Is China Getting Serious or Redirecting Responsibility? New guidance on Chinese Anti-Bribery Enforcement

by Sheppard Mullin Richter & Hampton LLP
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For years, a significant number of Foreign Corrupt Practices Act (FCPA) enforcement actions have focused on or involved the People’s Republic of China (PRC), Chinese subsidiaries, or Chinese officials.  It is hard to avoid the conclusion that the PRC is fertile ground for corruption: many of its major industries are dominated by state-owned or -controlled companies.  A tradition of gift-giving and hospitality may blur the distinction between friendly gesture and kickback.  And the sheer volume of business transacted in the country makes policing illicit exchanges for business advantages a tall order for any enforcement agency.

China also gets pretty rough treatment among commentators on global anti-bribery and - corruption regulation (including, at times, in this blog).  Recent high-profile corruption scandals have done nothing to help its reputation.  In fact, on the Corruption Perceptions Index (released by Transparency International) China ranks 80th out of 174 countries, an abysmal result relative to some of its neighbors: Singapore (No. 5), Hong Kong (No. 14), Japan (No. 17), Taiwan (37), and South Korea (No. 45).

China may be changing: the government recently released new guidance on its anti-bribery laws that could signal it is ready to address corruption head-on.  It is also possible, however, that China is simply seeking to punish foreign companies and distract attention from internal realities and practices that have made corruption endemic in the country.

Background

In 2008, China enacted amendments to its criminal code that provided for anti-bribery enforcement against corrupt officials.  A new interpretation and guidance on that law appear to indicate that the country may be turning its attention to the parties that pay, rather than receive, bribes.  To date, Chinese enforcement has targeted the officials taking bribes; the new guidance clarifies points that relate only to those parties paying or offering bribes.

The Guidance

On January 1, 2013, an interpretation of China’s anti-bribery law, adopted by China’s highest court, went into force.  The guidance, which is effectively law in the PRC, does not substantively change anti-bribery law in the country but clarifies several points and may hint at the future direction of Chinese enforcement, as follows.

Consideration for corporate cooperation.  Under PRC criminal law, the confession of a crime by an individual may reduce the penalty assessed.  The guidance contemplates, for the first time, penalty mitigation for a company where that company, by a collective decision or the decision of the company’s leaders, voluntarily discloses bribery before the crime is prosecuted.  The guidance also offers penalty mitigation where a person credibly reports on other criminal action by a bribe-taker.

Expansion of “Improper Benefits” definition.  The guidance adds “[s]eeking competitive advantage in economic, organizational, personnel, administrative and other activities in violation of principles of justice and fairness” to the definition of “improper benefits.”

Focus on Specific Industries.  The guidance calls out certain industries in which bribes will be penalized more harshly including product safety, food, and pharmaceuticals or life sciences.  While this focus is not surprising in light of the recent public concern over tainted products, food, and drugs in China, it may nonetheless signal that Chinese enforcement officials will be targeting those industries.

The Effects

So what, we may ask, is the intended effect of inviting companies to confess their crimes, broadening the scope of what is punishable, and singling out certain industries?

First, offering reduced punishments for voluntarily disclosed conduct has seemingly helped U.S. enforcement agencies to uncover more violations.  The Chinese government may want to emulate the U.S. government in that regard.  Second, a voluntary disclosure sometimes gives the government a lead as to a broader, industry-wide issue.  This can, in turn, trigger a more substantial investigation.  And finally, picking out industries like food and pharmaceuticals, in which foreign companies play a large role in China, may make it easier for Chinese prosecutors to pursue enforcement action against companies with significant operations outside China.

This clarification by the Chinese government suggests that the country is ready to tackle corruption in earnest.  However, with so many U.S. FCPA enforcement blows landing on China and Chinese companies, this guidance may signal that China is ready to take a few swings of its own.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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