Companies doing business in the People's Republic of China ("PRC") have yet another path to potential criminal liability. On February 25, 2011, the PRC legislature passed 49 amendments to the PRC Criminal Law. One such amendment – Amendment No. 8 of the PRC Criminal Law – criminalizes the payment of bribes to non-PRC government officials and to international public organizations (the "Amendment"). While the Amendment is brand new and no interpretive guidance has been issued, it appears to be the PRC's version of the United States Foreign Corrupt Practices Act ("FCPA").
Overview of Pre-Existing PRC Anti-Bribery Law
The PRC currently has various laws prohibiting both commercial and official bribery.
Pre-Existing Commercial Anti-Bribery Law
Two PRC laws prohibit commercial bribery: (1) Article 8 of the
PRC Anti-Unfair Competition Law ("AUCL") and (2)
Article 164 of the PRC Criminal Law.
Article 8 of the AUCL prohibits business operators from
"giving bribes in the form of property or other means for
the purpose of selling or purchasing products." The State
Administration for Industry & Commerce
("SAIC") enforces the AUCL. According to Article
2 of the SAIC Provisional Rules of Prohibition of Commercial
Bribery Activities, commercial bribery is defined as "an
activity by which a business operator bribes the other party to a
transaction, either an entity or an individual, in the form of
property or other means for the purpose of selling or purchasing
products." Under Article 20 of the AUCL, violators of
Article 8 of the AUCL may be held liable to persons damaged as a
result of the bribery. Moreover, Article 22 provides that violators
shall be investigated pursuant to the PRC Criminal Law.
Article 164 of the PRC Criminal Law – the other PRC law
prohibiting commercial bribery – criminalizes the act of
"giving money or property to any employee of a company or
enterprise . . . for the purpose of seeking illegitimate
benefits." Any person found to be in violation of Article
164 "shall be sentenced to a fixed term of imprisonment of
not more than three years or criminal detention" if the
amount involved is "relatively large." If the
amount involved is "huge," the violating person
"shall be sentenced to fixed term imprisonment of not less
than three years but not more than 10 years and shall also be
fined." An entity that violates Article 164
"shall be fined," and the "persons who
are directly in charge and other persons who are directly
responsible for the crime shall be punished" as if they
themselves committed the crime.
Thus, in addition to the Amendment – which prohibits the
making of bribes to non-PRC public officials – and other
PRC laws prohibiting the making of bribes to PRC officials, PRC law
already provides for civil and criminal liability for making
commercial bribes to private parties for the purpose of obtaining
illegitimate benefits. Companies doing business in the PRC must
remain wary of these PRC anti-commercial bribery laws.
Pre-Existing Official Anti-Bribery Law
The PRC's pre-existing official anti-bribery law is
found in Articles 385 and 389 of the PRC Criminal Law. Article 385
creates criminal liability for taking
official bribes; Article 389 criminalizes
offering official bribes.
Article 385 provides in relevant part that "[a]ny State
functionary who, by taking advantage of his position, extorts money
or property from another person, or illegally accepts another
person's money or property in return for securing benefits
for the person shall be guilty of acceptance of bribes."
Violators of Article 385 are subject to fines and imprisonment
based on the value of the bribe taken.
Article 389 provides in pertinent part that "[w]hoever,
for the purpose of securing illegitimate benefits, gives money or
property to a State functionary shall be guilty of offering
bribes." Persons who violate Article 389 are subject to
imprisonment based on the seriousness of the offense. Entities that
violate Article 389 are subject to a fine.
Thus, before the Amendment, the PRC prohibited bribery of PRC
officials, but had no law on the books criminalizing the making of
bribes to non-PRC officials. This has all changed with the passing
of the Amendment – the PRC's first statutory
assault on the payment of bribes to non-PRC officials.
Text of the Amendment
The Amendment adds the following language to Article 164 of the PRC Criminal Law:
Whoever, for the purpose of seeking illegitimate commercial benefit, gives property to any foreign public official or official of an international public organization, shall be punished in accordance with the provisions of the preceding paragraph.1 (emphasis added)
The Amendment, which takes effect on May 1, 2011, is short and
direct, and contains no affirmative defenses or exceptions.
Significantly, while the PRC has long banned the making of bribes
to PRC officials, the Amendment marks the PRC's first stab
at prohibiting the payment of bribes to non-PRC public
officials.
Jurisdiction
The PRC Criminal Law applies to all PRC citizens (wherever
located); all natural persons in the PRC regardless of nationality;
and all companies, enterprises, and institutions organized under
PRC law. Thus, in addition to PRC domestic companies, the PRC
Criminal Law applies to all business entities organized under PRC
law, including joint ventures, wholly foreign-owned enterprises
("WFOE")2 and representative
offices.
Both PRC companies and non-PRC companies alike must therefore
remain cognizant of the Amendment. Any joint venture or other
business entity formed under PRC law – including ones
involving non-PRC companies – may be criminally liable
under the Amendment. Non-PRC companies with representative offices
in the PRC may also be subject to the Amendment.
Interpretation of the Amendment
The Amendment is brand new and contains several key undefined terms, such as "illegitimate commercial benefit," "property," and "foreign public official." While these key terms are surely to be defined or at least explained in the future, companies and individuals in the meantime are left with only interpretations of similar terms in existing anti-bribery laws for guidance.
"Illegitimate Commercial Benefit"
On November 28, 2010, the Supreme People's Court
("SPC") and Supreme People's
Procuratorate ("SPP") jointly issued their
Opinion on Some Issues Concerning the Application of the Law in
Criminal Commercial Bribery Cases (the
"Opinion"), which sheds some light on the meaning
of the phrase "illegitimate commercial benefit."
