Trends and climate
Have there been any recent changes in the enforcement of anti-corruption regulations?
The enforcement environment is unpredictable and corporates operating in China should remain cognisant that numerous authorities have jurisdiction to investigate alleged bribery and corruption. The powerful National Supervision Commission (NSC) is the latest and most powerful body to be created. This merges the party’s anti-graft watchdog, the Central Commission for Discipline Inspection, with other anti-graft departments, including the Ministry of Supervision. The NSC monitors misconduct by China’s 90 million Communist Party members, but also manages state-owned enterprises, hospitals, educational and cultural institutions, sports organisations and provincial and local government organs. This places an additional 60 million people under the organisation’s remit.
The NSC has been granted wide-ranging powers, including rights to interrogate, detain (up to six months without charge), freeze assets and search premises. Although multinational companies will not fall directly under the NSC’s purview, there is an increased risk that companies will become caught up in NSC investigations targeting the business dealings of state-owned entities and individuals. The NSC represents the high watermark of president Xi Jinping’s five-year anti-corruption campaign and there will no doubt be an uptick in surveillance and investigations in light of its creation.
The Amended Anti-unfair Competition Law (in force since January 2018) confers enhanced enforcement powers on administrative authorities and increases civil and administrative penalties for unfair competition and civil bribery. The authorities wasted no time deploying the new law, with fresh investigations concerning alleged passing off and false advertising commencing immediately. However, there has not yet been any enforcement of the law’s civil bribery provisions.
Are there plans for any changes to the law in this area?
In October 2018 China enacted a law governing how assistance is provided in China to foreign authorities, institutions and individuals running criminal investigations and prosecutions overseas. This is relevant to foreign corruption investigations and prosecutions. The Law of the People's Republic of China on International Judicial Assistance in Criminal Matters introduces new procedures governing how and when assistance should be provided by China. Critically, approval from a Chinese competent authority (eg, the National Supervisory Commission, the Supreme People's Court, the People's Procuratorate and the Ministries of National and Public Security) must be obtained before a Chinese entity or individual provides assistance to a foreign body or individual investigating or prosecuting crimes overseas.
The law's stated goal is to simultaneously curb corruption and stem extra-territorial claims by foreign authorities, some of which directly approach Chinese counterparts and contacts for evidence. The new law acts as a break on this practice and allows China to screen requests and withhold its consent.
Which authorities are responsible for investigating bribery and corruption in your jurisdiction?
The main bodies responsible for investigating bribery and corruption in China are:
- the National Supervision Commission;
- the Supreme People's Procuratorate and various local level people's procuratorates;
- the Ministry of Public Security and various local level public security bureaus;
- the Ministry of Supervision and various local level supervisory bureaus;
- the Central Commission for Discipline Inspection and various local level discipline inspection commissions; and
- the State Administration for Industry and Commerce (SAIC) and its local level offices.
What are the key legislative and regulatory provisions relating to bribery and corruption in your jurisdiction?
China's primary anti-bribery laws are the Criminal Law and the Anti-unfair Competition Law.
The Criminal Law prohibits active and passive bribery in the public and private sectors. The Supreme People's Court and the Supreme People's Procuratorate have issued interpretative rules regarding these criminal offences and rules also exist which set minimum financial thresholds for the investigation and prosecution of such offences.
The Anti-unfair Competition Law aims to maintain fair market competition in China and covers civil bribery offences. The law prohibits business operators from bribing in order to seek transaction opportunities or a competitive edge. The SAIC investigates and enforces the Anti-unfair Competition Law.
In addition to the above laws, various government organs and departments, including the State Council and the Communist Party of China, have issued internal anti-corruption rules and regulations which govern state personnel. Strictly speaking, these rules and regulations do not apply to bribe givers. However, they are a useful guide for determining suitable limits on gifts and business hospitality. The Central Anti-commercial Bribery Leading Group, established in 2006, has also published a series of opinions on commercial bribery which, although not legally binding, provide significant practical guidance on this matter.
What international anti-corruption conventions apply in your jurisdiction?
