China: 2013 Guidance On PRC Anti-Bribery Law Focuses On Bribe Givers

Anti-corruption enforcement efforts in China historically have tended to focus on the recipients of bribery, as evidenced by harsher statutory penalties for bribe takers and the highly publicized prosecution of government officials accused of accepting illicit payments. However, recently issued guidance on PRC anti-bribery law places the focus squarely on bribe givers by expanding upon existing sentencing thresholds and creating new incentives for voluntary disclosure. Whether or not to bring potential violations of anti-bribery law to the attention of regulators is a complex decision in any jurisdiction. For foreign companies operating in China, the new guidance will serve as an important factor in that calculus.

The Interpretation of the Supreme People's Court and the Supreme People's Procuratorate of Several Issues Concerning the Specific Application of the Law in the Handling of Criminal Bribe-Giving Cases (最高人民法院、最高人民检察院关于办理行贿刑事案件具体应用法律若干问题的解释) (the "Interpretation")¹ came into force on January 1, 2013. Adopted by China's highest court, the Supreme People's Court ("SPC"), on May 14, 2012, and its highest prosecutorial organ, the Supreme People's Procuratorate ("SPP"), on August 21, 2012, the Interpretation is equivalent to law. On multiple occasions, the SPC and the SPP have jointly issued guidance regarding bribery-related crimes, such as the 2007 interpretation on the receipt of bribes by State Personnel (defined below), and the 2008 interpretation on commercial bribery. These documents provide significant insight into how Chinese regulators interpret key principles of anti-bribery laws. Provisions of note in the Interpretation include the following.

Mitigated Sentences and Waivers for Voluntary Confessions

Pursuant to Article 7 of the Interpretation, if an individual or corporate entity accused of bribery voluntarily confesses to the authorities before prosecution commences, he may be eligible for mitigated punishment or a waiver of punishment (subject to certain exceptions²). According to Article 8, post-prosecution, an individual or entity convicted of bribery may still be eligible for leniency in sentencing if he or it truthfully confesses to the criminal conduct.

For the first time, the Interpretation expressly applies the concept of voluntary confession to corporate bribe givers. Voluntary confession (自首) is defined under the PRC Criminal Law as the act of voluntarily delivering oneself up to justice and truthfully confessing one's crime after its commission.³ Voluntary confession by an individual is a common concept under the PRC Criminal Law. Voluntary confession by a corporate perpetrator, however, is a comparatively new concept. First introduced in a 2002 judicial interpretation on smuggling,⁴ it was subsequently extended to crimes committed in the course of performing an official duty (including acceptance of bribes) in 2009.⁵

Under PRC law, if a corporate entity is convicted of paying a bribe, it will be subject to criminal fines. In addition, individuals in positions of corporate authority (such as the legal representative or general manager), as well as the perpetrators themselves, may be subject to criminal detention or imprisonment, depending on the severity of the crime. While examples of company representatives receiving leniency after voluntarily confessing are publicly available,⁶ the Interpretation marks the first time that this practice has been codified.⁷

Both the U.S. Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC") highly encourage voluntary disclosures. The FCPA⁸ Guidance released last November expressly states that "both DOJ and SEC place a high premium on self-reporting, along with cooperation and remedial efforts, in determining the appropriate resolution of FCPA matters." In addition, the U.S. Federal Sentencing Guidelines, which place sentencing limits on federal felonies and serious misdemeanors, take into account an organization's self-reporting, cooperation and acceptance of responsibility.⁹ Accordingly, in the U.S. as in China, while voluntary disclosure is no guarantee of non-prosecution, it can serve as a significant mitigating factor.

