Tackling foreign bribery

n Foreign citizens and entities not established under Chinese law, with respect to crimes committed within Chinese territory.

Article 164 uses both the terms “person” and “unit,” with the latter term broadly defined in Article 30 of the PRC Criminal Law to include companies, enterprises, institutions, state organs, and other organisations. With respect to liability for the actions of agents, joint venture partners, or other third parties, it is unclear how the relevant authorities may proceed. In the domestic official bribery context, third parties or agents may be prosecuted for “introducing a bribe” to government officials, and are subject to imprisonment for up to three years (see PRC Criminal Law, Article 392). The PRC Criminal Law is silent as to how third parties or agents may be treated for paying bribes to people other than government officials, and there is no provision that specifically deals with joint venture partners.

The new provision is clearly a significant development, but raises important questions as to its meaning and how it will be enforced. One key ambiguity is the lack of a definition of either a “foreign public official” or an “official of an international public organisation.” China's laws regarding public corruption in the domestic context define state officials to include those who perform public service in a state organisation, as well as those who work for state-owned companies such as hospitals or banks, and their relatives and others with whom they share a “close relationship” (see Article 93 of the PRC Criminal Law Amendment Act (7) 中华人民共和国刑法修正案 (七)). It is not yet clear whether Chinese authorities will view foreign public officials through the same lens as they do issues arising under domestic bribery laws.

Also missing from Article 164 is a definition of the term “property.” One source of potential guidance is the November 2008-issued Supreme People's Court and the Supreme People's Procuratorate's joint Opinion on Several Issues Concerning the Application of the Law in Handling Criminal Cases of Commercial Bribery (最高人民法院、最高人民检察院关于办理商业贿赂刑事案件适用法律若干问题的意见) (2008 Opinion), which construed “property” in the commercial domestic bribery context (previously, Article 164's only domain) to include material gifts and cash, as well as benefits with monetary value, including home décor, membership cards, tickets to sporting or theater events, and travel expenses. In addition, the statute does not define “illegitimate commercial benefit,” but the 2008 Opinion may, in Article 9, shed some light in its interpretation of the related term “illegitimate benefit” as including benefits in violation of relevant laws, regulations, rules or policies.

Both as modified and in its previous form, Article 164 does not set forth specific monetary thresholds corresponding to the applicable prison terms. Individual violators are subject to three years' imprisonment for smaller-scale bribes, and three to 10 years' imprisonment for large amounts. The monetary thresholds that determine prison terms for domestic commercial bribery vary by province. With respect to corporate liability, entities are themselves subject to fines, while the employees responsible for the act of making improper payments or transfers face criminal liability, as do their direct supervisors.

Finally, the new statutory provision lacks exceptions and affirmative defences. Similarly, there are no affirmative defences to domestic commercial bribery, and the only exception arises when the person or entity making the bribe has been blackmailed into doing so, without gaining an illegitimate benefit. This does not mean that companies that discover violations are without any recourse, however. A person or entity that pays a bribe to a foreign official (as in the domestic commercial bribery context) may receive lesser punishment, or no punishment at all, by voluntarily disclosing the bribe to the relevant authorities prior to prosecution. It will be vital, going forward, for those companies subject to the new provision to learn what they can about how Chinese prosecutors view those who self-report.

Adequate internal controls are a crucial way to prevent improper payments, as well as to detect violations. At present, internal controls are not necessarily thought of in China as encompassing anti-bribery controls, and unlike the FCPA, Article 164 does not contain an internal controls provision, nor does the Chinese foreign bribery provision apply to companies solely because they are listed on a Chinese exchange. China's current internal controls rules, which nevertheless echo the requirements of the Sarbanes-Oxley Act of 2002, were first introduced in 2008. The Basic Guidelines for Internal Controls of Enterprises (企业内部控制基本规范) (2008 Rules) was issued on May 22 2008 by China's Ministry of Finance, the China Securities Regulatory Commission, the National Audit Office, the China Banking Regulatory Commission, and the China Insurance Regulatory Commission. It became effective on July 1 2009.