China is a party to and has implemented the United Nations Convention against Corruption, which has been signed by 140 countries. The convention requires signatories to cooperate in combating corruption, including offering assistance regarding:
- legal matters;
- enforcement; and
- the transfer of convicted criminals.
Specific offences and restrictions
What are the key corruption and bribery offences in your jurisdiction?
Criminal Law offences In general, providing, soliciting or accepting a bribe for the purpose of or in return for securing illegitimate benefits constitutes an offence. Conspiring to commit offences under the Criminal Law is also an offence, as is the use of an intermediary to facilitate a bribe.
Public sector Under the Criminal Law, individuals and entities are prohibited from:
- providing advantages to state personnel (Articles 389 and 393) or a state organ, state-owned enterprise, institution or people's organisation (Article 391) to obtain illegitimate benefits (Article 391 is a unique entity offence, which prohibits the bribing of an entity, but not of an employee or affiliated person of an entity);
- providing kickbacks or service charges to state personnel (Articles 389 and 393) or a state organ, state-owned enterprise, institution or people's organisation (Article 391) in violation of state provisions;
- bribing close relatives of, or any person close to, state personnel (including ex-state personnel) (Article 390(1));
- facilitating the bribery of state personnel (Article 392); and
- providing advantages to foreign officials (or international public organisation officials) to secure illegitimate commercial benefits (Article 164).
Private sector Under the Criminal Law, non-state personnel of a company, an enterprise or any other unit are prohibited from:
- accepting advantages from individuals or entities to secure illegitimate benefits where the amount is relatively large (Article 164);
- soliciting or accepting advantages from others by taking advantage of their position and seeking benefits for those that provided the advantages in return, where the amount involved is relatively large (Article 163); and
- accepting kickbacks or service charges during economic activities by taking advantage of their position, in violation of state provisions (Article 163).
Advantages ‘Advantages’ under the Criminal Law are defined as "money or tangible property and other advantages which can be calculable in money". Section 12 of the April 2016 judicial interpretation stipulates that ‘property’ includes:
- property benefits, including benefits that can be converted into material benefits involving money, such as house renovations and debt exemptions; and
- other benefits involving financial payments, such as membership services and travel.
De minimis thresholds There are minimum financial thresholds above which prosecutions can be brought. The April 2016 judicial interpretation is not comprehensive, but generally increases the minimum thresholds for criminal prosecution regarding graft. As regards bribe giving, the threshold is generally Rmb30,000 for individuals and Rmb200,000 for corporates. The April 2016 judicial interpretation does not refer to the Article 391 entity offence. However, the Supreme People's Procuratorate previously set the following thresholds allowing for formal prosecution to be commenced: Rmb100,000 for individuals and Rmb200,000 for corporates.
Bribes can be aggregated to meet these thresholds; if small bribes are provided regularly, the monetary thresholds will likely be met eventually.
Certain private sector bribery offences are criminalised only if the bribes are ‘relatively large’. The April 2016 judicial interpretation indicates that a bribe of more than Rmb60,000 will be considered relatively large.
Mens rea and lack of quid pro quo requirement Corrupt intent is required for most criminal bribery offences (ie, specific intent to secure illegitimate benefits).
Intent can be inferred from the circumstances of a case and there is no strict requirement to establish a quid pro quo. Relevant factors when inferring intent include:
- the relationship between the giver and the recipient of the bribe;
- the value of the advantages offered; and
- whether the giver took advantage of the recipient’s position, considering the purpose, timing and manner of the advantage.
Civil offences (Anti-unfair Competition Law) If the alleged bribery involves commercial entities and does not meet the criminal liability threshold, it may nevertheless violate the civil commercial bribery provisions under the Anti-unfair Competition Law (as amended 4 November 2017 and effective from 1 January 2018). The law aims to maintain fair market competition in China. Article 7 of the law prohibits a business operator from bribing in order to seek transaction opportunities or a competitive edge with property or by other means the following three types of bribe recipient:
- employees of the transaction counterparty;
- entities or individuals entrusted by the transaction counterparty to handle relevant affairs; or
- entities or individuals that use authority or influence to influence a transaction.
