China recently released a revised draft of amendments to its law governing commercial bribery that would scale back some of the more far-reaching changes in a draft released last year while returning to a broader scope of commercial bribery.
A year ago, China released draft amendments to the Anti-Unfair Competition Law (“AUCL”). Among other things, the earlier draft amendments would have provided a more specific definition for commercial bribery — including liability for third parties — broadened recordkeeping requirements, and imposed penalties on certain parties that knew or should have known that bribery was occurring but still provided certain facilitation or support. (See the post on the FCPA Blog here for details.)
The most recent draft amendments (“2017 Amendments”), released on February 22, modify many of the more significant changes proposed in the earlier draft amendments and return some of the statutory provisions to standards closer to the current version of the AUCL, which was enacted in 1993. The AUCL covers a variety of unfair trade practices, of which commercial bribery is one.
Scope of Commercial Bribery. The 2017 Amendments do not include a specific definition of commercial bribery, but instead state summarily that companies “may not use money or property or other means to bribe a counterparty to a transaction or a third party that can influence a transaction. A counterparty to a transaction or a third party that can influence a transaction shall not take bribes.” The 2017 Amendments change back the range of items that could be used as bribes: previous draft amendments last year referred to “economic benefits;” whereas the 2017 Amendments return to the (apparently broader) “money or property or other means” standard in the 1993 AUCL.
The 2017 Amendments also modify the standard for liability for payments made through third parties, defining “third party that can influence a transaction” simply as “an entity or individual that can use its authority to exert influence on a transaction.”
Books and Records Requirements; Carve Out for Certain Discounts and Commissions. The previous draft would have imposed a much broader requirement to maintain accurate books and records. The 2017 Amendments, however, would essentially return the statutory language back to the text of the original 1993 AUCL: requiring both giver and receiver to accurately record discounts or commissions but no other requirements.
Vicarious Liability. The 1993 AUCL is silent on vicarious liability for acts of employees, although interpretive regulations in 1996 provided for such liability. The draft amendments released last year would have imposed liability on the company for actions of its employee; if a company could provide “evidence proving that the employee violated the interests of the [company] in accepting a bribe,” then the conduct would not be attributed to the company. The 2017 Amendments clarify that standard: a company will be liable for bribery by its employee if the bribes are to “seek transaction opportunities or a competitive advantage,” unless the company “has evidence to prove it was an employee’s personal conduct.” No further explanatory details are included.
Willful Blindness / Facilitation. The earlier draft amendments included fines for others that knew or should have known that bribery was occurring but still provided certain facilitation or support. The 2017 Amendments remove that provision.
Fines and Penalties. The existing 1993 AUCL provides for civil fines of RMB 10,000 to RMB 200,000 (about $1,500 to $30,000) and confiscation of illegal income attributable to the bribes. The earlier draft amendments would have modified those provisions to impose fines of between 10% and 30% of a company’s illegally obtained business revenue. The 2017 Amendments, however, would eliminate the confiscation of illegal income penalty and would impose only monetary fines of RMB 100,000 to 3 million (about $15,000 to $435,000). In “serious” cases, the company’s business license can be revoked. (For certain industries, additional penalties may apply. For instance, the Drug Administration Law retains income confiscation as a penalty for commercial bribery.)
A new provision in the 2017 Amendments would add violations to the company’s credit history, and publicize the violations. A separate provision would penalize obstructing investigations.
Enforcement. Historically, significant discretion has been delegated to local Administrations of Industry and Commerce (AICs) to enforce commercial bribery rules, and local AICs at the municipal and sub-municipal level have interpreted and enforced commercial bribery rules rather unevenly. The 2017 Amendments do not appear to provide additional clarity on key terms, but interpretative regulations may be released in the future.
(Our firm has been involved in matters where, in discussions with various AICs, the same conduct that would be improper in one city in China would be deemed unobjectionable in another.) Given the historical trend of local AICs pressing for larger fines, we anticipate that the larger penalties in the 2017 Amendments may result in still larger penalties imposed on companies deemed to be in violation.
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The 2017 Amendments are open for public comment until March 25.
A comparison chart showing the changes from the 1993 AUCL, the draft amendments introduced last year, and the 2017 Amendments is available upon request from the author.
Eric Carlson, pictured above, is a Contributing Editor of the FCPA Blog. He’s a Shanghai-based partner at Covington & Burling LLP specializing in anti-corruption compliance and internal investigations, with a particular focus on China and other regions in Asia. He speaks fluent Mandarin and Cantonese and can be contacted here.