CHINA (PRC FIRMS): An Introduction to Corporate Investigations/Anti-Corruption
Corporate Investigations/Anti-corruption in China
Practice Area Overview in Chambers GCR 2022
An Introduction
Corporate investigations mainly include handling government investigations and conducting internal investigations, which are closely interconnected since the most complicated, urgent and sensitive internal investigations are always triggered by government investigations and the corresponding regulatory environment. Thus, corporate investigations related to anti-corruption are largely driven by government enforcement actions, for which, it could be further divided into three main dimensions in the PRC legal system: (1) administrative legislations and enforcement actions by the Administrations for Market Regulation (AMR); (2) criminal legislations and enforcement actions on cases not involving public officials by the Public Security Bureaus; and (3) legislations and enforcement actions on cases involving public officials by the Supervisory Commissions. Further, cross-border investigations involving multiple jurisdictions are complicated with additional legal and compliance restrictions and considerations.
Anti-corruption Administrative Legislation and Enforcement Trend
Substantively, the most significant change in the past few years could be the revision of the Anti-Unfair Competition Law (AUCL), which came into effect on 1 January 2018. In general, the AUCL has increased the maximum fine for commercial bribery from CNY200,000 to CNY3 million and redefined the constitutive elements of commercial bribery by excluding transaction counterparties from constituting the receiver of bribery, echoing a new era in the administrative enforcement of commercial bribery. At the local law enforcement level, a number of provinces have successively formulated local Anti-Unfair Competition Regulations, encouraging enterprises to establish and improve anti-commercial bribery compliance systems, and requiring the AMRs to inspect the compliance systems during inspection and investigation.
Procedurally, in 2021, the newly revised Administrative Penalty Law has strengthened the system of case transferring between the administrative and criminal authorities, and authorised administrative authorities to formulate the discretion benchmark system for administrative penalties. As of November 2021, at least 15 provincial AMRs have formulated local administrative discretion benchmarks systems, dividing the level of penalty into no administrative penalty, lighter or mitigated administrative penalty, and heavier administrative penalty, by comprehensively considering the facts, nature, circumstances, subjective faults of the parties concerned and other factors.
In terms of enforcement, taking Shanghai as an example, in recent years, the lowest bribery amount in a single case was only CNY169, which reflects the tightening trend of cracking down on bribery cases.
Anti-corruption Criminal Legislation and Enforcement Trend
Substantively, the Tenth Amendment to the Criminal Law, which was released on 26 December 2020, has increased the maximum penalty for the crime of bribery-taking by non-state functionaries from 15-year imprisonment for cases involving a huge amount of money to life imprisonment for cases involving extremely huge amounts of money or with other especially serious circumstances.
Procedurally, the system of plea-bargaining has been established by the Criminal Procedure Law in 2018. The system of plea-bargaining gives the People’s Procuratorates (Procuratorates) certain discretion in proposing conviction and sentencing and requires the defendant’s voluntariness of confession and authenticity and legitimacy of the content of the plea agreement.
In addition, the Supreme People's Procuratorate has been promoting pilot programs on corporate compliance reforms, including "non-arrest based on compliance", "non-prosecution based on compliance", and "leniency application based on pleading guilty". The pilot started in March 2020 and expanded to ten provinces and cities in March 2021, introducing third-party supervision and evaluation organisations to investigate, evaluate, supervise and examine the compliance commitments of enterprises involved in cases. The examination results will be an important reference for the Procuratorates to handle the cases.
In terms of criminal judicial judgments, public statistics released by the Supreme People’s Court shows that, in the past eight years, the number of corruption, bribery and other duty-related criminal cases concluded by people’s courts at all levels has reached more than 22,000 each year, and the number of individuals involved has reached more than 26,000 each year.
Anti-corruption Supervisory Legislation and Enforcement Trend
In order to strengthen the supervision of all public officials exercising public power and to intensify the anti-corruption effort, China formally established a supervision system in 2018. On 11 March 2018, the Constitution was amended, granting the Supervisory Commissions the same constitutional status as People’s Courts and People’s Procuratorates. The Supervisory Commissions are responsible for investigating suspected corruption and bribery and other duty-related illegal acts and crimes, taking a stronger position in leading related investigations. Notably, the Supervisory Commission can investigate not only public officials, but also other individuals involved in bribery cases. In recent years, we have noticed cases in which non-public officials were detained by the Supervisory Commissions due to involvement in bribery cases.
In terms of law enforcement, in September 2021, the Central Commission for Discipline Inspection and the National Supervision Commission, in concert with the relevant entities, jointly proposed to impose restrictions on market access of bribery-offering parties and explore the implementation of a “blacklist” system, indicating that the investigation and punishment of offering bribes will be further strengthened in anti-corruption cases.
Cross-border Investigations
Under the circumstances where a government investigation involves multiple jurisdictions, conflicting law issues might arise. The International Criminal Judicial Assistance Law (ICJAL) enacted in 2018 clearly prohibits any unauthorised criminal investigation by any means, either directly conducted by the foreign authorities, or collaterally through instructing companies in China to collect evidence through internal investigation. Further, the newly enacted Data Security Law and the Personal Information Protection Law regulate providing data stored within China to foreign judicial or law enforcement agencies. As cross-border investigations are frequently implicated with other restrictions on transfer of protected data such as state secrets, intelligence, important data, etc., under the relevant PRC laws and regulations, comprehensive analysis on all relevant legal issues would be required.
Outlook and Recommendations
Anti-corruption remains a priority for China, as evidenced by the from-the-top claims of a zero-tolerance approach to corruption along with the evolving legislation trend and intensified government enforcement actions. Correspondingly, in order to contain the compliance risks associated with bribery and corruption, more commitments to compliance from companies are highly suggested, which could be initially achieved through a well-designed and implemented compliance system, covering the dimensions including due diligence on third parties, financial and operational internal control, standardisation on the gift and entertainment policies, management of business partners, an effective reporting mechanism, a proper investigation process, a crisis-management process, and corrective measures for discovered issues.
Notably, special attention and preparation are required on handling potential government investigations or inquiries where proper responsive actions may likely help to alleviate the risks through necessary efforts including internal investigation, evidence preservation, proactive communication with the authorities, control of media and public exposure, etc. For those matters involving complex issues or delicate situations, professional legal support should be sought in a timely manner.