In recent years, PRC law-enforcement department has strengthened investigation and punishment against commercial bribery. Typical examples include Japanese automobile financial enterprise, Company T, English pharmaceutical enterprise, Company G, French food enterprise, Company D and other large multinational enterprises have been investigated for commercial bribery. Commercial bribery has become the focus of internal compliance and management of companies, especially multinational enterprises. This article makes an analysis on the determination of commercial bribery, and addresses several reminders to business operators for their daily operations as well as certain measures to prevent commercial bribery based on the above analysis.
1. Definition of Commercial Bribery and Legal Liabilities
As defined by State Administration for Industry and Commerce, commercial bribery refers to the acts of business operators who bribe the counterpart organizations or individuals by offering cash and in kind, or by other non-property means such as offering overseas or domestic travels, tours, and etc. The Central Leading Group for the Management of Commercial Bribery further supplements the definition that acts of commercial bribery are those in violation of the principal of fair competition with a view to provide or obtain business opportunities or other economic interests by means of offering or accepting properties or other economic benefits.
Based on different circumstances and legal basis, commercial bribery can be classified into unlawful acts and criminal acts. Unlawful acts refer to those acts in violation of the legal regime of the PRC Anti-unfair Competition Law but have not constituted criminal crime. Such acts, once determined as commercial bribery by the competent administration authorities, will be subject to administrative punishment. Criminal acts of commercial bribery refer to such commercial bribery that reach certain amount or criteria and constitute commercial bribery related criminal crimes under the PRC Criminal Law. The PRC law regime does not provide one single "Commercial Bribery Crime", but instead, the notion is scattered among different criminal crimes.
According to the Supreme People's Procuratorate's Regulations concerning the Standards of Filing Case for Offering Bribes, the Supreme People's Procuratorate's Regulations concerning People's Procuratorate's Standards of Filing Case for Case Acceptance and Investigation (for Trial Implementation) and relevant Judicial Interpretations, the standards for filing case for crimes in relation to commercial bribery are summarized below:
Furthermore, due attention shall be given to the following issues:
- Even if the above monetary amount is not met, a case may still be filed and investigated if one offers bribes for several times, solicit bribes forcibly, causing significant losses to the state or the society.
- Unpunished acts of repeated bribe offering, once discovered, will be punished based on an accumulative basis. In practice, the bribery amount that has been already sanctioned by administrative punishment will be excluded during the criminal proceedings.
2. Elements for Determination of Commercial Bribery
According to the Anti-unfair Competition Law, Interim Provisions of the State Administration for Industry and Commerce on Prohibition of Commercial Bribery ("Interim Provisions") as well as various documents and relevant regulations promulgated by the General Administration for Industry and Commerce and other law-enforcement organs during their investigation in commercial bribery, the law-enforcement organs generally consider the following elements in the determination of commercial bribery:
(1) The party whom the business operator offers benefits to is the exact counter-party, a potential counter-party of the transaction, or such other company or individual that may affect the transaction ("Transaction-related Party").
Since commercial bribery aims for purchase or sale of goods, the target of commercial bribery shall be, in the first place, such company or individual that is the counter-party of a transaction or potential transaction. Meanwhile, Gong Shang Gong No. (1999) 170 published by the General Administration for Industry and Commerce1 expressly provides that where benefits are offered to a closely-related third party of a transaction for 1 obtaining business opportunity; and 2 has impaired fair competition among other competitors, such action also constitutes commercial bribery. Therefore, companies or individuals who may influence the transaction may also become the target of commercial bribery.
(2) The business operator actually offers unreasonable benefits to relevant parties of the transaction.
Benefits in commercial bribery refer to unreasonable benefits, which includes offering property and other interests, among which, property refers to cash and in kind, including cash or in kind in the guise of legitimate forms, including promotion fee, sponsor fee, research fee, service fee, consultation fee, donation2, and etc.; other means includes offering travel and inspection tours, and etc. Here, "in the guise of legitimate forms" mainly refers to the circumstances that no such fee has actually incurred or the actual incurred fee is well below the paid amount3.
It is worth noting that pursuant to Gong Shang Gong No. (1999) 170 (see footnote 6), even the offered or accepted benefits are booked into the account, it may still constitute commercial bribery if elements of commercial bribery are met. Hence, lawful booking is not enough to serve as a defense to "unreasonable benefits".
(3) The business operator offers benefits for the sale or purchase of goods.
Both Anti-unfair Competition Law and Interim Regulation stipulate that commercial bribery shall aim for the "sale or purchase of goods". Therefore, when determining whether this element of commercial bribery is satisfied in legal enforcement practice, the following points are usually taken into consideration:
A. whether the offered benefits are directly linked with the transaction, e.g. expressly specify that the offered benefits is conditioned on the conclusion of certain transaction4;
B. whether the offered benefits will directly affect the transaction counter-party's choice among other relevant goods, which constitutes an unfair advantage over other competitors in obtaining business opportunities.5.
It is worth noting that the criterion above shall be determined by one's intention instead of actual result. Therefore, even if a transaction is not actually concluded, it may still constitute commercial bribery if it is determined that such act of offering benefits has affected the counter-party's choices in transaction.
