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 compliance policy by the management. The main obligations for the management include:

  • establishing the compliance controlling strategy;
  • establishing the risk compliance system;
  • cultivating the risk consciousness of employees and the compliance culture of the company;
  • supervising the compliance operation of the company;
  • being forbidden to embezzle the property of the company via the advantage of convenience of position;
  • being forbidden to take bribes or commit bribery for the benefit of the company or individual;
  • being forbidden to violate the obligation of prohibiting on business competition; and
  • confidentiality.

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

Yes. If the non-compliance activity infringes a third party, the third party may be able to sue the company. For example, if the company violates the Cyber Security Law to collect sensitive personal information without the consumer’s authorisation, the consumer may be able to bring civil litigation against the company in order to make the company compensate for the infringement regarding right to reputation, right to privacy, etc. Another example is, if a company fires an employee who conducted non-compliance activity while such activity has not been stated as a reason for dismissal in the compliance governance documents of the company, the company may be sued by the employee.

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

Yes. If the company’s non-compliance activity violates the related laws and regulations, the company may face corresponding administrative punishment. For example, if the company violates the Anti-Unfair Competition Law to bribe a trading party, the administrative organisation can impose a penalty, confiscate illegal gains, revoke the business licence and record in the credit record among other punishments.

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

Yes. If the company’s non-compliance activity violates the 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 have a penalty imposed on them 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-compliance activity violates the related laws and regulations, the legal representative of the company and the senior management involved in the non-compliance activity may face corresponding civil liability. For example, if a company is enrolled on the blacklist of dishonesty because of outstanding debt, according to Interpretations of the Supreme People’s Court on Certain Issues Concerning Application of Enforcement Procedure of the Civil Procedure Law of the People’s Republic of China, 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, 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-compliance activity violates the related laws and regulations, the legal representative of the company and the senior management involved in the non-compliance activity may face corresponding administrative punishment. For example, a senior executive of a company who also holds a post within the Party or acts as a national civil servant may be dismissed from office or expelled from the Party 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-compliance activity violates the related laws and regulations and meets the standard of filing a criminal case, the senior management involved in the non-compliance activity may face corresponding criminal punishment. For example, according to the Criminal Law, if the company unlawfully raises funds and the amount involved is huge, as well as the penalty imposed on the company, the person who is directly in charge will be sentenced to fixed-term imprisonment or criminal detention.