Blurring antitrust and anti-corruption

Nate Bush
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China's recent surge in antitrust and anti-corruption enforcement highlights the parallel perils of bribery and anti-competitive conduct. Companies should also be wary of a unique hazard at the intersection of China's competition and anti-bribery rules – the offence of bribing an entity.

Entities versus individuals

The notion that an entity – as opposed to an individual – can be bribed through normal commercial dealings with suppliers and business partners deviates from prevailing concepts of bribery. Under the laws of most jurisdictions and international anti-corruption conventions, bribery generally implies an improper offer or payment of something of value to to an individual to induce or reward conduct in violation of a legal duty.

Improper payments to entities, in contrast, are routinely challenged under other laws, notably antitrust. Many cutting edge abuse of dominance and monopolisation cases around the world involved dominant firms' use of exclusionary rebates, discounts, marketing funds and similar support to downstream distributors and end-users. The PRC Anti-monopoly Law (中华人民共和国反垄断法) likewise bars vertical monopoly agreements and abuse of dominance, providing remedies for improper payments from suppliers to distributors or customers based on their anti-competitive effects.

China's rules against entity bribery blur the border between anti-corruption and antitrust. These rules stem from the general prohibition of commercial bribery under the PRC Anti-unfair Competition Law (中华人民共和国反不正当竞争法) and the Tentative Provisions on the Prohibition of Acts of Commercial Bribery (关于禁止商业贿赂行为的暂行规定), which prohibit “giving valuable items or resorting to other means to bribe the counterparty, either an entity or individual, to sell or purchase products”. These measures distinguish bribes from permissible discounts, rebates and commissions based on proper documentation of the relevant payments.

Enforcement trends

These rules are administered by the Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau of the State Administration for Industry and Commerce (SAIC), which concurrently enforces the AML's rules against monopoly agreements and abuse of dominance, and its counterparts at the provincial and local level (AICs). The SAIC's enforcement of the entity bribery rules has been sporadic and inconsistent, but the few published cases suggest three broad enforcement trends. (For discussion of specific cases, see Bush, “Monopolistic Conduct versus Entity Bribery,” China's Antimonopoly Law: The First Five Years (Emch & Stallibrass, eds. 2013)).

First, AICs have often challenged payments or other support from suppliers to customers as entity bribery where the payments are undocumented or inaccurately documented in either party's books. Many of these decisions strictly construed the safe harbours for properly documented rebates, discounts, and commissions, penalising improperly documented payments without analysing the commercial effects.

Second, AICs have sometimes looked beyond the recordkeeping to scrutinise the overarching purposes of the payments, often penalising payments deemed wrongful, regardless of whether they have been accurately recorded. Examples include payments to induce companies to violate other commercial laws or industry regulations, or payments in circumstances suggesting a disguised benefit to individuals.

Third, AICs have increasingly focused on the commercial effects on competitors and consumers, importing competition policy concerns into the assessment of entity bribery – and arguably encroaching into the domain of the AML. For example, several entity bribery cases have involved payments from suppliers to customers in exchange for exclusivity or preferential treatment – practices that might otherwise have been analysed under the AML's rules against vertical monopoly agreements or abuse of dominance. A 2012 report entitled Study on Enforcement of Laws of Commercial Bribery – published following an official SAIC training and research project – specifically emphasised the unfair competition dimension of commercial bribery. The report explained that the Anti-unfair Competition Law “aims at prohibiting business operators from inducing others to engage in transactions in way of providing improper interests”. The report concludes that “regardless of whether relevant interests have been accurately recorded in the books, it should be considered as commercial bribery as long as business operators give bribes to entities or individuals for purposes of obtaining business opportunities, and the behaviour negatively affects fair competition in, among others, quality, price and service among other competitors”.

Similarly, recent guidelines from the Supreme People's Court and the Supreme People's Procuratorate in January 2013 suggest that criminal bribery charges for seeking improper benefits may include seeking “competitive advantage... in violation of principles of justice and fairness”, potentially allowing for criminal entity bribery charges for anticompetitive conduct.

Using entity bribery rules to remedy anti-competitive conduct impedes the growth of China's general antitrust rules under the AML. It may also harm consumers, since many of the practices condemned as entity bribery are not necessarily anti-competitive. For example, condemning of exclusionary rebates or discounts as abuse of dominance under the AML requires findings of dominance and actual anti-competitive effects and assessment of pro-competitive justifications. Entity bribery rules do not require such findings. Consequently, an open and accurately booked rebate, discount, or commission from a non-dominant supplier to a customer resulting in lower prices for the end-user might be lawful under the AML, but nevertheless be condemned as entity bribery based on effects on less-efficient competitor.