According to the Opinion, the phrase "seeking illegitimate
benefits" in the PRC Criminal Law's commercial
bribery law means seeking any advantage in violation of laws,
regulations, rules or policies, or requiring the other party to
provide assistance or facilitation in violation of laws,
regulations, rules, policies or industry codes of practice.
The PRC may very well end up applying this broad definition to the
term "illegitimate commercial benefit" in the
Amendment. If so, the Amendment will criminalize the making of
bribes to foreign officials in exchange for
any commercial advantage. This would
clearly include securing new contracts and renewing existing ones,
and would likely include other benefits such as favorable contract
terms in otherwise lawful contracts.
"Property"
The Opinion also provides guidance on the definition of
"property" in the context of the PRC anti-bribery
laws. According to the Opinion, the term
"property" in the PRC Criminal Law anti-bribery
laws includes any property interest that can be quantified with a
monetary value.
Moreover, at least in theory, there is a monetary threshold for
criminal prosecution under the pre-existing official bribery laws.
According to the Threshold for Criminal Prosecution in Bribery
Cases issued by the SPP, criminal prosecution for bribery is
justified only if the property offered is at least RMB10,000 for an
individual, or at least RMB200,000 for an entity. According to the
Opinion, however, other factors are also considered in determining
whether criminal prosecution is warranted, including past contacts
between the offeree and offeror, whether the offeree and offeror
are relatives or friends, the reason for the offer, whether the
offeror made any request in connection with the offeree's
official position and whether the offeree actually rewarded the
offeror by using his or her official position in a corrupt
manner.
Though the term "property" as used in the
Amendment has not yet been defined or otherwise interpreted, it is
reasonable to predict that the term will be given the same meaning
it has been given in other parts the criminal law, i.e.,
any property interest that can be quantified with a monetary value.
If so, the term will cover expense reimbursements, entertainment,
gifts and any other benefits that can be assigned a monetary
value.
"Foreign Public Official"
Neither the Amendment nor any other PRC law defines "foreign public official." In fact, the Amendment is the first provision of the PRC Criminal Law to utilize this term. The PRC may, however, borrow the definition of "foreign public official" from Article 2 of the United Nations Convention Against Corruption, ratified by the PRC in 2006, which defines the term as follows:
'Foreign public official' shall mean any person holding a legislative, executive, administrative or judicial office of a foreign country, whether appointed or elected; and any person exercising a public function for a foreign country, including for a public agency or public enterprise.
If the PRC adopts the broad United Nations definition of
"foreign public official," companies must be
careful when dealing with any persons who have any connection to
the public functions of a foreign country. Moreover, as with the
FCPA, companies must ensure that the businesses that they deal with
are not state-owned before taking any action with respect to the
businesses that would be considered bribery under the
Amendment.
Implications of the Amendment
On its face, the Amendment appears to be the PRC's
version of the FCPA. Like the FCPA, the Amendment is meant to
prevent individuals and companies from obtaining unfair business
advantages by paying bribes to foreign government officials. The
Amendment, however, is in its infancy stages and is not nearly as
detailed as the FCPA. The Amendment also has not been the subject
of any judicial interpretation. Only time will tell if the
Amendment actually develops into the PRC's analogue to the
FCPA.
Even so, the Amendment gives companies around the world –
both PRC companies and non-PRC companies – yet another
cause for worry when doing business in the PRC. Non-PRC companies
that are part of joint ventures or other similar business entities
organized under PRC law, or that have representative offices in the
PRC, are for the first time subject to the risk of criminal
liability under PRC law for bribing non-PRC public officials.
The Amendment will have a great impact on American companies doing
business in the PRC. The PRC's fast-growing economy has
made it one of the most attractive countries in which to do
business for American companies, so much so that many American
companies have offices in the PRC. While American companies should
already be cognizant of the FCPA implications of doing business in
China, they must now also be aware of the risks posed by the
Amendment. More specifically, American companies entering into
joint ventures or other business collaborations organized under PRC
law, or that have representative offices in the PRC, must take
steps to ensure that neither they nor their business partners offer
bribes to non-PRC public officials for the purpose of obtaining an
unfair business advantage.
The Amendment also gives American companies another reason to
carefully choose their business counterparts in the PRC. While
companies should always conduct due diligence on any company with
which they seek to form a joint venture or other similar business
entity, the Amendment further strengthens the incentive to do so.
Before teaming up with another company in the PRC, companies should
carefully vet the potential partner and identify any red flags
suggesting that the partner is prone to engaging in corrupt
business practices. In conducing this due diligence, companies
should identify and assess any relationships that the potential
business partner has with non-PRC public officials themselves, as
well as any state-owned business from outside the PRC.
American companies also now have more of a reason to closely
monitor the activities of their representative offices in PRC.
Because representative offices in the PRC are subject to the
Amendment, companies should take steps to ensure that employees
stationed at those offices do not engage in any activities that
would violate the Amendment.
Conclusion
As with the FCPA, the first – and most effective
– step in avoiding criminal liability under the Amendment
is to establish a robust internal compliance program. An effective
compliance program should address third party relationships by
requiring joint venture partners in the PRC to certify their
compliance with the Amendment and all other PRC anti-bribery laws.
Due diligence procedures should also be implemented to require a
detailed investigation into all potential joint venture partners to
minimize the risk of doing business with a partner that is prone to
engaging in bribery. Finally, like all compliance programs, regular
reviews of the compliance program are essential to ensure that the
policy is being properly followed.
Footnote
1 The "preceding paragraph" to which the Amendment refers is the pre-existing Article 164 of the PRC Criminal Code, discussed supra.
2 WFOE is a limited liability company established under PRC law that is wholly owned by foreign investors. There are no PRC investors in a WFOE.
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