In this connection, the Anti-unfair Competition Law does not prohibit the payment of commissions by a company or individual, provided that they are:
- expressly provided in the course of the transaction; and
- accurately recorded in the accounts of both parties to the transaction.
The Anti-unfair Competition Law assumes vicarious liability of the company where its employees commit bribery under that law. However, the company has a defence if it can prove that the act of offering bribes is irrelevant to securing a deal or gaining a competitive advantage by the company.
For the purposes of the Anti-unfair Competition Law, ‘bribe’ is very widely interpreted and covers promotion fees, advertising expenses, sponsorship fees, service remuneration, commission or reimbursement of various expenses, as well as ’other means’ such as trips or visits (overseas or domestic) of various descriptions.
Are specific restrictions in place regarding the provision of hospitality (eg, gifts, travel expenses, meals and entertainment)? If so, what are the details?
In China, gift giving and hospitality are often seen as essential to building relationships. It is unlikely that reasonable bona fide business hospitality will violate China's bribery laws where there is no quid pro quo and the benefits are properly recorded in the accounts. However, China's anti-bribery laws are broad – spanning a number of laws and regulations – and enforcement is inconsistent. As a result, corporate hospitality and relationship building through the provision of gifts, hospitality, travel and training may violate the Criminal Law and the Anti-unfair Competition Law in certain circumstances. Thus, care should be taken to observe the following points.
Public sector Various government organs and departments, including the State Council and the Communist Party of China, have issued a number of internal anti-corruption rules and regulations governing state personnel. Although these rules and regulations do not apply to bribe givers, they are a useful guide for determining suitable limits on offering gifts and business hospitality.
Private sector The context must always be assessed to determine whether gifts, hospitality, travel and training constitute bribes. According to the Opinions on Issues Concerning the Application of Law in the Handling of Criminal Cases of Commercial Bribery, issued by the Supreme People’s Court and the Supreme People’s Procuratorate, factors to consider when distinguishing a lawful advantage from a bribe include:
- the background of the deal;
- the relationship between the offeror and the recipient (eg, whether they are relatives or friends or have or have had dealings);
- the value of the advantages offered;
- whether the offeror seeks illegitimate benefits by taking advantage of the recipient’s position, considering the purpose, timing and manner of delivering the advantages; and
- whether the recipient seeks illegitimate benefits for the offeror by taking advantage of his or her position.
The Leading Group’s Opinions on Limitations of the Policies in Anti-commercial Bribery Administrations also establish additional factors to be considered when determining whether conduct constitutes civil bribery, which include:
- whether the conduct violates the fair competition principle;
- whether a gift or other advantage is offered in exchange for business opportunities, preferential treatment or any other economic interest;
- the seriousness of the case; and
- the level of harm to society.
The Leading Group's opinions, although not legally binding, contain practical guidance relating to bribery and gifts and business hospitality in China.
Gifts to government officials According to the relevant rules (some of which are non-binding), the following are considered unacceptable:
- offering cash gifts or their equivalent (eg, securities with cash value, payment vouchers and commercial prepaid cards) to government officials in the context of their public service activities;
- providing gifts (regardless of their value) to government officials which could influence their impartiality in performing their public functions;
- obtaining, holding or using consumer cards for – among other things – gyms, clubs and golf courses, in violation of the relevant rules (in accordance with the Regulation of the Communist Party of China on Disciplinary Actions, which took effect on 1 January 2016, and which is binding on Communist Party members); and
- donating vehicles to other parties (if done by enterprises, public institutions or government individuals).
In general, high-value lavish gifts (eg, cars and luxury watches) are likely to attract scrutiny, particularly where the company or individual in question has dealings with the recipient. In light of applicable rules, lower-value gifts should also be approached with caution, particularly if they are one of several or are combined with the provision of other benefits.
Gifts to private sector employees Generally, promotional gifts of low value based on common commercial practice are acceptable. Small gifts offered with no intent to obtain illegitimate benefits should be acceptable in this context.
