New Amendments to the PRC Anti-unfair Competition Law Enlarge the Definition of Commercial Bribery

The Last Draft, published on September 5, 2017 kept the general definition of commercial bribery in the First Draft., but removed the list of three specific categories of commercial bribery from the First Draft and clarified the categories of bribe-takers . Article 7 of the Last Draft classified the bribe-takers into the following categories: (1) employee of the counterparty in a transaction; (2) entity or individual entrusted by the counterparty in a transaction to handle relevant affairs; (3) state body, state-owned enterprise, corporation, public institution, or mass organization, or any official working in any state body; and (4) other entity or individual that is likely to take advantage of powers of certain officers in a state body to influence a transaction.

The Amended Law largely adopts the general definition of “commercial bribery” in the Last Draft. Compared with the Original Law, the Amended Law enlarges the definition of commercial bribery in two important ways. First, Article 7 of the Amended Law extends the purpose of commercial bribery to obtaining unfair competitive advantage, whereas the Original Law held the view that business operators hoping to obtain benefits other than those directly linked to the transaction itself could not commit commercial bribery. Second, the Amended Law includes commercial bribery through a middleman.

This amendment fills a loophole in the Original Law by recognizing that commercial bribery has often been committed through a middleman rather than between the bribe-giver and bribe-taker themselves.

WHAT ARE THE ELEMENTS OF AN ACT OF COMMERCIAL BRIBERY UNDER THE NEW LAW ?

According to the Amended Law, an act of commercial bribery has three elements.

First, a business operator gives a bribe in the form of financial property or through any other means to a bribe-taker.

According to the State Administration for Industry and Commerce, Tentative Provisions for the Prohibition of Acts of Commercial Bribery (Tentative Provisions) (国家工商行政管理局关于禁止商业贿赂行为的暂行规定), published in 1996, the financial property that could constitute a bribe includes cash and tangible asset. Now, in the Article 7 of the Amended Law, legislators do not limit the definition of the bribe to any particular types of financial benefits.

Second, the purpose of the operator is to obtain business opportunity or competitive advantage.

In the Original Law, the purpose of the operator is amended from purchasing and selling goods to obtaining business opportunity or competitive advantage. As mentioned before, the legislators realize the limitation of this purpose and touch on the essential purpose of the operators who committed wrongdoing.

Third, the bribe-takers are (1) any employee of the counterparty in a transaction; (2) any entity or individual entrusted by the counterparty in a transaction to handle relevant affairs; or (3) any other entity or individual that is to take advantage of powers to influence a transaction.

There is also an exception to the general definition of commercial bribery: If the operator and its business counterparty honestly account for a discount or commission on a transaction, the discount or commission does not constitute this to be a bribe.

WHO WILL BEAR LEGAL LIABILILTY ?

The highlight of the Amended Law is that a company (or other kinds of business entity) will bear legal liability if its employee commits commercial bribery, unless the company can prove the employee's acts have no connection with obtaining business opportunity and competitive advantage for the company. As it is, the Original Law had no clear line to separate the company's liability and employees' liability. However, the Tentative Provisions state that the operator shall bear the liability for their employees' misconduct, but it allows the company to exonerate itself by proving that the commercial bribery act is totally an act for the benefit of the employee alone.

WHAT IS THE PENALTY ?

Compared with the Original Law, the Amended Law increases the amount of the penalty for commercial bribery. The ceiling of the penalty has been raised to Rmb3,000,000. Apart from the financial penalty, the Amended Law also empowers the AIC to revoke the operator's business license, which can be fatal for a business operator in a competitive business environment.

RECOMMENDATIONS FOR BUSINESSES

Though the Amended Law brings much-needed clarity to the legal framework for business operations, it also raises new challenges in adapting to the new law. We suggest that businesses review their internal regulations and compliance systems to minimize the legal risks associated with commercial bribery. Specifically, businesses can:

• Organize employee and manager training regarding the prevention of commercial bribery
• Establish an anti-commercial bribery supervision system. For instance, a company should forbid secret discounts or commissions given to a business partner or a third party and encourage its employees to report suspicious acts to the management or internal auditing bodies.
• Establish the liability control system, such as the collection of relevant evidence once commercial bribery is found to have occurred.

With the toughening up of the law, businesses will likely encounter increasingly more government investigation of commercial bribery. Therefore, we suggest that businesses keep abreast of the development of the legislation and its enforcement, and enhance their compliance efforts accordingly.

Jianwei (Jerry) Fang, Partner

Wenpei Yu, Associate

Zhong Lun Law Firm