The prohibition of corruption in China, Korea * Invitation and Submission of Bids Law of the People’s Republic of China 178 * Interim Provisions on the Prohibition Against Commercial Bribery Acts 179 * China Enforcement Agencies 179 * Commission for Discipline Inspection of the Communist Party 179 * Supreme People’s Procuratorate of the People’s Republic of China 179 * Ministry of Public Security of the People’s Republic of China 180 * State Administration for Industry and Commerce of the People’s Republic of China * Case * Background
China’s substantial corruption challenges are deeply rooted in cultural traditions as well as the country’s complex transitory conditions. Further, corruption is increasingly growing in significance as a political issue in China, and in an international context, China’s corruption problems have attracted extensive attention.
Like any emerging market, China suffers from corruption and an often unethical business environment. What makes China different from many other national economies is the scale of the bureaucracy and the pace of economic development from a low base, both of which have created conditions ideally suited to the growth of corruption and opportunities for massive financial gain by underpaid local government of officials and by entrepreneurs eager to amass personal fortunes as quickly as possible.
The sources of corruption in China
In overall terms, corruption in China derives from three main sources;
(1) high economic growth following the extensive economic reforms made in order to progress towards an open economy,
(2) the incomplete nature and inconsistent application of these reforms and (3) aspects of Chinese cultural traditions and norms rooted in Confucianism.
Definition of corruption
Giving or obtaining advantage through means which are illegitimate, immoral, and/or inconsistent with one's duty or the rights of others. Corruption often results from patronage.
Chinese laws and regulations
China maintains a two-layered regime pursuant to the PRC Criminal Law and the PRC Anti-Unfair Competition Law (AUCL) that applied to activities in China by foreign companies and/or their subsidiaries in China. In addition, the Communist Party of China and the State Council have issued internal disciplinary rules governing attempted corruption or bribery of Communist Party members and certain Chinese government officials. These Communist Party of China and State Council rules, however, do not create liability for foreign companies.
In general, more severe cases of bribery involving more significant bribes fall under the jurisdiction of the PRC Criminal Law and are subject to criminal sanctions. Less-severe bribery cases fall under the AUCL and are subject to administrative penalties.
A. Chinese Criminal Law
The Chinese Criminal Code (the “Criminal Code”) defines the crime of bribery and regulates it on the penal level. The original Criminal Code of China are based primarily on the PRC Criminal Law promulgated in 1979 and amended numerous times, most recently in 2009, and by various interpretations issued by the Supreme People's Court (SPC), the Supreme People's Procuratorate (SPP) and/or the Ministry of Public Security. The Opinions on Several Issues Concerning Law Application and Handling Criminal Commercial Bribery Case, jointly issued by the SPC and SPP in November 2008, are the most recent interpretations providing further guidance on criminal bribery cases.
Similar to the criminal law system in other countries, the Criminal Code has jurisdiction over anyone “who committed a crime within the territory of the People’s Republic of China, except for the ones that shall be governed under special regulations under law.” (Article 6) Therefore, U.S. businesses and individuals that violate Chinese penal laws are subject to Chinese Criminal Code within the territory of China.
Under the anti-corruption provision, by literal translation, the crime of bribery is to “provide cash or property to state personnel for the purpose of seeking unjust benefits.” (Art. 389.1) It is also a form of bribery to “provide a relatively large amount of money in the course of economic transactions against the State’s regulations, or to provide state personnel kickbacks or commissions of any kind.” (Art. 389.2)
China's criminal anti-corruption laws,
As an initial matter, foreign corporations doing business in China are subject to Chinese criminal corruption laws pursuant to article 6 of the PRC Criminal Law. Chinese criminal laws apply to crimes that take place within the territory of China, whether committed by Chinese persons or foreigners. The criminal law prohibits "giving" bribes to public servants or State entities as well as to non-State (i.e., private) personnel. In addition, the criminal law prohibits State personnel, State entities or non-State personnel from "accepting" bribes. Note that, as discussed below, unlike the FCPA, which only covers bribes offered to government officials, the Chinese criminal law also criminalizes bribes offered to non-State personnel.