The provision of the following gifts to private sector employees involves a high level of risk:
- off-the-book kickbacks, transfers or commissions (disguised as service fees or discounts), as well as unusually high-value gifts and vouchers;
- gifts unlawfully offered during business activities (eg, if doing so would breach the Criminal Law, the Anti-unfair Competition Law or other applicable rules);
- gifts given in return for illegitimate benefits, particularly where the giver has dealings with the recipient;
- benefits – such as membership cards, vouchers, coupons, properties, vehicles or shares – which are offered in order to obtain business opportunities, preferential treatment or other economic interests; and
- donations that are offered in return for business opportunities, preferential treatment or other economic benefits (unless the donations are made in accordance with the Welfare Donation Law or other relevant regulations).
Entertainment and travel Entertainment and hospitality offered with corrupt intent (eg, in exchange for action or inaction by government officials regarding their duties; or in return for business opportunities or other economic interests offered in violation of the fair competition principle) is prohibited. Corrupt intent can be inferred from other factors, such as the giver’s relationship with the proposed recipient (eg, if they have dealings) and the value and frequency of the hospitality offered. Lavish or unreasonably generous or frequent entertainment is likely to be problematic.
There are no additional rules governing the private sector. In practice, lavish meals and entertainment can be problematic.
Offering travel or accommodation to obtain illegitimate benefits is unacceptable. This includes:
- travel and accommodation offered in exchange for the recipient’s action or inaction regarding an act or influence; and
- expenses offered in secret and incorrectly recorded in the account books, where the companies or individuals in question have dealings.
In such instances, the context should be assessed. High-value lavish travel or accommodation is likely to attract scrutiny, particularly where the companies or individuals in question have ongoing business.
What are the rules relating to facilitation payments?
There are no rules under Chinese law comparable to those of the Foreign Corrupt Practices Act, under which a giver is exempt from liability for providing facilitation or 'grease' payments. However, Article 389 of the Criminal Law provides that “any person who offers money or property to a State employee under extortion but gains no illegitimate benefits shall not be regarded as offering bribes”.
Scope of liability
Can both individuals and companies be held liable under anti-corruption rules in your jurisdiction?
Yes, entities can be held liable for corruption offences. In particular, corporations can be held criminally liable for bribing state personnel, foreign officials (or officials of international public organisations), non-state personnel and state entities.
Corporate criminal liability generally attaches where the relevant bribery misconduct is an exercise of ‘corporate will’ (ie, the decision to engage in the misconduct was a group decision or was made by the relevant personnel in charge). The authorities may also consider whether the corporate entity provided an advantage or received an illegitimate benefit when assessing corporate liability.
Can agents or facilitating parties be held liable for bribery offences and if so, under what circumstances?
Yes, under the Criminal Law, the use of an intermediary to facilitate a bribe is prohibited. The Anti-unfair Competition Law includes liability for bribes paid through certain third parties.
Can foreign companies be prosecuted for corruption in your jurisdiction?
Yes, several foreign companies have been prosecuted for bribery in China (prosecutors typically pursue a company’s Chinese subsidiary). For example, British multinational pharmaceutical company GlaxoSmithKline was found guilty of bribing doctors and hospitals to prescribe its products in September 2014 and fined $492 million.
Whistleblowing and self-reporting
Are whistleblowers protected in your jurisdiction?
The Provisions on the Reporting of Crimes to People’s Procuratorates set out the protection available to whistleblowers who report corruption and bribery cases to a people's procuratorate. The provisions include a number of measures which ensure:
- the confidentiality of corruption reports provided to the people's procuratorates (eg, keeping informers’ personal information confidential); and
- the personal safety of informers and their close relatives.
The provisions also provide a reward mechanism for whistleblowers who report crimes to a people's procuratorate.
The Criminal Procedure Law also contains several measures that protect the personal safety of witnesses giving evidence in legal proceedings and their families.
An employee who is dismissed for whistleblowing would need to commence an action for wrongful dismissal against the employer.
Is it common for leniency to be shown to organisations that self-report and/or cooperate with authorities? If so, what process must be followed?