The 2008 Rules establish requirements for companies listed on either of the two Chinese exchanges (in Shanghai and Shenzhen) in the areas of internal environment, risk assessment, control activities, information and communication, and internal monitoring. Pursuant to the 2008 Rules, companies must establish an internal whistle-blowing system as well as a whistleblower protection system (as noted in Article 43). The Ministry of Finance, the China Securities Regulatory Commission, the National Audit Office, the China Banking Regulatory Commission, and the China Insurance Regulatory Commission issued the Supplemental Instructions of the Internal Control Rules (No. 17) (企业内部控制应用指引第17号), on April 15 2010. Article 8 of these supplemental instructions provide additional guidance regarding the establishment of internal mechanisms by which employees may report instances of fraud or non-compliance, such as through an employee mailbox or a complaint hotline.

Even those companies not subject to the existing Chinese internal controls requirements are advised to examine their existing compliance programs in order to guard against potential violations of the new anti-bribery law. Multinational companies also subject to jurisdiction pursuant to the FCPA and the UK Bribery Act should seek to harmonise their compliance programs and training, to the extent possible, in order to bring them in line with all three anti-bribery regimes. It is important to be mindful of key differences, however. Unlike the FCPA, the UK Bribery Act and Chinese law both criminalise commercial bribery in addition to corrupt payments paid to foreign officials. As far as scope, the UK Bribery Act is potentially more sweeping jurisdictionally than Chinese law or the FCPA (which covers “issuers” as defined by the Securities Exchange Act of 1934 and “domestic concerns”).

The UK Bribery Act reaches even a non-UK-incorporated business with respect to acts committed outside the UK's borders, so long as the company “carries on” at least some part of its business within the UK (this possibility arises under the new corporate offence of “failing to prevent bribery”). In addition, although whistleblowers receive significant protection under UK and US law, the Chinese internal controls rules are not as robust. When formulating whistleblower policies, companies must be mindful of EU data protection rules with respect to the UK Bribery Act, as well as the potential that data transfers may implicate China's broad “state secrets” laws (for example, as found in Article 9 of the PRC Law on Maintenance of State Secrets (中华人民共和国保守国家秘密法), or Article 111 of the PRC Criminal Law).

At this time, it is not clear what resources will be devoted to enforcing the new Chinese law, or what shape additional guidance from Chinese authorities may take. Until China develops a track record for enforcing the new anti-bribery provision, policies and programmes developed under the FCPA and UK Bribery Act will be relevant as companies covered by the Chinese law look to enhance compliance programs. Although there are necessarily expenditures involved in developing effective compliance programs, these costs can be quite small relative to the costs of the investigations, legal defence, litigation, fines, and other collateral consequences that may result from non-compliant practices.

Paul R. Berger, Bruce E. Yannett, Niping Wu, Noelle Duarte Grohmann and Tingting Wu with contribution from Fengjian Ao, Debevoise & Plimpton, Washington, New York and Shanghai

Text of Article 164, as amended, of the PRC Criminal Law (中華人民共和國刑法) (amended language in italics):

Whoever, for the purpose of seeking illegitimate benefits, gives money or property to any employee of a company, an enterprise or other entities, if the amount involved is relatively large, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention; if the amount involved is huge, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than 10 years and shall also be fined.

Whoever, for the purpose of seeking illegitimate commercial benefits, gives money or property to any foreign public official or official of an international public organization, shall be punished in accordance with the provisions of the preceding paragraph.

Where a unit commits the crime as mentioned in the preceding two paragraphs, it shall be fined, and the persons who are directly in charge and the other persons who are directly responsible for the crime shall be punished according to the provisions in the preceding first paragraph.

Any briber who confesses the bribery voluntarily prior to prosecution may be given a mitigated punishment or be exempted from punishment.

為謀取不正當利益，給予公司、企業或者其他單位的工作人員以財物，數額較大的，處三年以下有期徒刑或者拘役；數額巨大的，處三年以上十年以下有期徒刑，並處罰金。

為謀取不正當商業利益，給予外國公職人員或者國際公共組織官員以財物的，依照前款的規定處罰。

單位犯前兩款罪的，對單位判處罰金，並對其直接負責的主管人員和其他直接責任人員，依照第一款的規定處罰。

行賄人在被追訴前主動交待行賄行為的，可以減輕處罰或者免除處罰。