Criminal law prohibits, any individual or entity from giving "money or things" to State personnel or entities or to non-State personnel to seek improper gains. In addition, no State personnel or entity or non-State personnel shall accept "money or things" to make use of his or her position to seek benefits for the person giving the bribe. The term "money or things" is a key jurisdictional concept in Chinese anti-bribery law. According to judicial interpretations, "money or things" includes money in the form of cash; "properties or things"; and various "proprietary interests" that can be measured by money, such as home furnishings, memberships in clubs, cards with monetary value, cash-equivalent cards (e.g., bank cards, credit cards or shopping cards) and travel expenses. But giving bribes can also be established if "money or things" are given through disguised forms, for example by purchasing commodities at a price that is "obviously" lower than the market price or selling items at a price that is "obviously" higher than the market price; accepting company shares, dividends or profits without corresponding investments in the company; or accepting payment for non-existent services such as a security investment, financial management or gambling proceeds, etc. Nevertheless, under the current Chinese law, the action of proposing or promising to offer a bribe without actually "giving" the bribe to others does not constitute an offense.
In addition to giving or accepting "money or things," generally it must also be shown that the party giving a bribe has the intent to seek an "improper gain." Similarly, when establishing a "bribe-accepting" crime, the prosecutor needs to prove that the recipient of the bribe has used his or her power, authority or position to seek a benefit for the party giving the bribe. However, the offender's "intent" is not an absolute pre-condition for a finding of bribery in practice. In fact, in reality, most bribery cases are established and prosecuted without establishing that the party offering the bribe indeed sought an "improper gain" or that the recipient of the bribe had a specific intent to seek a benefit for the party giving the bribe. Moreover, when money or things are provided to State personnel or State entities in connection with economic activities, there is no need to prove that they were given for purposes of seeking "improper gains" if (1) the value of the "money or thing" is a "relatively large amount" (generally over RMB10,000, about $1,470), or (2) the "money or thing" can be characterized as a "kickback" to the State entity or personnel. Thus, for this reason, in practice, defendants charged with bribery crimes normally cannot rely on arguing that they did not have illegal or malicious intent or purpose to "give" or "accept" bribes as a means to successfully defend themselves. Note that in China, charges for giving bribes are usually filed against individuals rather than an entity because Chinese law has complex theories and pre-conditions for charging an entity.
Generally, the criminal sanctions for bribery crimes involving State personnel or State entities are more severe than those involving non-State personnel or entities. The definitions of the terms "State" personnel or entities and "non-State" personnel or entities are therefore important. Under Chinese law, the term "State personnel" is quite broad, and includes persons who perform public services in State organs, or in State-owned entities, as well as persons who are assigned by State organs or State-owned entities to perform public services, and other persons who perform public services according to law. The term "State entity" is similarly broad and refers to any entity that functions as a State organ to provide public services and/or perform administrative duties in accordance with law.
The level of Prosecution for Bribery Crimes
Chinese criminal law sets out specific monetary thresholds for prosecution of bribery crimes. For prosecutions of persons giving bribes, liability attaches if (1) in the case of bribes given by individuals to either State personnel or non-State personnel, the bribe equals or exceeds RMB10,000 (approximately US$1,470); or (2) in the case of bribes given by individuals to State entities, the bribe equals or exceeds RMB100,000 (approximately US$14,700). In the case of actions introducing a party giving a bribe to a bribe recipient, liability attaches if the amount of the bribe equals or exceeds RMB20, 000 (approximately US$2,940). Finally, in the case of bribes given by entities to State personnel, non-State personnel or State entities, liability attaches if the amount of the bribe equals or exceeds RMB200,000 (approximately US$29,400). Note that the prosecution standards for criminal liability for accepting bribes are considerably lower. Chinese criminal law imposes liability for bribes accepted by non-State personnel or State personnel that equal or exceed a lower threshold of RMB5,000 (approximately US$735). Also, in the case of bribes accepted by State entities, criminal liability exists if the amount of the bribe received equals or exceeds RMB100,000 (approximately US$14,700). Importantly, however, the amount of the bribe involved is not the sole criteria for prosecution of bribery cases involving State personnel or State entities. In certain circumstances, such as when the bribe-offering party gives bribes to more than three State personnel or entities, cases may still be prosecuted even if the amount of the bribe given or accepted does not reach the above threshold.
