China: Lifestyles of Chinese Officials Scrutinized under New Anticorruption Measures

Last Updated: 9 August 2010
Article by Nathan Bush and Bingna Guo

The Chinese government recently released two new measures aimed at tightening oversight of the lifestyles and finances of Chinese government officials and their family members. The measures are designed to expose evidence of misconduct within the bureaucracy by expanding the scope of personal data that officials must report to their superiors, extending the reporting obligations to a much broader category of officials, and increasing the penalties for non-compliance. The measures were jointly issued by the General Office of the State Council, the top executive organ of the Chinese state, and by the General Office of the Central Committee of the ruling Communist Party of China ("CPC") as part of the central government's continued efforts to rein in corruption among bureaucrats and personnel of State-Owned Enterprises (SOEs).

The Interim Rules on Strengthening Management of Officials Whose Spouses and Children Have Migrated Overseas, issued on May 19, 2010, address the growing phenomena of officials arranging for the immigration of their family members to facilitate the concealment of illegal wealth and to escape overseas to evade punishment for graft and other misconduct. Promotions and reassignments of so-called "naked officials" (Luo Guan), whose family members have moved overseas, must be reported to the CPC organizational departments at higher levels, as must the whereabouts of their spouses and children. Such "naked" officials must also disclose any travel to foreign countries, Hong Kong, Macau or Taiwan prior to departure.

The Regulation on Reporting Relevant Personal Matters by Cadres and Officials (the "New Reporting Regulation"), released on July 11, 2010, bolsters a reporting system first established in 1995 and revised in 1997 and 2006.

The New Reporting Regulation significantly expands the scope of officials subject to mandatory reporting requirements. Previously, only officials at the "county chief" level (Xian Chu Ji) and above were covered. The New Reporting Regulation identifies three categories of "cadres and officials" subject to mandatory reporting requirements, as follows:

  • "officials at the deputy county chief level and above at departments and agencies of the CPC, people's congresses, administrative organs, committees of the Chinese People's Political Consultative Conference, judicial organs, people's procuratorates, and democratic parties" (referring to certain political parties permitted to exist within the CPC-dominated political system);
  • "officials holding ranks equivalent to the deputy county chief level and above at civic organizations and public institutions," (such as museums); and
  • certain managers in "wholly state-owned enterprises and state-controlled enterprises (including wholly state-owned financial enterprises and state-controlled financial enterprises)"

Previously, the reporting obligation only applied to CPC members in the management of SOEs. Moreover, provincial level CPC committees and governments now have authority to apply the reporting regime to additional officials below the deputy county chief level. A statement issued by the CPC explains that the reporting obligations were extended to lower-level personnel because lower level officials are often more susceptible to bribes because they are dealing directly with practical issues involving personnel, finance, and materials.

The New Reporting Regulation also expands the scope of reportable information. Previously, covered cadres and officials were required to report the following information to their CPC organization departments: (1) changes in marital status; (2) ownership of passports and other travel certificates for personal matters; (3) travel outside China for personal matters; (4) the marriage of cadres and officials' children to foreigners or residents of Hong Kong, Macau and Taiwan; (5) situations where cadres and officials' spouses and children are living outside China; (6) personal investments in businesses and enterprises outside China by cadres and officials' spouses and children living in the same household (7) situations where cadres and officials' spouses and children living in the same household serve as management personnel in Chinese branches of foreign companies and Hong Kong, Macau and Taiwan companies; (8) any criminal proceedings involving cadres and officials' spouses and children and (9) any other matters that cadres and officials think are reportable.

Beyond these existing reporting requirements, the New Reporting Regulation now mandates that covered cadres and officials also report: (1) the marriage of cadres and officials' children to individuals "without nationality"; (2) the occupations of cadres and officials' spouses and children (now including children who do not live together with the officials and cadres), both inside China and abroad; (3) salaries and all types of allowances and subsidies of cadres and officials; (4) cadres and officials' incomes from all sources, including lectures, writing, consulting, editing, paintings and calligraphy, and other services; (5) ownership of real estate by cadres and officials, their spouses, or their children living in the same household; (6) financial investments by cadres and officials, their spouses, or their children living in the same household; (7) investments in enterprises by cadres and officials, their spouses, or their children living in the same household; and (8) any businesses in which the cadres and officials, their spouses, or their children living in the same household are owners or partners. The previous catch-all item of "other matters that cadres and officials think are reportable" in the 2006 regulation is omitted in the New Reporting Regulation.

The new reporting items reflect the emergence of disproportionate or sham compensation for officials' speeches and personal services (such as calligraphy and paintings) as a means of disguising incentives, as well as the prevalent practice of holding proceeds of misconduct in family members' names.

Under the New Reporting Regulation, the penalties for failing to report relevant personal matters timely or reporting false information now include dismissal; previously, the harshest penalty was a derogatory report or "criticism." Although the New Reporting Regulation does not directly authorize civil or criminal penalties, the reporting system may provide the basis for prosecutions of cadres and officials for the crime of possessing substantial wealth from unknown in violation of Article 395 of the PRC Criminal Law.

The New Reporting Regulation does not, however, require any public disclosure of reported data concerning the assets, income, and lifestyles of the covered cadres and officials. Consequently, while these new measures may equip investigators from CPC's discipline inspection commissions and law enforcement authorities with new means of unearthing evidence of corrupt conduct, the measures do little to strengthen public oversight of the bureaucracy.

For multinational enterprise active in China, these new measures serve as a reminder of the Chinese central government's continued efforts to tackle the country's endemic corruption. Foreign companies should be mindful of the increasing risk of scrutiny by enforcement authorities of any payments to officials for speeches and other personal services and of favors to officials' family members.

O'Melveny & Myers LLP routinely provides advice to clients on complex transactions in which these issues may arise, including finance, mergers and acquisitions, and licensing arrangements. If you have any questions about the operation of the applicable statutory provisions or the case law interpreting these provisions, please contact any of the attorneys listed on this alert.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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