It has long been perceived that bribery and corruption form an integral part of doing business in China. Recent developments in the PRC have, however, challenged that view - with the actions of the PRC authorities making it clear that it would be unwise for any entity doing business in China to proceed on the basis of traditional perceived wisdom.
Of most significance is an “Opinion on Several Issues Concerning the Application of Laws to Commercial Bribery Cases” which was jointly issued by the Supreme People’s Court and the Supreme People’s Procurate at the end of 2008. This provides important clarification on China’s bribery and corruption laws, which are contained primarily in the PRC Criminal Law.
The Criminal Law distinguishes between bribery involving state officials and commercial bribery (involving people who are not state officials). In many respects, the Criminal Law is unclear over the precise ambit and scope of China’s bribery laws. In particular, it had previously been unclear how commercial bribery fell into the Criminal Law regime; and whether it constituted a criminal offence at all.
The opinion, which relates to commercial bribery, has now clarified the position:
- The scope of the commercial bribery regime: It is now clear that commercial bribery covers each of the eight criminal offences relating to bribery under the Criminal Law (including the acts of accepting or offering a bribe (whether by a state official or by a non state official or entity); offering bribes to an organisation; or introducing bribes).
- What is meant by a non state official: The opinion clarifies that non state official includes non state working personnel in state-owned companies, enterprises and other state-owned units. Additionally, it includes people working for permanent organisations as well as those working for non permanent organisations. The opinion also makes it clear that legal persons (including incorporated entities) can be subject to criminal prosecution.
- What constitutes a bribe: Clearly, this covers the obvious case of a cash payment, although the opinion extends the definition to property interests, the value of which can be calculated in monetary terms (for example, covering home renovations, the giving of bank cards or club membership cards with a pre-loaded cash value and travel expenses).
- The factors to be taken into account when distinguishing between an innocent gift and a bribe: These include consideration of the background to the transaction, the relationship between the parties, the value of the property, whether there have been any previous transactions between the parties, the reason for the transaction taking place, whether any favours have been requested, and whether the accepting party has abused its position to facilitate an advantage for the giving party.
This further guidance and clarity are a welcome development for international businesses operating in the PRC.
But the story does not end there. In addition to providing clarification of the law, the PRC authorities have also demonstrated their resolve to clamp down on corruption through their actions. This has involved numerous cases in which those who participate in corruption in the PRC have been named and shamed and, if found guilty, subjected to stringent penalties.
In 2006, the Communist Party Secretary in Shanghai was charged with corruption and received a substantial sentence. More recently, in 2008, it emerged that two Commerce Ministry officials responsible for drafting and enforcing the foreign M&A regulations (including having responsibility for deciding which foreign companies obtain licences to operate in China) are being investigated for taking bribes.
Notably, this probe has led to speculation that the matter may be related to a recent investigation announced by Avon Products into the payment of irregular travel, entertainment and other expenses. Whilst the speculation has not yet been confirmed, it is clearly an unwelcome development for any investor in China to find itself embroiled in such a high-profile investigation into alleged corrupt activities. The probe has even extended to two (as yet unidentified) US law firms and one Chinese law firm.
Likewise, the penalties for corruption in China are severe. For example, it was announced in February 2009 that Li Peiying, the former head of Beijing Capital International Airport’s holding company, was sentenced to death for taking Rmb26.2 million (US$3.8m) in bribes and for misappropriating a further Rmb 82.5 million (US$12m). Peiying has also had his personal property confiscated and his political rights denied. The court said that the bribes, which had been given in return for the arrangement of unauthorised investments and guarantees for bank loans, had caused significant economic damage. Although he has paid the bribes back to the state, the death sentence still stands.
Clearly, it is now more important than ever for foreign investors to take precautions to avoid the threat of criminal investigation and possible sanction.
Such precautions include appropriate anti-bribery policies, backed up with relevant training and education for employees. It will clearly now be important for such policies to specify in what circumstances gifts or entertainment may legitimately be given to state and non-state officials, and to establish internal procedures to provide guidance (and pre-authorisation) on this issue. Companies must also take care when engaging third party agents, in particular to ensure that the relevant agency agreement contains applicable protection.
Although such measures will not guarantee immunity from criminal investigation, they will nevertheless place foreign investors in as strong a position as possible if and when they are faced with the reality of the PRC authorities’ desire to clamp down on corruption.
Gareth Hughes, head of China disputes group, Simmons & Simmons