Trends and climate
Have there been any recent changes in the enforcement of anti-corruption regulations?
In October 2017 the Communist Party of China held its 19th National Congress. One of the key themes was the desire to increase the focus on combating financial crime. This follows the stock market crash in 2015 and enforcement actions against those considered responsible for the crash, including recent investigations into allegations of bribery and stock market manipulation involving senior officials at the China Securities Regulatory Commission (CSRC) and the China Insurance Regulatory Commission (CIRC), as well as criminal proceedings against brokerages.
Two particular enforcement initiatives have followed the National Congress.
First, a super financial regulator, the Financial Stability and Development Committee, was formed to supervise and coordinate the activities of the existing financial regulators. The committee will be involved in formulating policies on systematic financial risk management. It will also have the power to supervise and question financial regulators and local governments. Second, China's public security ministry released a policy announcement emphasising that it will increase its focus on combating financial crime with a view to safeguarding national financial security. Particular areas of concern relate to:
- China's shadow banking;
- the asset management sector;
- internet finance and financial holding companies; and
- new risks such as cryptocurrencies, risky insurance products, peer-to-peer lending and other innovative products.
Financial security is clearly a key theme and it can be expected that enforcement activity will increase, particularly in areas such as market misconduct and others which could lead to wider financial problems or improperly impact financial markets.
Are there plans for any changes to the law in this area?
Amendments to the Anti-unfair Competition Law came into force on January 1 2018. The Amended Anti-unfair Competition Law:
- places no limit on bribery in the context of selling or purchasing goods or services or giving or receiving kickbacks. Bribing in order to seek transaction opportunities or a competitive edge with property or by other means is prohibited. This represents a subtle widening of the law;
- expands the category of bribe recipient to expressly include:
- employees of the transaction counterparty;
- entities or individuals entrusted by the transaction counterparty to handle relevant affairs; and
- entities or individuals that use authority or influence to influence a transaction.
There is now greater scope for liability in respect of bribes paid through third parties;
- covers public as well as private entities and individuals that receive bribes. This marks a widening of the law, which has to date focused on dealings between private business operators;
- excludes transaction counterparties from the categories of bribe recipients (only employees of an entity counterparty can be bribed). This represents a narrowing of the law, which has historically been enforced in respect of many entity-to-entity transactions;
- appears to prohibit supply-side bribery only. Demand side bribery (eg, those who solicit or accept bribes) is not addressed;
- creates a rebuttable presumption of vicarious liability for bribery by employees, unless the company has evidence to prove that the employee’s actions were unrelated to seeking opportunities for transactions or gaining a competitive advantage. An unofficial interpretation suggests that vicarious liability may be rebutted if companies have reasonable measures in place (echoing Section 7 of the UK Bribery Act); and
- imposes significantly higher penalties for commercial bribery by companies and parties that facilitate bribes (up to Rmb3 million per violation, as well as penalties for obstructing investigations).
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 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 (ie, the disciplinary arm of the Communist Party of China) 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.
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).
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’ 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 does not meet the criminal liability threshold, it may nonetheless violate the civil bribery provisions of the Anti-unfair Competition Law.
The Anti-unfair Competition Law prohibits business operators from providing a bribe to the following parties in order to seek transaction opportunities or a competitive edge in the form of property or by other means:
- 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.
There is no definition of ‘bribe’ in the Anti-unfair Competition Law, but it has historically been interpreted to include:
- promotional fees;
- advertising expenses;
- sponsorship fees;
- service remuneration;
- the reimbursement of various expenses; and
- other means, such as trips or visits (overseas or domestic).
A business operator "may expressly pay a discount to the counter party, or pay a commission to the middle man". In practice, the most prudent approach is to limit incentives to properly recorded discounts or commissions. Other non-cash benefits may be provided in certain circumstances, but they entail more risk. Any benefits provided must be accurately recorded in the company's books in compliance with applicable Chinese law. Arrangements should be agreed with entities, not employees.
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.
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.
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 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 January 1 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
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. Amendments to the Anti-unfair Competition Law include 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.
Payments of discounts to the counterparty or commissions to the middleman are expressly exempted under the Anti-unfair Competition Law. In practice, promotional gifts of small value (excluding cash or its equivalent) based on common commercial practice which are accurately accounted for have not historically fallen foul of the Anti-unfair Competition Law.
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. 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.