(4) The act of offering benefits has impaired the principle of fair competition
It is expressly conveyed in the opinions of Central Leading Group for the Management of Commercial Bribery and other regulations of State Administration for Industry and Commerce that impairing the principle of fair competition is one of the elements for determining commercial bribery6. The same standard is also adopted in judicial practice7. Therefore, in determining commercial bribery, whether such act has impaired the principle of fair competition will be also taken into consideration. E.g. whether it may exclude other competitors from entering into the relevant market, or result in unfair competition among competitors.
3. Determination of Several Typical Commercial Bribery Activities and Practical Notes
For some common commercial bribery activities in practice, when determining the illegality of such activities, in addition to elements of commercial bribery as discussed above, relevant regulations also set forth certain major factors based on different features of such activities. The business operator may carefully assess whether its daily operational activities may be suspected of commercial bribery based on different features of such activities.
Rebate means refund of certain purchase price by means of cash or in kind to the individual or company counter-party of a transaction. The major factor of rebate is "secretly off-the-books", including not recording into the financial account, transferring into other financial account, making fraudulent account entries, and etc. In practice, one shall distinguish illegal rebate from legal discount. Legal discount refers to express discount granted to the counter-party, which has been truthfully recorded into the account. Thus, rebate and discount are mainly differentiated by whether the amount has been "accurately recorded into the account". Therefore, when granting discounts to the counter-party, the business operator shall pay special attention to ensure correct accounting treatment, so as to avoid illegal rebate merely by reason of wrong accounting treatment in practice.
The PRC laws do not explicitly prohibit activities of gifting in small amount (to the extent accepted by common sense) of cash or in kind. However, prohibition is imposed on gifting beyond such scope or offering and accepting of bribes in the guise of gifting.
With respect to the boundary between gift and bribery, the Supreme People's Court and the Supreme People's Procuratorate stipulate expressly in Opinions on Certain Issues Concerning the Application of Law in Handling Criminal Cases of Commercial Briberies that a comprehensive analysis and synthetic judgment shall be given combining the following major elements:
A. the background for the transaction of the property in question, such as whether both parties are relatives or friends, their historical relationship and the extent of such relationship;
B. the value of the property in question;
C. the reason, time and manner for and of such transaction, and whether it involves any request by the offeror in relation with the receiver's job;
D. whether the receiver of such property has taken advantage of his/her job to secure benefits for the offeror.
(3) Offering training fees or travel in the guise of training or visitation
If the business operator offers the counter-party training fees in the guise of training, or offers travel in the guise of visitation or business tour, such act shall be regarded as offering illegitimate interests and constitute commercial bribery. In case there is a genuine necessity to provide fees for training, visitation or tour, the business operator shall attentively arrange the schedule, which shall only include such commercially necessary items as factory visit, and shall, to the extent possible, not include other irrelevant items such as travel and entertainment. If the counter-party would like to arrange for schedules of entertaining and travelling nature, it shall bear its own expenses. In the mean time, the business operator shall also pay due attention to the gifts offered during the visit/tour, so as to ensure that they are within the legitimate extent.
In industries relating to public welfare such as healthcare and other industries, there are circumstances of offering illegitimate interests for commercial bribery in the guise of donation. Legitimate donation shall conform to the following principles8, otherwise it may prone to be deemed as commercial bribery.
A. conforming to Public Welfare Donation Law and other relevant regulations, and being truthfully recorded into the account. Specifically speaking, it shall first fulfill the requirements as provided in Public Welfare Donation Law. Secondly, as some special regulations has been released for particular industries, such as Interim Measures on the Administration of Receipt of Social Donations and Financial Aids by Medical and Health Institutions, donations to relevant institutions of such industries shall conform to such regulations as well;
B. not directly or indirectly linked to the transaction of goods;
C. not detrimental to the legitimate rights and interests of other business operators;
D. used for public welfare undertakings.
(5) Commission and other intermediary fees
During the purchase or sale of goods (including services), intermediary fees such as commission and other fees may be offered to intermediaries as long as they are truthfully recorded in the accounts. However, in practice, there are circumstances where the business operator offers illegitimate interests to an interested party of the counter-party in the guise of commission or other intermediary fees. Therefore, to avoid risk of commercial bribery, when making commission or other intermediary fees payment, the business operator shall pay special attention to confirm whether the intermediary is interestedly related to the counter-party, whether the intermediary has actually provided intermediary services, and whether the amounts of commission and other intermediary fees conform to commercial practice, and etc.
4. Business Operators' Measures to Avoid Commercial Bribery Risks
To avoid commercial bribery risks, in addition to prudent assessment of activities potentially concerning commercial bribery as discussed in Section 3 above, business operators may consider strengthening their internal management in the following aspects:
(1) Build an internal control mechanism for anti-commercial bribery/anti-corruption
Especially for those enterprises in high-risk industries for commercial bribery (such as engineering construction, property transaction, medicine purchase and sell, land transfer, government procurement, resource development and distribution and other fields), they shall firstly avoid occurrence of commercial bribery by establishing and strengthening its internal control system and strengthening its management policies. For example, establish and improve the compliance mechanism of the company. The company may promulgate internal anti-commercial bribery/anti-corruption regulations based on the characteristics of the industry the company is engaged in, which generally include standards for matters that may potentially related to commercial bribery (e.g. standard for reception, gifting, and etc.) contract approval procedures, payment verification system, legal compliance verification system, and etc.
