30 August 2017

China Proposes New Amendments to Strengthen the Commercial Bribery Law

In February 2017 the PRC State Council issued revised draft amendments to the 1993 Anti-Unfair Competition Law (AUCL) governing commercial bribery in China (2017 Amendments).  If implemented, the 2017 Amendments would be the first substantive changes to the AUCL since it was passed in 1993.  Six months after publication, the position regarding the implementation of the proposed amendments is becoming clearer.

A. The Amendments

The 2017 Amendments replace draft amendments proposed in February 2016 (2016 Amendments), which were never implemented.  It is not clear why the PRC State Council abandoned the 2016 Amendments, particularly when other changes to the anti-bribery regime introduced by the 2016 Judicial Interpretation on PRC corruption and bribery offenses were implemented in April 2016.  A link to the A&O alert discussing the Judicial Interpretation and the 2016 Amendments can be found here.

While they are not as far-reaching as the 2016 Amendments,[1] the 2017 Amendments make several noteworthy changes to the AUCL.  As described in more detail below, the proposed changes would:

  1. expand the application of the commercial bribery prohibition;
  2. ban the use of third parties to funnel bribes in commercial transactions;
  3. expressly incorporate the concept of vicarious liability into the AUCL; and
  4. increase the financial penalties applicable to commercial bribery. 

The 2017 Amendments would also require commercial entities to keep proper records of discounts or commissions provided to business counterparts, intermediaries (e.g., distributors or agents) and individuals.  The effective date of the 2017 Amendments is unknown at this stage but commentators have said they expect to see a final version of the Amendments by the end of this year.

B.  Expansion of Commercial Bribery Prohibition to All Commercial Transactions

The 2017 Amendments would broaden the prohibition on commercial bribery to apply to all commercial transactions.  In its current form, the AUCL prohibits commercial bribery only in transactions involving the purchase or sale of goods.  Still left undefined by the 2017 Amendments, however, is the level of intent required to fall afoul of the AUCL and the definition of bribery.  In practice, we understand that courts may infer intent if an entity benefits from bribery.

C.  Use of Third Parties to Funnel Bribes

The 2017 Amendments would amend the AUCL to explicitly prohibit individuals and entities from using third parties to funnel bribes to commercial counterparties.  The AUCL is currently silent on whether using third parties to funnel bribes constitutes commercial bribery.  Third parties are defined as “entities or individuals that can use their authority or position to influence the outcome of a transaction.”  The 2017 Amendments would also prohibit third parties who are in positions to influence the outcome of a transaction from accepting bribes.

D.  Vicarious Liability for Employees’ Conduct

Employer liability for employees’ conduct (known as “vicarious liability”) has existed as a legal theory in China for many years even though the AUCL does not expressly provide for it in the context of commercial bribery.  The 2017 Amendments would expressly incorporate the concept into the AUCL so that it would be easier to make a finding of vicarious liability.   The burden of proof would shift to the corporate defendant to prove that misconduct by an employee is “personal behaviour” rather than efforts to seek business opportunities or competitive advantages on behalf of the employer.  While the 2017 Amendments do not elaborate on the meaning of “personal behaviour,” commentators have suggested that the defence would likely apply in situations where the employers have no control over their employees’ conduct.

E.  Penalty for Commercial Bribery Offences

The AUCL currently levies a fine for commercial bribery offences of RMB10,000 to 200,000 (approximately USD1,537 to 30,749), along with the confiscation of illegal income for both corporate and individual offenders.  The 2017 Amendments would increase the minimum fine to RMB100,000 (approximately USD15,000), with a ceiling of 3 million (approximately USD 435,000), but would remove the express reference to the confiscation of illegal income in the AUCL. It is unclear why the PRC State Council chose not to maintain confiscation of illegal income as part of the penalty for violation of the AUCL.

Overall, the 2017 Amendments would broaden the scope of misconduct considered to be illegal commercial bribery under the AUCL and potentially increase companies’ potential liability. 

From a practical perspective, the 2017 Amendments would appear to make it easier for Chinese authorities to charge companies with AUCL violations.  Companies operating in China and wanting to stay ahead of the regulatory curve should review their compliance policies and programs and consider, if they have not already done so, including an explicit prohibition on commercial bribery, and reinforcing that change through communication and training directed at employees and third parties.  The 2017 Amendments are also an important reminder of the need for companies operating in China to proactively monitor and manage their third party relationships.  

 


[1] In addition to the changes proposed by the 2017 Amendments, the 2016 Amendments would have prohibited commercial bribery for the purpose of “obtaining business opportunities or competitive advantages”; expanded the definition of commercial bribery to include promising to offer or agreeing to accept bribes; required commercial entities to accurately record payments of all economic benefits including discounts or commissions on their books and records; imposed a fine of between 10% and 30% of the total revenue generated in relation to the bribery offences, along with any disgorgement of profit gained; prohibited commercial entities and/or individuals from obtaining improper economic benefits during the performance of “public services”, and specifically authorized PRC enforcers to “inquire and copy” any documents and/or electronic data related to an investigation.

Jason Gray +612 9373 7674
Partner, Sydney jason.gray@allenovery.com
David Shen +852 2974 6938
Registered Foreign Lawyer, Hong Kong david.shen@allenovery.com
Bethany Hipp +65 6671 6090
Counsel, Singapore bethany.hipp@allenovery.com
Sarah Blackman +612 9373 7574
Senior Associate, Sydney sarah.blackman@allenovery.com
Evelyn Mo +852 2974 6913
Registered Foreign Lawyer, Hong Kong evelyn.mo@allenovery.com

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