There are two primary laws in
relation to bribery in China: one is Criminal Law; another is Anti-Unfair
Competition Law (“AUCL”). The Criminal
Law provides for criminal liabilities for corruptive bribery; the AUCL provides
for administrative liabilities about commercial bribery (and some other
anti-competitive practices) that is anti-competitive in nature and not severe enough
to be punished under the Criminal Law.
The AUCL was promulgated and took
effect in 1993 (“1993 AUCL”). The AUCL
has been seeking to regulate an array of practices that would impede the
competitive orders of the market, with provisions governing the passing off and
misappropriation of trade secrets, predatory pricing and tie-ins, abuse of
administrative powers, misleading advertising and the organization of lotteries
as well as commercial bribery.
To tackle the complaints and
confusion that the 1993 AUCL caused to the business community and also to
upgrade the law after 14 years of legal evolution, China amended the AUCL and
the amended version has become effective from January 1, 2018 (“2018 AUCL”).
A. Revise the definition and scope of
commercial bribery
Article 8 of the 1993 AUCL provides
a blanket prohibition on a business from giving a bribe in the form of property
or other means for the purpose of selling or buying goods. To implement the 1993 AUCL, the enforcement
agency of the AUCL, the State Administration for Industry and Commerce
(“SAIC”), enacted the Interim Rules of the State Administration for Industry
and Commerce on Prohibition of Commercial Bribery (the “Commercial Bribery
Rules”). The Commercial Bribery Rules
defines commercial bribery as businesses giving a bribe in the form of property
or other means for the purpose of selling or purchasing goods. “Property and other means” includes promotion
costs, publicity expenses, sponsorship, research costs, remuneration, consultation
fees, commissions and advantages other than property.
As the result of such a blanket
prohibition, a bribe recipient in commercial bribery could be a business
(vis-à-vis the individual employees of a business), and the legitimate payments
common in everyday commerce between business to business such as payment of
consultation fees and commissions, risk being caught as acts of bribery. For the convenience of understanding, we may
call the bribery between business to business as B2B bribery.
Case 1: In June 2006, and
February and September of 2007, a general contractor of Tsingtao beer in
Wenling signed several agreements with other five companies paying them monetary
incentives for exclusive distributions.
The payments were described as “buyout fee” and “exclusive fee” totaling
RMB 1.205 million for the purpose of obtaining trade opportunities. The parties together were fined up to RMB
1.727 million by Wenling Administrations for Industry and Commerce (AIC).
Case 2: In July of 2006,
AIC Luoyang found, that Tsingtao paid from RMB 2,000 to RMB 70,000 to 30 hotels
and restaurants respectively and required them to solely sell Tsingtao beer, and
determined that such conduct constituted commercial bribery.
Case 3: The Foshan AIC determined that Pepsi Guangzhou
had committed commercial bribery by paying “entrance fees” and “display fees” to
some stores in the amount of RMB 247,900 to aid the selling of its products
with better shelf display. As a result,
Pepsi Guangzhou was fined RMB 50,000, and its profits were confiscated.
The above cases (and some other
similar ones) were criticized for wrongful law enforcement as well as
legislative chaos.
The 2018 AUCL redefines the bribery
to the effect that B2B bribery may not be viewed as bribery. Article 7 of the 2018 AUCL provides that a
business shall not resort to bribery, by offering properties or by any other
means, to any of the following entities or individuals, in order to seek a
transaction opportunity or competitive advantage: (1) any employee of the
counterparty in a transaction; (2) any entity or individual entrusted by the
counterparty in a transaction to handle relevant affairs; or (3) any other
entity or individual that is to take advantage of powers or influence to
influence a transaction. From the
definition, we may see some significant changes.
First of all, the 2018 AUCL requires
the element of purpose of "seeking transaction opportunities or competitive
advantage" rather than a broad-brushed purpose element under the 1993
AUCL: “for the purpose of selling or buying goods”.
Second of all, a transaction
counterparty is no longer expressly listed as a potential bribe recipient as
the 1993 AUCL did. As such, the B2B
bribery such as the three case studies indicated above may no longer be investigated
and punished under the 2018 AUCL.
Third of all, a business or
transaction counterparty may still be a bribe recipient, but seemingly limited
to the third parties engaged by a transaction counterparty. For example, if a school purchases uniforms
from a supplier, the students are the de-facto purchasers and users. The school is deemed to be entrusted by the
students to make the purchase, and falls within above item (2) of bribe
recipient. For another example, two parties
employ an appraisal agency to appraise the quality of the goods, and one party
bribes the agency to make the appraisal result beneficial to the bribing
party. The appraisal agency may fall
within the above item (3) of bribe recipient as having power or influence to
influence a transaction. Although both bribery
recipients above are still businesses (vis-à-vis individuals), the briberies seemingly
take place with the agent causing detriments to its principal or fiduciary
harming its beneficiary. Under both
scenarios, the duty of loyalty is breached.
