On September 7, 2017, the National People’s Congress published the amendment to Anti-Unfair Competition Law (“AUCL”) of the People’s Republic of China (Amendment for Second Review) (“2017 Sep Version”) for public comment until September 24, 2017. Before this 2017 Sep Version, authorities have released two versions of amendments for comments on February 25, 2016 (2016 Version) on February 26, 2017 (2017 Feb Version) respectively.

In short, there are three highlights for commercial bribery clauses:

  1. (certain) promotion activities among non-State invested operators MAY not be viewed as commercial bribery anymore;
  2. the authorities become more powerful with broadened investigation methods;
  3. Higher penalties for offering commercial bribery: fine cap is increased from CNY 0.2 million to CNY 3 million, “revocation of business license” is newly added into the penalties; “confiscation of illegal gains” is restored.

1. Key revision - Safer to Promote among Private Operators?

The previous draft amendments and AUCL always prohibit operators from bribing (i.e.: offering money, gifts or other treatment in order to get advantages in competition as provided by AUCL and relevant rules.) their counterparties (e.g. distributor, dealer, and customer) in transactions. Such broad prohibition leads to a situation that many of the promotion activities (e.g. cash return, discounts in kind, sales bonus etc.) towards the transaction partners become risky. For example in 2016 some tire companies were punished for offering various sales bonus to their distributors/retailers.

2017 Feb Version took out counterparties (except for those with State investment) from bribe takers, and specified that any operator shall not bribe those with duties of integrity: staff or entrusted entity/individual (e.g. agent, advisor) of the counterparty; entities with State investment, State functionaries, and those who may use the power of State functionaries to influence the transactions. (footnote 1)

Such change may be a response to the long time complaint from society that the bribe takers shall be limited to those who breach their integrity obligations. If this revision becomes effective, and the relevant implementation rules are revised accordingly, private companies/operators may have more freedom in designing promotion activities as long as the accounting/contracting can be done properly.

2. More Powerful Investigation Methods

Comparing with the current AUCL, the 2017 Sep Version expanded investigation methods of authorities to additionally cover (1) accessing to the suspected operation places; (2) sealing up/detaining the suspected assets/items; and (3) inquiring to the bank accounts of the suspects, while removing “order to suspend the sales”.

Some of the aggressive methods proposed in 2016 Version and 2017 Feb Version have been removed, such as freezing fund transfer and inquiring to the accounting vouchers, account books, statement of account relevant to the deposit of the operators.

3. Higher Penalty for Offeror, and Penalty Exemption for Takers?

The fine range is expanded by the 2017 Sep Version from [CNY 10,000, CNY 200,000] to [CNY 100,000, CNY 3 million]; revocation of business license is newly added as a penalty for commercial bribery; confiscation of illegal gains which was removed by 2016 Version and 2017 Feb Version but is now restored in the 2017 Sep Version.

One shall note that confiscation of illegal gains was the most powerful penalty in previous cases. For example in 2016, we have seen one case in Shanghai with confiscation valued higher than CNY 17 million.

Besides increasing the penalties, 2017 Sep Version removed bribe takers from those subject to penalty.

In summary, the 2017 Sep Version may exempt some promotion activities among non-State invested companies from commercial bribery; however since 2017 Sep Version retained the requirement for “proper accounting and express documentation” when offering discounts, whether actually such exemption can be realized is still subject to (1) further revision to the relevant rules; and (2) the interpretation by local authorities; considering the expanded investigation power of authorities, and the increased penalties, it is recommendable to establish proper reaction plan to deal with potential dawn raids and regular official investigations.