It is a crime in China, specifically the crime of giving bribes to a unit, to give the property or money (such as giving rebates) to xiaojinku (i.e., coffer) of SOEs.
The crime is unique compared with the offences under the FCPA. For example, the FCPA prohibits payments to foreign officials, not to foreign governments (Page 20 of A Resource Guide to the U.S. Foreign Corrupt Practices Act). However, with the mentality under the FCPA to make some payments (such as rebates) to Chinese SOEs such as Chinese State-owned hospitals (which are regarded as foreign governments under the FCPA), a business could find themselves meeting some troubles unexpectedly, and the troubles could be as bad as criminal implication.
The applicable law is Article 391 of China’s Criminal Law: “Whoever, for the purpose of securing illegitimate benefits, gives money or property to a State organ, State-owned company, enterprise, institution or people's organization or, in economic activities, violates State regulations by giving rebates or service charges of various descriptions shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention.
Where a unit commits the crime mentioned in the preceding paragraph, it shall be fined, and the persons who are directly in charge and the other persons who are directly responsible for the offence shall be punished in accordance with the provisions of the preceding paragraph.” We can use the following two cases to illustrate how this law is enforced.
From1999 to 2002, a pharmaceutical company inGuangdongwire transferred rebates to three local hospitals (not individual doctors) which purchased the pharmaceuticals from this company. The total amount of the rebates was RMB2,020,127.54 (approximately US$330,000). In the end, both the pharmaceutical company and the concerned executive were convicted for committing the Crime of Giving Bribes to a Unit. The company was punished with a fine and the executive was imprisoned for two years.
Another case took place inYunanProvince. From 2002 and 2006, two distributing companies were selling heart rhythms as well as some other medical devices to nine hospitals in Yunan. To incentivize the hospitals to purchase the medical devices, the two distributors gave rebates to the internal clinical departments of the hospitals (again not individual doctors). It seems that the distributors were trying to hide the illegal nature of the rebates – the payments were made in the name of “x-ray compensation fee”. The total fees accumulated to RMB2,241,960 (approximately US$370,000). The two distributing companies were thus convicted for committing the crime and received the punishment of a fine of RMB200,000 (approximately US$33,000) each. The concerned executive was convicted of imprisonment for 18 months with two-year reprieve.
In the above two cases, although the rebates were not paid to the pockets of individual doctors, the rebates were not paid either to the official bank accounts of the concerned hospitals – the rebates were paid to the coffer of a hospital or the department of a hospital for the benefit of a collective unit, which were thus punished as corruption on a collective basis, so were the businesses that paid the rebates.
* Licensed in the PRC and the New York State of the U.S., Henry Chen, the author, is a Shanghai-based partner at MWE China Law Offices in stratetic alliance with McDermott Will and Emery.
Henry has extensive experience representing enterprises in administrative and criminal investigations of alleged commercial bribery cases; providing counsel for the investigation of employee misconducts; helping clients conduct pre-merger due diligence investigations and post-merger integrations; providing training and seminars in Chinese and English to the employees of MNCs regarding anti-corruption and bribery pitfalls; providing FCPA investigations and auditing for the presence of American companies in China and for companies listed in the U.S.; helping companies update and strengthen their internal anti-corruption compliance programs and controls and tailoring them to the unique features of Asian markets.
Henry’s research about FCPA enforcement and Chinese anti-bribery and -corruption law has been published or quoted in leading publications, including the Bloomberg Asia Pacific Law Report, Wall Street Journal, China Law & Practice and ALB. Henry is also the host of Linkedin groups: "Compliance in China” and “Anti-Corruption Compliance Asia.”
Henry is available at henrychen@mwechinalaw.com