Criminal Penalties
Criminal penalties vary depending on whether the party offering or accepting a bribe is an individual or an entity. If the party offering or accepting a bribe is an individual, then criminal sanctions include criminal detention up to six months, a fixed-term imprisonment ranging from six months to 15 years, life imprisonment and confiscation of property, depending on the specific circumstances and seriousness of particular cases. In addition, the death penalty can be imposed against State personnel convicted of extremely serious "accepting bribes" crimes. Generally, the criminal sanctions for accepting bribes are more severe than those for giving bribes. If an entity is convicted of a bribery crime, the entity itself will be subject to a criminal fine, and the employees of the entity directly responsible for the crime, including the employees who arrange for and pay the bribe as well as management staff who participated in and/or approved the activities giving rise to the crime, will be subject to imprisonment as well.
In Part II of this article, we will examine the administrative liability imposed by the AUCL, the CPC and State Council internal disciplinary rules, issues surrounding the giving of gifts and entertainment, and how Chinese anti-bribery and anti-corruption law differs from the FCPA
B. The Anti-Unfair Competition Law
To get business accomplished in China, there was and still is, to a certain extent, a heavy reliance on “guan xi” (relationship), i.e., “who you know” or “who you have a relationship with,” rather than on “the system” and its laws. While family members and subordinates of the communist party members are used extensively as intermediaries to transact business, in the market place, businesspeople have very limited access to merchandise. Businesspeople often find, as a practical matter, that they need to bribe managerial personnel to remain competitive in merchandise procurement and in product distribution channels.
The Chinese Anti-Unfair Competition law ("AUCL"), promulgated on September 2, 1993, sets out rules for administrative liability for commercial bribery. The State Administration for Industry and Commerce in 1996 issued the Provisional Regulations on Prohibition of Commercial Bribery Actions, which set out more detailed provisions implementing the commercial bribery sections of the AUCL. Like the criminal bribery laws, these administrative laws also apply to foreign companies doing business in China.
In restructuring its economic system from a planned economy to a market economy, China is working to change this “practical reality” in market transactions. The Anti-Unfair Competition Law (“AUCL”) and its implementing regulations expand the law of bribery to commercial transactions. Under the AUCL, businesses are prohibited to“bribe through cash, property, or any other means in order to sell or purchase merchandise. Anyone who gives the other party any kickbacks shall be deemed to have committed bribery and punished accordingly.” (Art. 8.1) The AUCL also provides that “any commissions to intermediaries or discounts to any buyers must be recorded in the accounting books of the company. The other party who receives commissions or kickbacks secretly shall also be deemed and punished as accepting bribery.” (Art. 8.2)
C. Company Law
Another important statute is contained in the Chinese Company Law (“Company Law”), which governs business organizations.
The Company Law holds a foreign company directly liable for the civil liabilities of its branches in China. Under the Company Law, “a foreign company is a foreign legal person and its branches established within Chinese territory do not have the status of Chinese legal person.” It further specifies that “a foreign company shall assume civil liability for the operational activities of its branches within Chinese territory.” (Art. 203)
However, Article 203 does not include foreign company subsidiaries that are incorporated in China. As to bribery, the Company Law provides that “when a director, supervisor or manager exploits his position to accept bribes or other illegal income, the illegal income shall be confiscated, and the wrongdoer shall be subject to sanctions by the company. If the violation constitutes a criminal offense, criminal liability shall be investigated in accordance with the law; …” (Art. 214)
D.3 sets of local anti-corruption regulations