Recent illustration of the rules on "business bribery"
The relevant rules and regulations. Before turning to the case itself, we shall first briefly summarise the relevant regulations.
The Anti-Unfair Competition Law:
(a) prohibits a business operator (???) from using money, things of value or other methods to bribe others to sell or purchase commodities; and
(b) provides that a business operator may offer a discount to others in public, but shall be guilty of giving or receiving a bribery if it gives or receives a secret commission or discount without maintaining a normal and accurate accounting record (Article 8).
A "business operator" is defined as a legal person, economic organisation or individual who deals with commercial business or profitable services (Article 2).
A business operator who breaches Article 8 may be liable to criminal sanctions (as to which, see below) or, if its conduct does not render it criminally culpable, be fined between RMB 10,000 and RMB 200,000 and have any illegal income confiscated (Article 22).
On 15 November 1996, the General Administration for Industry and Commerce issued the Interim Regulations on Prohibiting Business Bribery. These provide further guidance as to this offence and confirm that it is legitimate to give or receive a discount in a commodity transaction, provided that that discount is accurately recorded in the relevant operators' accounts. They also confirm that secret discounts and kick-backs are prohibited and that the giving of cash or gifts in business transactions, save for small gifts given in accordance with trade practice, will be considered business bribery. Whilst not relevant to this particular case, bribery can also be a criminal offence.
For example, it is a crime for a company or individual to give any person employed by an enterprise (or for such a person to receive) money or property in excess of a certain value (which is lower if a State functionary or entity is involved) for the purpose of securing illegitimate benefits. Whilst the Criminal Law does not specify the applicable materiality thresholds, as a rough guide, the Ministry of the Public Security Bureau recently published details of 10 typical business bribery cases investigated in 2006, which involved bribes ranging from RMB 130,000 to RMB 5 million.
The case of Zhen Wei Lou Restaurant (?????)
The Zhen Wei Lou Restaurant case concerned a company's ("Company") efforts to promote the sale of a beer in the Zhen Wei Lou Restaurant ("Restaurant") in Ruian, Wenzhou City, Zhejiang Province. In particular, it concerned certain payments made by the Company to the Restaurant from December 2004 to March 2005 totalling RMB 58,000 by way of an "entrance fee" (???) and a "place reservation fee" (? ??). The Company also made other payments to the Restaurant in relation to the sale of the beer, which were not alleged to constitute business bribery.
On 11 October 2005, a third party informed the Administrative Bureau for Industry and Commerce ("Bureau") that the Restaurant was taking bribes in business transactions. After investigating the Restaurant, the Bureau found that the Restaurant had taken bribes from the Company, confiscated the illegal revenues received by the Restaurant of RMB 58,000 and fined the Restaurant RMB 17,000. (The published case report notes that the Company was punished separately, but provides no details as to that punishment).
On 18 September 2006, the Restaurant applied to the Ruian basic court for judicial review of the Bureau's decision. It argued that the requirements for "business bribery" had not been met because the fee was taken publicly and the Restaurant issued a receipt to the Company, so the payment was not made secretly. It also argued it had spent about RMB 58,000 on providing advertising, warehouse space and food and drink for the relevant staff in relation to the sale of the Company's beer, so that the payment of RMB 58,000 was reasonable.
The Bureau argued that the Restaurant had not provided evidence substantiating the alleged services provided in exchange for the RMB 58,000 during the Bureau's investigations. It also relied on the fact that the "entrance fee" and "place reservation fee" were not entered in the Restaurant's accounts.
In November 2006, the basic court ruled in favour of the Bureau. The Restaurant appealed to the Wenzhou City Intermediate Court, which issued a final judgment in February 2007 upholding the Bureau's decision and the judgment of the basic court. In its judgment, the Intermediate Court emphasised that the "entrance fee" and "place reservation fee" were paid in addition to the normal payments (which were entered in the Restaurant's accounts) and were not properly accounted for, so constituted "business bribery".
This case has been hailed in the Chinese media as an important step to combat business bribery because of the emphasis placed on the Restaurant's failure to account properly for the relevant payments. Whilst it does provide a warning as to the importance of properly documenting and accounting for any legitimate commercial discounts, it goes without saying that accounting for bribery will not protect an individual or entity from criminal or administrative liability in China or, in the case of foreign companies investing in China, in their home jurisdiction.