The November 2015 amendments to the Criminal Law and the April 2016 judicial interpretation clarified the conditions under which self-reporting mitigates a party’s liability for bribery-related violations or exempts it from liability – in particular, when the underlying crimes are relatively minor and the offenders have assisted with exposing the corrupt activities of others. Otherwise, offenders who self-report should be entitled to lenient treatment, but cannot be completely exempted from liability.
The Chinese authorities generally view self-reporting as highly unusual. In the context of multi-jurisdictional investigations, self-reporting first to international authorities (eg, in the United States or the United Kingdom), with follow-on reporting to the authorities in China, is far more common.
Dispute resolution and risk management
Is it possible for anti-corruption cases to be settled before trial by means of plea bargaining or settlement agreements?
No such settlement scheme exists under Chinese law.
Are any types of payment procedure exempt from liability under the corruption regulations in your jurisdiction?
There is an affirmative defence under the Criminal Law for bribe payments made under threat of extortion, so long as the giver does not receive an illegitimate benefit.
The Anti-unfair Competition Law does not prohibit the payment of commissions by a company or individual, provided that they are:
- expressly provided in the course of the transaction; and
- accurately recorded in the accounts of both parties to the transaction.
What other defences are available and who can qualify?
Most Criminal Law bribery offences require an element of corrupt intent. As such, demonstrating a lack of corrupt intent may operate as a defence. There are also minimum financial thresholds under the Criminal Law, below which criminal prosecution will not be brought.
What compliance procedures and policies can a company put in place to assist in the creation of safe harbours?
Companies should ensure that they have anti-bribery policies that comply with the Criminal Law and the Anti-unfair Competition Law and consider the applicable financial thresholds.
Record keeping and reporting
Record keeping and accounting
What legislation governs the requirements for record keeping and accounting in your jurisdiction?
The principal provisions in this area are contained in the Accounting Archive Management Measures (2015 revision).
What are the requirements for record keeping?
The retention period varies between three years, five years, 10 years, 15 years or permanently, according to the different document categories.
What are the requirements for companies regarding disclosure of potential violations of anti-corruption regulations?
Section 108 of the Criminal Procedure Law imposes a general obligation on individuals and entities to report any suspected crimes or criminal activity. In practice, this is construed as a requirement to report criminal activity by a third party, not self-reporting. Section 108 does not specify any penalty for a failure to report, meaning that it lacks 'teeth'. Self-reporting is covered in separate provisions.
Anti-money laundering legislation imposes various obligations on financial institutions that are designed to combat money laundering, including an obligation to report large or suspicious transactions. For example, a financial institution must report any large transactions to the Anti-money Laundering Monitoring and Analysis Centre.
What penalties are available to the courts for violations of corruption laws by individuals?
Individual offenders found guilty of bribing state personnel may be sentenced to life imprisonment, depending on the circumstances of the crime. The April 2016 judicial interpretation has introduced a new imprisonment regime linked to the severity of the offence, which range from one year to life imprisonment. Confiscation of personal assets may also be imposed in particularly serious circumstances. Under the November 2015 amendments to the Criminal Law, fines may now also be imposed on individual offenders (the April 2016 judicial interpretation provides that fines should range from Rmb100,000 to twice the amount of the bribe).
For criminal bribery offences committed in the private sector, individual offenders face up to 10 years’ imprisonment and a fine ranging from Rmb100,000 to twice the amount of the bribe.
Companies or organisations
What penalties are available to the courts for violations of corruption laws by companies or organisations?
Corporate entities found guilty of bribing state personnel face fines ranging from Rmb100,000 to twice the amount of the bribe. Personnel in charge of the corporate entity and other personnel responsible for the crime may be imprisoned for up to five years.
Corporate entities committing the same offence are liable on conviction to fines ranging from Rmb100,000 to twice the amount of the bribe. The personnel in charge of the corporate entity and other personnel responsible for the crime may be imprisoned for up to 10 years and fined. Recipients of bribes may be imprisoned for at least five years and have their property confiscated.
As regards civil bribery offences under the Anti-unfair Competition Law, penalties include the confiscation of illegal gains and administrative fines of between Rmb100,000 and Rmb3 million per violation, as well as the revocation of business licences in serious cases.