaid cards in China: vendor-specific cards (which can be used at only one store) and multi-purpose cards (essentially cashequivalent prepaid cards that can be used at a variety of vendors). Prepaid cards have provided considerable convenience to the public, and may even have stimulated consumption to a certain extent.1 However, they also give rise to the risk of corruption and bribery for two main reasons: first, without needing to be registered to a specific individual’s name, it is very difficult to trace to whom the prepaid cards have been given; and second, giving prepaid cards is a less blatant form of gift giving compared to giving cash, and therefore may be considered more acceptable to both the bribe giver and bribe receiver.2 The Chinese government has recently reinvigorated its efforts to regulate the issuance and circulation of such commercial prepaid cards.
In September 2012, the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) issued the Administrative Measures on Single- Purpose Commercial Prepaid Cards (Trial Implementation) (单用途商业预付卡管 理办法(试行)) (“MOFCOM Measures”),3 and the People’s Bank of China (“PBOC”) issued the Administrative Measures for Payment Institutions in relation to the Prepaid Cards Business (支付机构预付 卡业务管理办法) (“PBOC Measures”)4 (collectively, the “Measures”). The Measures both became effective on November 1, 2012. The new Measures are important for companies doing business in China. They provide a new legal framework for companies issuing cards and signal that the Chinese authorities (not limited to the PBOC and MOFCOM) are focused on cracking down on the potential abuse of prepaid cards.
The Measures implement the May 2011 Opinion on Regulating the Administration of Commercial Prepaid Cards (关于规范商 业预付卡管理的意见) (the “Opinion”),5 jointly issued by the PBOC, MOFCOM and five other central government authorities, namely: the Ministry of Supervision, the Ministry of Finance, the State Administration of Taxation, the State Administration for Industry and Commerce, and the National Bureau of Corruption Prevention.
The Opinion mandated that MOFCOM and PBOC regulate singlevendor and multi-purpose prepaid cards, respectively. The Opinion and the MOFCOM and PBOC Measures set forth three principles to regulate prepaid cards: (1) real name registration; (2) restrictions on cash purchase; and (3) limits on card value.
The MOFCOM Measures require card issuers of prepaid vendor-specific cards to register within 30 days of commencing single-purpose prepaid card business. Thereafter, issuers must record the name, identification number and contact details of purchasers of prepaid cards valued at more than RMB 10,000 (approximately US$ 1,615).6 Prepaid cards valued at or above RMB 5,000 (approximately US$ 805), if purchased by entities, or RMB 50,000 (approximately US$ 8,050), if purchased by individuals, must be purchased by bank transfer, rather than cash. Finally, the Measures differentiate between cards bearing the name of the purchaser (“registered cards”) and those which do not (“unregistered cards”). The maximum value of a registered prepaid card is RMB 5,000 (approximately US$ 805), and the maximum value of an unregistered card is RMB 1,000 (approximately US$ 161). The Measures do not address the possibility that individuals could avoid the registration requirement by purchasing numerous small value unregistered cards.7
The MOFCOM Measures also set a limit on the maximum amount of prepaid card revenue allowable for card issuers. The limit is calculated as a percentage of the card issuer’s principal business revenue in the previous accounting year. The percentage cap varies depending on the nature of the card issuer’s business (retail, hospitality, catering, residential services, etc).
The PBOC Measures are based upon the Opinion and the PBOC’s 2010 Administrative Measures for the Payment Services Provided by Non-Financial Institutions (非金融机构支付服务管 理办法).8 The PBOC Measures mirror the MOFCOM Measures by requiring registration of prepaid cards in a specific individual’s name, limiting cash purchases above the same specified amounts, and limiting maximum card value to RMB 1,000 or RMB 5,000. In addition, the PBOC Measures prohibit the use of credit cards to purchase or recharge any multiplepurpose prepaid cards.
In addition to addressing bribery risks, the Measures appear to have been motivated by other concerns, particularly tax evasion. The Measures do not provide any guidance to companies doing business in China regarding what is an acceptable gift under Chinese law and likewise provide no guidance with regard to the FCPA. Civil and criminal penalties for bribery of public officials and commercial bribery can be found elsewhere in Chinese law.9 There is limited guidance about what circumstances would most likely result in criminal prosecution: improper benefits exceeding RMB 10,000 (approximately US$ 1,615) will normally be prosecuted criminally while improper payments of lesser amounts may or may not be prosecuted, depending on the circumstances.10
Numerous regulations emanating from the state organs and the Communist Party relate to what gifts are permissible for officials (typically including officers at state-owned enterprises) to accept. The two most specific regulations are the December 1993 Regulation Regarding Provision and Acceptance of Gifts in Foreign Official Business (国务院关于在对外公务活动 中赠送和接受礼品的规定）(the “1993 Regulation”),11 followed by a circular jointly issued by the central administrative offices of the Party and the State Council for the implementation of the 1993 Regulation (中共中央办公厅、国务院办公厅关于 认真贯彻执行<国务院关于在对外公务 活动中赠送和接受w礼品>的通知) (the “1993 Circular”)12 (collectively, the “1993 Regulations”)13 and the April 1995 Regulation for the Registration of Gifts Received by CPC and Government Employees in Their Domestic Association （关于对党和国家机关工作人员在国 内交往中收受的礼品实行登记制度的 规定）(the “1995 Regulation”),14 followed by a circular jointly issued by the central general affairs bureaus of the CPC and the State Council in September 1995 for the implementation of the 1995 Regulation (中 共中央直属机关事务管理局、国务院机 关事务管理局关于中央党政机关工作人 员在国内交往中收受礼品登记和处理办 法) (the “1995 Circular”)15 (collectively, the “1995 Regulations”).
The 1993 and 1995 Regulations limit officials’ ability to accept gifts and set out various notification requirements regarding the acceptance of gifts. The 1995 Regulation sets out certain monetary guidelines. For example, gifts over RMB 100 (approximately US$ 16) must be disclosed and registered, while gifts over RMB 200 (approximately US$ 32) must be handed over. There is also an annual gift limit of RMB 600 (approximately US$ 97) per official. Although the amounts set out in the 1995 Regulations were worth much more in real terms at the time the regulations were promulgated, neither set of regulations has been repealed (and therefore both remain in effect), even if they are commonly not observed.