The State Council has proposed amendments to the commercial bribery provisions in China’s legislation on unfair competition. The amendments clarify the types of conduct that qualify as commercial bribery, and this will hopefully lead to a more uniform approach by Chinese enforcement authorities once the amendments have been passed. But it remains important for companies in China to stay up to date with enforcement trends. Especially since the amendments increase liability of businesses for bribery by employees and third parties, in terms of the scope of activities that qualify as commercial bribery and the potential penalty amounts.
China’s State Council recently proposed amendments to the anti-bribery law provisions of China’s Anti-Unfair Competition Law (AUCL). The AUCL is a wide-ranging law containing provisions on matters such as competition, procurement and trade secrets as well as commercial bribery. Pursuant to the AUCL, commercial bribery is punishable by economic and administrative sanctions.
The proposed amendments follow changes made to the anti-bribery provisions in China’s criminal law in 2015. Like the criminal law changes, the proposed amendments to the commercial bribery provisions in the AUCL seek to facilitate a more uniform enforcement approach by local authorities and increase penalties.
Clarification of the term “commercial bribery”
The current provisions in the AUCL that prohibit commercial bribery are rather vague and do not provide a definition of commercial bribery. This has resulted in businesses relying on enforcement trends, which can differ between enforcement authorities. The proposed amendments include a specific definition of commercial bribery:
“Commercial bribery is where a business operator provides, or offers to provide, financial benefits to a transaction counterparty, or to a third party with influence over a transaction, for the purpose of obtaining an opportunity related to the transaction or competitive advantages.”
The new definition requires corrupt intent behind a payment or provision of other financial benefit for it to qualify as commercial bribery. The requirement of corrupt intent is not apparent from the current wording in the AUCL. The term “financial benefits” is not further defined. The same term is used in the recently amended anti-bribery provisions of China’s criminal law.
Examples of commercial bribery
The proposed amendments include examples of commercial bribery to help distinguish commercial bribery from legitimate business practice, including the following:
(i) Commercial bribery through third parties, by providing or promising to provide financial benefits to a third party/agent that has influence over a transaction. A third party in this context includes not only public or private entities but also individuals and can, for example, include supervisors or relatives of the counterparty or public officials. Although enforcement authorities have previously fined companies for bribery payments through third parties, the proposed amendment brings greater clarity that such conduct is prohibited.
(ii) Benefits between business operators that are not truthfully recorded in agreements and accounting books constitute commercial bribery. This provision seems to be formulated such that bribery is assumed in the case of a false or incomplete accounting entry. If the provision is adopted, it will create additional liability in relation to incorrect financials.
Increased liability for employee conduct and business partners
Companies will be held liable for commercial bribery activities by any of their employees. They will not be able to use implementation of a compliance framework as a line of defence. A company will also be held liable for commercial bribery by any business partner acting on the company’s behalf (for example, an agent or distributor) if the company should have known that this business partner was committing commercial bribery.
The proposed amendments increase the penalties for commercial bribery. The current AUCL provides for penalties ranging from RMB 10,000 to RMB 200,000, plus confiscation of illegal gains. The proposed amendments impose fines of 10%-30% of the turnover related to the activities for which commercial bribery was committed, and fines of RMB 100,000 to RMB 1,000,000 for third parties of which a company should have known that it committed commercial bribery.
Until now, enforcement authorities had some discretion in calculating penalties, as illegal gains are not always easy to determine. It seems that the proposed amendments do not entirely resolve this issue, although turnover related to the illegal activities may be easier to establish than illegal gains.