In recent years, multinationals have increased their efforts to mitigate the risk of commercial bribery in China, particularly given the wide-reaching applicability of the US Foreign Corrupt Practices Act and the UK Bribery Act. Notably, companies that conduct business in China may find themselves in a similar position when faced with Chinese regulations.
The prosecution of commercial bribery has once again become a key issue following the amendment of the Anti-unfair Competition Act (AUCA). With the restructuring of the act's anti-bribery provision – which dovetailed with the national anti-corruption movement – the government appears to be cracking down on unlawful commercial activities by both domestic and foreign companies.
Foreign companies' compliance with Chinese anti-bribery laws is set to become as big a focus area as domestic companies' compliance with foreign laws. To guide companies in this regard, this article provides an intuitive roadmap to the Chinese anti-bribery regulatory scheme and sets out how the laws and the liabilities are structured.
What constitutes commercial bribery under AUCA?
The AUCA defines 'commercial bribery' as "using money, things of value, or other means to bribe with the purpose of obtaining transactional opportunity or competitive advantage". Possible recipients of unlawful commercial bribery under the AUCA are limited to:
- the employees of a counterparty to a transaction;
- organisations or individuals entrusted by a counterparty to a transaction to handle relevant matters; and
- organisations or individuals that use their power to influence a transaction.
In this sense, the AUCA not only includes counterparties as potential recipients for commercial bribery purposes, it also prohibits the provision of discounts to counterparties or the payment of commission to intermediates unless the discount or commission is offered and accepted in accordance with the agreement and in an honest manner. In addition, where commercial bribery by an employee is demonstrated, the AUCA requires the employer to prove its irrelevance; otherwise, the employer is liable.
Criminal, civil and administrative penalties
Under the Chinese anti-bribery regulatory scheme, commercial bribery will likely result in criminal, civil and administrative penalties.
Criminal penalties The Criminal Law sets out eight types of criminal liability that might apply in cases of commercial bribery (this has long been recognised in the legal memorandum issued by the Supreme People's Court and the government body of prosecutors). Pursuant to the Criminal Law, both offerors and recipients are criminally liable for the purposeful unlawful seeking of 'benefits', which include money, goods and gains that can be calculated monetarily. Under Chinese law, the offeror and recipient can be either a natural or legal person. In the case of misconduct by legal persons, the applicable penalties are:
- fines or imprisonment for the individuals directly responsible; and
- a fine for the company.
The establishment of criminal charges under the Criminal Law does not necessarily require the involvement of a government official or employee: commercial bribery conducted solely within the private sector is also a criminal offence. However, to initiate a criminal investigation into commercial bribery, thresholds are set based on the amount of the unlawful benefit involved. For example, to criminally prosecute commercial bribery between private persons or companies, the bribe must be larger than Rmb60,000, which is twice the amount for initiating the prosecution of commercial bribery involving government officials or employees.
Civil and administrative penalties The AUCA confirms parties' right to litigate if they suffer losses due to commercial bribery and compels the competent agency to investigate and impose administrative liabilities on the offenders. Common examples of civil litigation include a company suing:
- its competitor for bribing a vendor not to sell its product; or
- an employee for accepting kickbacks and allowing the company's supplier to provide inferior or second-hand goods instead of the agreed goods.
The AUCA also provides for parties' right to litigate to recover reasonable costs and pursue punitive damages of up to five times the actual damages in cases of gross violation of the law.
As regards administrative penalties, the AUCA provides for a fine of Rmb100,000 to Rmb3 million for offenders. In addition, the competent authorities can revoke a company's business licence in the case of a gross violation of the law. The AUCA also requires that records of companies that violate the AUCA (including by engaging in commercial bribery) be kept and disclosed to the public.
China is sharpening its focus on anti-corruption, and the jurisprudence in this regard is becoming increasingly robust. While uncertainties remain, such as the standard for identifying and determining a counterparty to a transaction, it is unlikely that the Chinese regulators will back down. Rather, as other major jurisdictions (eg, the United States) scale up their enforcement – with or without the involvement of Chinese enterprises – China is likely to intensify its enforcement of commercial bribery in China by foreign companies.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
