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Harry Cassin
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Rebates to State-Owned Enterprises Can Violate China Anti-Bribery Law

There are nine separate crimes related to bribery under Chinese Criminal Law. What’s important to know is that these crimes aren’t always equivalent to offenses under the more familiar FCPA and UK Bribery Act.

For example, the FCPA prohibits payments to foreign officials (e.g., a doctor of a State-owned hospital) but not to foreign governments (e.g., the State-owned hospital). In China, however, some payments directly to State-owned hospitals could constitute the Crime of Giving Bribes to a Unit.

Article 391 of China’s Criminal Law says:

Whoever, for the purpose of securing illegitimate benefits, gives money or property to a State organ, State-owned company, enterprise, institution or people’s organization or, in economic activities, violates State regulations by giving rebates or service charges of various descriptions shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention.

Where a unit commits the crime mentioned in the preceding paragraph, it shall be fined, and the persons who are directly in charge and the other persons who are directly responsible for the offence shall be punished in accordance with the provisions of the preceding paragraph.

A couple of actual cases show how it’s enforced.

In Guangdong Province, a pharmaceutical company paid rebates 1999 to 2002 to three local hospitals (not individual doctors) when the hospitals purchased the company’s drugs. The pharmaceutical company, apparently unaware of the criminal law, did not pay the rebates stealthily by cash under the table. Instead it wired the rebates, which totaled about $330,000. The authorities charged both the pharmaceutical company and a company executive. The drug maker was convicted of committing the Crime of Giving Bribes to a Unit and punished with a fine, and the executive was jailed for two years.

Another case happened in Yunan Province. From 2002 and 2006, two distributing companies were selling globally-known pacemakers and other medical devices to nine hospitals. To incentivize the hospitals to purchase their products, the two distributors gave rebates to clinical departments of the hospitals (again not individual doctors). The distributors in this case hid the payments by characterizing them as “x-ray compensation fees.” The total rebates amounted to about $370,000. The two distributors were convicted of the Crime of Giving Bribes to a Unit and were each fined $33,000.

The cases illustrate the peculiar risks under Chinese law for rebates to State-owned enterprises. To avoid triggering problems under the Crime of Giving Bribes to a Unit, companies and their executives should re-check their compliance practices and make sure rebates paid to SOEs stay on the right side of the law.


Henry Chen can be contacted here.

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