B. Clarify corporate liability for commercial
bribery and distinguish it from individual responsibility
The Commercial Bribery Rules
provides for vicarious liability so that if a business’s employee engages in
commercial bribery, the employee’s activity will be viewed as the conduct of
the business. The 2018 AUCL reiterates
the vicarious liability – the act of an employee of a business bribing any
others shall be deemed an act of the business itself, unless otherwise proven
by the business with evidence that such act is not related to its efforts in
seeking a transaction opportunity or competitive advantage.
The above provision under the 2018
AUCL provides businesses with an affirmative defense or safe harbor – if a business
can prove that the employee’s activity does not relate to the business’s
objective of obtaining specific business transaction opportunities or other
competitive advantages, then the business may be exonerated from the
liabilities under the AUCL.
The leader of the Anti-Monopoly and
Anti-Unfair Competition Bureau of the SAIC commented in a recent interview
conducted by the PRC Industry and Commerce News, that business operators may
have a valid defense against the vicarious liability offence if they can
demonstrate that they: (1) have adopted proper compliance policies and
measures; (2) have implemented effective measures to supervise and control its
employees’ activities; and (3) do not indulge either openly or in a disguised
form, its employees’ bribery activities.
C. Strengthen enforcement agency’s investigative power
The 1993 AUCL did not provide SAIC
and its subsidiaries (collectively as “AIC”) with investigative powers to seal
or detain cash and property in relation to breaches of the AUCL.
The 2018 AUCL grants the AIC the
necessary powers to seal or detain cash and property. The AIC has also been granted additional
powers to inquire into bank accounts of businesses which have allegedly
committed unfair competition activities.
Specifically, the 2018 AUCL
provides and refines the investigation procedures that the AIC may use during
investigations of potential commercial bribery violations, including:
l Entering business
premises to conduct inspections;
l Questioning
businesses and other related entities and individuals, and requiring them to
explain relevant situations and to provide evidentiary materials or related
information;
l Accessing or
copying related evidentiary materials;
l Sealing and/or
detaining property related to suspected unfair competition;
l Inquiring about
bank accounts of businesses suspected of unfair competition;
D. Increase administrative penalties
The 1993 AUCL provides for fines
ranging from RMB 10,000 to RMB 200,000 on commercial bribery as well as
confiscation of illegal gains. In
comparison, Article 19 of the 2018 AUCL sets forth that, in cases of commercial
bribery violations, administrative authorities can “confiscate illegal gains
resulting from illegal conduct, and impose a fine of between RMB 100,000 and
RMB 3 million.” What is more serious,
the AICs may revoke a business’s business license in cases of severe
misconduct.
In addition, Article 26 of the 2017
AUCL provides that if a business receives an administrative penalty for engaging
in commercial bribery, enforcement agencies will record the penalty in the
business’s public credit record. Such
credit record documentation could not only harm the business’s credibility
rating, but also cause reputational damages.
Conclusions
For the companies doing business in
China, the compliance risks in relation to commercial bribery are more severe
than before the 2018 AUCL was put into effect.
With the increased power of investigation, AICs tend to launch dawn
raids more often than before to investigate bribery (as well as other
anti-competitive activities). The
companies may face more severe punishments ranging from monetary fines,
confiscation of illegal gains to revoke of business licenses.
However, the new AUCL provides a
safe harbor to companies. Those who
established and operated a robust compliance management (which certainly shall
not be window dressing) will be then entitled to meaningful credits. As such, companies should re-examine their
business operational risk and compliance controls to ensure that they catch up
with the new AUCL not only in terms of knowledge, but also risk
management. For example, companies may
consider reviewing their existing business arrangements with, including
counterparties and third parties such as agents, distributors or other
intermediaries. The companies may also
conduct compliance and due diligence investigation before hiring third-party
vendors to facilitate transaction. To
establish an effective and robust company management system, training of their
employees in line with the law and corporate policy is indispensable.
Henry Chen's training in Shanghai on January 30: Compliance Management System Guidelines, Guidance on Identification and Assessment of Compliance Risks and new Anti-Unfair Competition Law: http://mp.weixin.qq.com/s/vO6iIFx9z6oqvwAbseS_dQ?scene=25#wechat_redirect
陈立彤培训（上海/1月30日）：《合规管理体系 指南》、《合规风险的识别与评价》、新《反不正当竞争法》: http://mp.weixin.qq.com/s/vO6iIFx9z6oqvwAbseS_dQ?scene=25#wechat_redirect
*The author, Henry Chen, is a
senior partner of Dentons Shanghai Office, before which Henry Chen was the AP
Compliance Director of Ford Motor Company.
Henry Chen is licensed to practice law in both China and the New York
State of the U.S. Henry is the author of
the book Risk Management on Commercial
Bribery in China. Henry is
accessible via henry.chen@dentons.cn