The Scope of "Improper Benefits" Expanded

The 2008 judicial interpretation on commercial bribery defines bribery as seeking "improper benefits" (不正当利益). Improper benefits accrue where a bribe giver seeks "benefits in violation of laws, regulations, rules or policies, or requests that a receiving party provide any assistance or convenience in violation of laws, regulations, rules or policies, or industry standards" such as "a competitive advantage in tendering, government procurement and other commercial activities."¹⁰ The Interpretation begins with the same core definition but expands its scope to further include "seeking competitive advantage in economic, organizational, human resource, administrative and other activities in violation of the principles of justice and fairness."¹¹ On its face, this modification has the potential to significantly increase the scope of illegal activity. However, whether PRC officials will seize upon this change to bring cases that previously would have fallen outside their enforcement mandate remains to be seen. In addition, as the Interpretation specifically deals with the crime of bribing "State Personnel" (国家工作人员)¹² – a category that overlaps but is not contiguous with the notion of "foreign official" in the FCPA – it is unclear whether this change also applies to acts of commercial bribery.

Monetary Thresholds and Penalties

The Interpretation adopts the PRC Criminal Law's threshold of RMB10,000 for individual bribes to State Personnel as the floor for criminal liability.¹³ It proceeds to clarify what range of payments constitutes a "serious case" (情节严重),¹⁴ "very serious case" (情节特别严重)¹⁵ and a "major loss to the national interest" (使国家利益遭受重大损失), ¹⁶ as well as the penalties associated with each.

A "serious case," which carries a penalty of imprisonment for five to ten years, applies where the amount of the bribe falls between RMB200,000 and RMB1 million or where the amount of the bribe is between RMB100,000 and RMB200,000 and any of the following aggravating factors applies:

1. the bribe is offered to more than three persons;
2. the bribe comes from illegal proceeds;
3. the bribe is offered to State Personnel with administrative oversight for food, drugs, production safety, or environmental protection and harms the public interest or endangers people's lives and property; or
4. the bribe is offered to State Personnel at enforcement or judicial organs where the bribe affects administrative enforcement or judicial impartiality.

There is also a blanket provision for bribes paid under "other serious circumstances." From factor (3) above, it is apparent that official corruption related to food items, pharmaceuticals and product safety represents a significant enforcement priority. This is not surprising given the number of recent high-profile cases (in particular, the outcry over tainted infant milk formula) drawing public ire.

A "very serious case," which carries a penalty of more than ten years' imprisonment or a life sentence, as well as the possible confiscation of personal property, applies to matters where (i) the amount involved is more than RMB1 million; (ii) the amount involved is between RMB500,000 and RMB1 million and is accompanied by one of the above aggravating factors; (iii) the bribe causes a direct economic loss of more than RMB5 million or (iv) in "other very serious circumstances."

In contrast, a "major loss to the national interest" (which, like "serious cases," carries a penalty of imprisonment for five to ten years) is contingent solely upon the extent of economic loss caused by the bribery rather than the amount of the bribe itself. Such threshold is set at an economic loss of more than RMB1 million.

Although the Interpretation clarifies the penalties associated with different levels of official corruption, whether these rules will be applied to commercial bribery cases remains to be seen. Also unclear is whether the thresholds, which technically apply only to bribes paid by individuals, will influence cases against corporate perpetrators.¹⁷

Significance for Foreign Companies Operating in China

While the enhanced sentencing thresholds are likely to have little impact on the daily operations of foreign companies in China, the prospect of a reduced sentence in exchange for voluntary disclosure is noteworthy. Although technically speaking, corporate entities have no affirmative duty under PRC law to disclose knowledge of bribery, the guidance offered by the Interpretation should influence how corporate representatives of multinationals weigh their options in determining when and whether to proactively disclose compliance issues to regulators.

Further, while the guidance primarily clarifies, rather than changes, existing regulations, it serves as an important tool for assessing China's current enforcement priorities – something all foreign companies operating in this rapidly evolving market would do well to keep in mind. While PRC enforcement organs are likely to continue focusing their efforts on corruption among party members and State Personnel, the Interpretation's attention to criminal penalties for bribe givers indicates an increased interest in the other side of the graft equation. It is also worth noting that foreign companies play a major role in many of the sectors singled out in the sentencing guidelines for special consideration, such as the food and pharmaceutical industries. So long as U.S. regulators continue to bring actions involving Chinese entities, it would not be surprising if their PRC counterparts seized the opportunity to return the favor.

