China: A Breakthrough Provision Against Commercial Bribery

Last Updated: 21 December 2017
Article by Claire Gu

On November 4, 2017, the Standing Committee of the National People's Congress adopted a revision to the Anti-Unfair Competition Law of the People's Republic of China (the 2017 Anti-Unfair Competition Law). The 2017 statute has already been reviewed three times, and is set to come into effect on January 1st, 2018.

After 24 years of theoretical research and practical operations, the Anti-Unfair Competition Law promulgated and implemented in 1993 have been drastically amended and improved to better fit modern practices.

Amongst all the revisions, the addition of commercial briberyis one of the major changes that the 2017 Anti-Unfair Competition Law has brought.

1. Expansion of the Scope of Commercial Bribery

The 2017 Anti-Unfair Competition Law provides more clarity on the scope of what constitutes commercial bribery. It states the purpose of commercial bribery should be to "seek a transaction opportunity or competitive advantage" instead of the previous "selling or purchasing goods," where current practices have rendered the 1993 connotation and denotation of "selling or purchasing goods" ineffective at encompassing the problem in its entirety. In practice, under the previous scope, the "sale or purchase of goods" extended beyond just that to include all kinds of service transactions and commercial bribery, bringing the new connotation closer to actual practice.

On the one hand, by revising and expanding the definition of commercial briber, the existing practice can be firmly established in the provision, and on the other hand, other forms of commercial bribery seeking trading opportunities or competitive advantages that may appear in the future can be included under the new definition.

2. Redefining the Objects

Prior to this revision, the 1993 Anti-Unfair Competition Law only limits the object under scrutiny to the "counterparty (individual or entity)." Article 8 of the 1993 Anti-Competition Law clearly stipulates that:

"An operator shall not sell or purchase goods by offering bribes with money or valuables or otherwise. Where an operator secretly pays kickbacks to the counterparty, be it an entity or individual, off the books, the operator shall be punished for offering bribes; where the counterparty, be it an entity or individual, secretly accepts kickbacks off the books, the transaction counterparty shall be punished for taking bribes."

In addition, the Interim Regulations of the State Administration for Industry and Commerce on Prohibition of Commercial Bribery (the Interim Regulations) further clarifies that "commercial bribery" should include the acts of a business operator who bribes the opposite entity or individuals, with the use of property or other means, for the purpose of selling or purchasing commodities.

However, in practice, third parties that have a close impact on the transaction are often also identified as counterparties of commercial bribery. For example, tourist attractions paying "gratuities" to tour guides or travel agencies will be punished under the 1993 statute. Thus, the 2017 revisions to the Anti-Unfair Competition Law are regarded as the confirmation and perfection of the existing practice.

The 2017 Anti-competition Law brings into the scope of taking bribes:

"Any employee of the counterparty in a transaction; any entity or individual entrusted by the counterparty in a transaction to handle relevant affairs; or any other entity or individual that is to take advantage of powers or influence(利用职权或者影响力) to effect a transaction."

It should be noted that the nature of the aforementioned "counterparties" does not differentiate between state-owned or private-owned entities. The 2017 Anti-Unfair Competition Law (Second Draft for Revision) distinguished "any other entity or individual that is to take advantage of powers or influence to influence a transaction" into two categories:

"(3) State organs, state-owned companies and enterprises, public institutions, people's organizations, or national staffs(国家工作人 员);

(4) Other entities or individuals that may use the functions of the national staff to influence the transaction."

In the second draft, State organs, state-owned companies and enterprises, public institutions, people's organizations, or national staffs are specified to be included under "third parties that may affect the transaction," or "counterparties to the transaction."

During the discussion, some specialists suggested that market players are in an equal position and laying stress on the state-owned entities would therefore not be appropriate. Others proposed that both of them fall under the catalogue "take advantage of powers or influence to influence a transaction."

The final version expresses the certainties of these suggestions and affirms that the counterparty to a transaction, whether it is state-owned or private-owned, in principle, cannot be impartial to commercial bribery.

3. Reserving Requirement on Complete Bookkeeping

The 2017 The Anti-Unfair Competition Law removes the following section from the 1993 statute:

"Where an operator secretly pays kickbacks to the counterparty, be it an entity or individual, off the books, the operator shall be punished for offering bribes; where the counterparty, be it an entity or individual, secretly accepts kickbacks off the books, the transaction counterparty shall be punished for taking bribes."

Nevertheless, it still remains in the present text: "A business operator that accepts such discount or commission shall also enter it into its account books faithfully." This wording shows that there are some rebates among enterprises that are not yet clearly stated, unrealistically recorded or improperly accounted for but may still be commercially acceptable and do not constitute commercial bribery.

4. Clarity over Employer Responsibility for Employee's Acts

The 2017 Anti-Unfair Competition Law adds that:

"The act of an employee of a business operator bribing any other individual shall be deemed an act of the business operator itself, unless otherwise proven by the business operator with evidence that such act is not related to efforts in seeking a transaction opportunity or competitive advantage."

For the first time, this provision clearly states that the employer shall share in the accountability for an employee's act of bribery. In fact, the Interim Regulations have already suggested that "The behavior that the staff of a business operator(经营者) conduct commercial bribery for the purpose that business operator sells or purchases commodities, shall be regarded as the acts of the business operator."

In contrast with the two provisions, the 2017 Anti-Unfair Competition Law expands the scope of commercial bribery to include all staff and thereby puts greater liability on the behavior of individual employees in the management of enterprises.

While some of the revisions under the 2017 Anti-Unfair Competition Law are to better account for existing practices, the new commercial bribery provisions introduced as well as amendments to existing statues are likely to have a profound impact on China's future.

First published 13/12/2017

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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