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Focus: China prohibits bribery of foreign officials

10 May 2011

Chinese language version
 

In brief: China has recently passed amendments to its Criminal Law which took effect on 1 May 2011. One amendment of particular interest to international observers has been the introduction, for the first time under PRC law, of a prohibition on bribery of 'foreign public officials' or officials of international public organisations to secure 'improper commercial benefits'. Partner David Wenger (view CV) and Senior Associates Ross Keene and Xiangyu She report.

How does it affect you?

  • For Chinese companies, the amendments represent an expansion of the reach of PRC Criminal Law to cover the conduct of offshore bribery for the first time, and come at a time when state-owned enterprises and other PRC companies are increasingly engaged in outbound investment projects.
  • The changes may also apply to the activities, outside China, of foreign companies that have operations in China.

Background

The PRC Criminal Law has been amended on seven previous occasions since it was promulgated in 1997.

On 25 February 2011, the Eighth Amendment of the PRC Criminal Law was adopted by the Standing Committee of China's National People's Congress. The 50-article Amendment took effect on 1 May 2011.

The latest set of amendments has been widely debated within China from the drafting stage, as they address many sensitive issues such as the removal of non-violent crimes from the death penalty list. The amendments regarding the bribery of foreign officials have received little attention domestically but have drawn the focus of international observers, who have viewed the amendments as the latest steps taken to fulfil China's obligations under the United Nations Convention against Corruption.

Crimes of bribery under the PRC Criminal Law

There are a number of provisions under the current PRC Criminal Law that make the giving or receipt of bribes a criminal offence. For example:

  • Article 163 makes it a crime for an employee of a company (other than a state-owned company) to accept bribes, while Article 164 criminalises the giving of bribes to company employees;
  • Articles 385 to 388 prohibit the acceptance of bribes by state officials as well as state institutions, state-owned enterprises and their responsible persons; and
  • Articles 389 to 393 prohibit the giving of bribes to PRC public officials, government authorities, state-owned enterprises and related entities.

Bribery is also prohibited under other PRC laws and regulations such as the PRC Unfair Competition Law.

The latest amendment is to Article 164 of the Criminal Law, which is in the chapter of the Criminal Law dealing with 'Economic Crimes' as opposed to 'Crimes of Embezzlement and Bribery', and so stipulates slightly less serious punishments.

Amendment in relation to bribery of foreign officials

Under the amendments to Article 164 of the Criminal Law, if a person or entity provides property to a foreign public official or an official of an international public organisation in order to secure 'improper commercial benefits', those persons or entities will be punished in accordance with the provisions applicable to commercial bribery.

The punishments include (for individuals, or in the case of a company giving bribes, for the persons directly in charge of the relevant department, or those persons directly involved in the bribery activity) criminal detention of up to three years or, if the amount involved is very significant, criminal detention of between three and 10 years. In addition, fines can be levied on the individuals and companies involved.

The amendment does not define what is 'a foreign public official' or 'an official of an international public organisation', and no judicial interpretations have been issued at this stage.

Improper benefit vs. improper commercial benefit

An intention to secure 'improper benefits' has always been a key element when making out a bribery offence under the PRC Criminal Law. However, for the current amendments to Article 164, an intention to secure an 'improper commercial benefit' must be demonstrated. This suggests that the bribe must be of a commercial nature, but the amendment itself does not provide further guidance as to how this is demonstrated.

As no judicial interpretations have been released, previous definitions of 'improper benefits' provide a useful guide. In a 1999 notice jointly issued by the Supreme People's Court and the Supreme People's Procuratorate, an improper benefit was defined as a benefit obtained which is in violation of laws, regulations and national policies, and involves a request by public officials or relevant entities to provide assistance or 'favourable conditions' in violation of laws, regulations and national policies. At this stage it is not clear whether a similar focus on unlawfulness will be used as a basis to decide whether there has been an 'improper commercial benefit' as used in Article 164.

Application to foreign companies

In the absence of a judicial interpretation, it is not clear whether Article 164 will apply to foreign companies who are established in China.

Conclusion

The regulation and implementation of China's anti-bribery laws are still at a relatively early stage compared with regimes such as the US Foreign Corrupt Practices Act (the FCPA) and the UK's recently enacted Bribery Act. Nevertheless, the adoption of these amendments criminalising the bribery of foreign officials has delivered a clear warning to Chinese companies, such as major Chinese state-owned companies, that are increasingly engaged in outbound investment projects offshore. A number of Chinese companies such as PetroChina or CNOOC are already subject to UK or the FCPA rules due to contractual commitments or due to their status as issuers on foreign stock exchanges. Chinese companies can be expected to pay even more attention to this issue in light of these amendments and should make plans to enhance their internal governance regimes to ensure compliance with the latest amendments.

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