Bribe Giving: Thresholds and Penalties

The following chart summarizes the various thresholds and applicable penalties for bribes given to State Personnel by individuals as set forth in the Interpretation and Article 390 of the PRC Criminal Law.

Footnotes

1 Available at http://www.spp.gov.cn/flfg/sfjs/201301/t20130101_52307.shtml.

2 Mitigation is generally unavailable if:

1. the bribe giver provided bribes to more than three persons;
2. the bribe giver was previously subject to an administrative or criminal penalty for bribery;
3. the bribes were provided in order to carry out criminal or illegal activities;
4. the bribery resulted in "severe consequences"; or
5. certain other circumstances apply. Interpretation, Art. 10.

3 PRC Criminal Law, Art. 67.

4 See Opinion on Several Issues Concerning the Application of the Law in the Handling of Criminal Smuggling Cases (关于办理走私刑事案件适用法律若干问题的意见) released by the SPC, the SPP and the General Administration of Customs on July 8, 2002, Sec. 21.

5 According to Section 1 of the Opinion on Several Issues Concerning the Determination of Voluntary Confession and Meritorious Behavior in the Handling of Official Duty-Related Criminal Cases (关于办理职务犯罪案件认定自首、立功等量刑情节若干问题的意见) released by the SPC and the SPP on March 12, 2009, a voluntary confession by an entity can be established if (i) the entity, through a decision jointly made by its management or by a person in charge of the entity, voluntarily appears before the authorities and truthfully confesses its crime; or (ii) the person(s) directly in charge of the entity appears before authorities and truthfully confesses the crime committed by the entity.

6 For example, in August 2012, a court in Guangdong Province found Foshan Shengjian Road Project Supervision Co., Ltd. guilty of paying RMB1,050,000 to five government officials in order to secure contracts. In its judgment fining the company RMB500,000 and sentencing its chairman to nine months imprisonment, the court acknowledged that both had voluntarily confessed and therefore qualified for leniency. (See http://www.chinanews.com/fz/2012/08-17/4114518.shtml).

7 While there are clear cases of individual perpetrators receiving mitigated sentences for voluntarily confessing, such as probation rather than imprisonment, because PRC law does not provide specific monetary penalties for corporate actors, it is difficult to assess whether corporate fines reflect similar reductions.

8 Foreign Corrupt Practices Act of 1977 (FCPA) (15 U.S.C. § 78dd-1, et seq.).

9 Under Chapter 8, an organization's self-reporting, cooperation and acceptance of responsibility may decrease its culpability score, leading to a reduction in fines.

10 Opinion on Several Issues concerning the Application of the Law in the Handling of Criminal Commercial Bribery Cases (关于办理商业贿赂刑事案件适用法律若干问题的意见) released by the SPC and the SPP on November 20, 2008, Art. 9.

11 Art. 12.

12 "State Personnel" refers to any person conducting public affairs at a state authority; any person conducting public affairs in state-owned companies and enterprises, institutions and public organizations; any person appointed by state authorities, state-owned companies and enterprises and institutions conducting public affairs in non-state owned companies, enterprises, institutions and public organizations; and any other person conducting public affairs in accordance with law. PRC Criminal Law, Art. 93. In 2011, China amended its Criminal Law to cover bribery directed at non-Chinese government officials.

See http://www.paulhastings.com/publicationdetail.aspx?publicationId=1894.

13 Interpretation, Art. 1 and Regulations on the Thresholds of the Crime of Giving Bribes (最高人民检察院关于行贿罪立案标准的规定) issued by the SPP on December 22, 2000, Sec. 1.

14 Art. 2.

15 Art. 4.

16 Art. 3.

17 The Interpretation refers to Article 390 of the PRC Criminal Law which deals with individual bribery, but not Article 393, which addresses bribery by corporate perpetrators.

18 See note 13, supra.

19 See note 14, supra.

20 See note 15, supra.

21 See note 16, supra.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.