Liability

Liability of undertakings

What are the risk and compliance management obligations of members of governing bodies and senior management of undertakings?

The risk and compliance management of a company cannot be separated from the establishment, execution and obedience with a compliance policy by the management. The management’s main obligations include:

  • establishing a compliance controlling strategy;
  • establishing a risk compliance system;
  • cultivating risk consciousness in employees and a compliance culture in the company;
  • supervising the company’s compliance operations;
  • bans on:
    • embezzling the company’s property by taking advantage of a position;
    • taking bribes or committing bribery for the benefit of the company or an individual; and
    • violating the obligation of prohibiting business competition; and
  • confidentiality.

Do undertakings face civil liability for risk and compliance management deficiencies?

Yes. If the non-compliant activity infringes a third party, that third party may be able to sue the company.

If a company collects sensitive personal information without the consumers’ authorisation, a consumer may be able to bring civil litigation against the company to make it compensate them for the infringement regarding right to reputation and right to privacy, etc.

Another example is if a company fires an employee who conducted non-compliant activity and does not state this as a reason for the employee’s dismissal in its compliance governance documents. In that event, the employee may sue the company.

Do undertakings face administrative or regulatory consequences for risk and compliance management deficiencies?

Yes. If a company’s non-compliant activity violates related laws and regulations, the company may face a corresponding administrative punishment.

For example, if the company violates the Anti-Unfair Competition Law to bribe a trading party, the administrative organisation can, among other punishments, impose a penalty, confiscate illegal gains, revoke the company’s business licence and record the violation in the company’s credit record.

Do undertakings face criminal liability for risk and compliance management deficiencies?

Yes. If the company’s non-compliant activity violates related laws and regulations and meets the standard of filing a criminal case, the company may face corresponding criminal punishment.

For example, if the company violates the Criminal Law to smuggle goods or evade the payable tax, the company will receive a financial penalty that totals several times the size of the original payment amount.

Liability of governing bodies and senior management

Do members of governing bodies and senior management face civil liability for breach of risk and compliance management obligations?

Yes. If the company’s non-compliant activity violates related laws and regulations, the legal representative of the company and the senior management involved in the non-compliant activity may face corresponding civil liability.

For example, if a company is listed on the blacklist of dishonesty because of outstanding debt, according to the Interpretations of the Supreme People’s Court on Certain Issues Concerning Application of Enforcement Procedure of the Civil Procedure Law, the person directly responsible or the person subject to direct liability for affecting the performance of debts may be restricted from leaving the country, staying in a hotel, taking a flight or opening a banking account, etc.

Do members of governing bodies and senior management face administrative or regulatory consequences for breach of risk and compliance management obligations?

Yes. If the company’s non-compliant activity violates related laws and regulations, the company’s legal representative and senior management involved in the non-compliant activity may face corresponding administrative punishment.

For example, a senior executive of a company who also holds a post within the Communist Party of China (the Party) or acts as a national civil servant may be expelled from the Party or dismissed from office if the company infringes state-owned property.

Do members of governing bodies and senior management face criminal liability for breach of risk and compliance management obligations?

Yes. If the company’s non-compliant activity violates related laws and regulations and meets the standard of filing a criminal case, the senior management involved in the non-compliant activity may face corresponding criminal punishment.

For example, according to the Criminal Law, if the company unlawfully raises funds and the amount involved is large, then as well as the penalty imposed on the company, those directly in charge will be sentenced to a fixed-term of imprisonment (that is, sentenced to jail for a specified time period) or criminal detention (eg, held in a police station for questioning).

Law stated date

Correct on

Give the date on which the information above is accurate.

3 February 2020