(2) Anti-commercial bribery training to key personnel
With respect to key personnel exposed to commercial bribery risks, including senior executives, sales or purchase personnel, sales or purchase supporting personnel (such as marketing department for sales promotion, etc.), financial personnel, legal personnel, and etc., the business operator shall pay special attention to conduct anti-commercial bribery training and education to such personnel, and enhance their sense of anti-commercial bribery. Furthermore, it is also important to conduct periodical training and education to agencies and other external related parties.
(3) Periodical internal review
In addition to the establishment of a mechanism and strengthening trainings for anti-commercial bribery, in order to check the implementation of anti-commercial bribery measures in real practice and to timely identify hidden problems, periodical internal review is suggested for confirming normal operation of anti-commercial bribery mechanism and eliminating loopholes. In practice, many companies may find it hard to maintain a long-term and regular internal review. In fact, internal reviews can be routine review of key departments, specific review to several targeted spots, and even review towards senior management personnel or personnel of key positions before their separation with the company, and etc. Generally, the department in charge of internal review has comparatively independent power and is responsible for and reports directly to specific level of management. According to the results of internal review, the internal control mechanism for anti-commercial bribery may be further consummated.
1 The Reply on the Issues of Judging and Handling concerning the Travel Agency or Tour Guide's Behavior of Taking "Headcount Fee", "Parking Fee" and other fee (Gong Shang Gong Zi (1990) No. 170);
Article 8 of PRC Anti-unfair Competition Law prohibits the operator from offering bribes of property or other means with a view to sell or purchase commodities. Its essence is to prohibit the operator from soliciting transaction through unlawful interests. An act will constitute commercial bribery prohibited under Article 8 of Anti-unfair Competition Law, as long as there is any solicitation behavior with a view to gain business opportunities causing negative influence on fair competition on quality, price and service among other competitors, regardless of whether such solicitation is provided to individual, company or others with close connection to the transaction or whether such offering or taking such benefits has been duly recorded in the account.
2 Opinions Concerning the Understanding of the Policy Boundary in Handling Commercial Bribery Cases (Zhong Zhi Hui Fa (2007) No.4): Donation shall comply with the Donation Law for Public Wealth and other relevant regulations. It shall be duly recorded into the account and has no direct or indirect relation with goods transaction, shall not harm others' interests and shall be used into public wealth. Gaining business opportunities, service opportunities, favorable condition and other interests through offering benefits shall be deemed as commercial bribery.
3 The Reply to Issues re Whether Taking Sponsorship Fee, Publicity Fee and Advertisement Fee from the Counter-Party shall be Regarded as Commercial Bribery in Joint Operation of Counter (Gong Shang Gong Zi (2001) No. 152) by General Administration for Industry and Commerce: It shall be deemed as commercial bribery if one party publicly takes or offers the opposite party or individual such benefits beyond the cost of regular commodity or service fee in the form of contracts or supplementary agreements in the guise of publicity fee, advertisement fee, commercial sponsorship fee and no such publicity, advertisement events, and etc. have actually happened.
4 In a case judged by Yangzhou Intermediate People's Court of Jiangsu Province in 2001 (Yang Hang Zhong Zi No.15), the behavior is identified as commercial bribery by the government and court because both parties agree on the lowest purchase price and meanwhile, one party agrees to gift a free car to the other in return;
5 In the Reply to the Issue concerning the Judgment of Promoting the Sales of Beer by Repurchasing Bottle Caps (Gong Shang Gong Zi (1997) No. 321), it's ruled that due to the fact repurchasing bottle caps in cash may affect choices when purchasing the beer, it shall be considered as commercial bribery.
6 According to Gong Shang Gong No. (1999) 170, "influencing fair competition on quality, price and service among other competitors" is one of the elements in determining commercial bribery.
7 Intermediate People's court of Wenzhou, Zhejiang Province commented on a final trial case (2006 Wen Xing Zhong No.281) that "the determination on unfair competition (including commercial bribery) shall not rely only on the fact whether the proposed act has objectively cause actual damage to other business operators and consumers, the court shall also foresee whether the proposed act will adversely affect the fair competition mechanism."
8 Opinions on Correctly Grasping the Policy Borderlines in the Specific Campaign against Commercial Bribery
Donations shall be made expressly in accordance with the Public Welfare Donation Law and other relevant regulations, be used for public welfare undertakings, and be truthfully recorded into accounts. They shall not be directly or indirectly linked to commodities or trading, or be detrimental to the legitimate rights and interests of other business operators. It shall be deemed as commercial bribery if valuables are offered in the name of donation in exchange for trading or service opportunities, preferential conditions or other economic interests.
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.