Commercial Bribery: What are the Boundaries?

What Constitutes Commercial Bribery Under PRC Law?

Administrative Provisions

The PRC Anti-unfair Competition Law (中华人民共和国反不正当竞争法)and related administrative regulations provide that business operators commit commercial bribery if they offer business counterparts or their staff money or property (except for promotional gifts of nominal value) or adopt 'other means' to purchase or sell products. 'Property' includes cash, asset and disguised kickbacks (such as those structured as commission, payments for promotion, sponsorship, research, or consultancy services). 'Other means' refers to other benefits such as subsidised travel or entertainment.

Business operators may, however, give or accept discounts or commissions in the course of a transaction provided such arrangements are transparent and are clearly reflected in the accounts.

Violations of the above provisions may result in fines imposed by the local administration of industry and commerce ranging between Rmb10,000 to Rmb200,000, and confiscation of the illegal income derived from the bribery activity.

Criminal Provisions

Certain types of commercial bribery also constitute offences under the PRC Criminal Law. The Criminal Law deems the giving of money or property having substantial value to (i) an employee of a company; (ii) a government official; or (iii) an organisation (which could include a government agency, State-owned company, enterprise or civil organisation), for the purpose of seeking an improper benefit, as constituting the offence of offering a bribe.

'Seeking an improper benefit' has been interpreted by the Supreme People's Court to include seeking or requesting that a government official or an organisation provide such assistance, facilitation or convenience, which is in violation of relevant laws and regulations. Under the Criminal Law, bribery offence may also be committed where employees of companies or enterprises: (i) take advantage of their positions to procure benefits for third parties in exchange for money or property with substantial value; (ii) accept kickbacks or commissions in the course of commercial dealings in violation of relevant regulations; and (iii) give government officials money or property of substantial value, and/or offer kickbacks or commissions to officials in the course of commercial dealings in violation of relevant regulations.

Basic Guidelines to Minimize Risks

Discounts and Commissions

Transparency is an important factor in distinguishing between permissible discounts or commissions on one hand and illegal kickbacks on the other. Therefore, discounts and commissions should be: (i) properly invoiced and duly recorded in the company's accounting records; (ii) paid directly to the customer, distributor or supplier, and not to any individual staff member; and (iii) properly documented in writing.

Gifts

PRC law does not offer a clear distinction between a 'bribe' and a lawful 'gift'. Cases suggest that the giving of a gift could constitute bribery if: (i) there is an intention to derive an improper benefit; or (ii) where the value of the gift is excessive. There are no guidelines on what may be regarded as 'excessive' and it is often a matter of administrative or judicial discretion based on the circumstances. In most instances, small promotional gifts (T-shirts, pens or memory sticks marked with the company logo) to employees of customers or suppliers are unlikely to be considered 'excessive'.

Anti-corruption regulations applicable to PRC government officials may offer some guidance on what may be considered reasonable customary practice as opposed to bribery. PRC government officials (including employees of State-owned enterprises and public organisations) are generally prohibited from receiving gifts in any form while discharging official duties. Such prohibited gifts include property, money, vouchers or subsidised purchases or other benefits, whether provided directly or indirectly (such as benefits conferred through lavish entertainment, banquets, or overseas trips (unless such trips are strictly consistent with their official functions).

Meals and entertainment

The provision of meals and entertainment is not dealt with in current legislation and appears to be generally permissible in China. However, it is possible that provision of particularly lavish meals or other forms of entertainment could be regarded as an indirect form of bribery.

Invitations to events

When guests are invited to events (such as product launches), all reimbursements need to be related to the purpose of the event and must be duly recorded. These reimbursements may include: (i) appropriate travel expenses to and from the location of the event (no payment of holiday extension, additional private trips); (ii) reasonable accommodation expenses; (iii) entrance fees to events; and (iv) a reasonable level of meal allowance. Invitation to additional entertainment events unrelated to the purpose of the invitation should not be allowed.