Jurisdiction - China
Reports and Analysis
China – Anti-Corruption Regulations.

22 February, 2012

 
1 What are the main bodies responsible for investigating and combating corruption, money laundering and terrorist financing?
 
To investigate and combat corruption the main bodies are:
 
• regional people’s procuratorates (“RPP”);
• supervisory bureaus;
• public security bureaus (“PSB”); and
• discipline inspection committees.
 
The discipline inspection committees form a part of the disciplinary arm of the Communist Party of China (“CPC”), and are responsible for investigating violations by party members of party rules.
 
To investigate and combat money laundering and terrorist financing:
 
• the People’s Bank of China (“PBC”); and
• the China Banking Regulatory Commission (“CBRC”), the China Securities Regulatory Commission (“CSRC”) and 
the China Insurance Regulatory Commission (“CIRC”).
 
2 What does each of these bodies investigate?
 
RPP, supervisory bureaus and PSB are organs of state. All have powers of investigation but over different areas.
 
RPP are responsible for investigating embezzlement of state property and the bribery of public servants and “public functionaries”. A public functionary is any person who (i) performs a public service in a state organisation; (ii) performs a public service in a state-owned company or enterprise; (iii) is appointed by a state-owned company to perform a public service in a non-state owned company or enterprise; or (iv) performs a public service according to law.
 
Supervisory bureaus are responsible for investigating violations of administrative regulations by public servants and public functionaries.
 
PSB have general powers of investigation and are responsible for investigating commercial corruption and bribery.
 
Only the RPP have the power to prosecute. If investigations are carried out by the supervisory bureaus or PSB and there are sufficient grounds for a charge upon conclusion of the investigation, the matter will be transferred to RPP for prosecution.
 
The PBC is empowered by the state council to supervise and administer the anti-money laundering compliance of all financial institutions. The CBRC, CSRC and CIRC, in turn, also exercise their respective duties of anti-money laundering supervision and administration within their own areas (ie, banking, securities and insurance). Where the money laundering is sufficiently serious to constitute a criminal offence, the particular case will be transferred to the PSB for investigation.
 
3 What is the source of the anti-corruption regulations in the PRC?
 
The two primary pieces of anti-corruption legislation are the Criminal Law and the Anti-unfair Competition Law. Various government department administrative rules and judicial interpretations issued by the Supreme People’s Court and Supreme People’s Procuratorate also contain additional anti-corruption provisions, such as the Interim Regulations on Prohibiting Business Bribery
 
The Anti-Money Laundering Law and the Anti-Money Laundering Regulation Concerning Financial Institutions are the principal sources of anti-money laundering legislation. They define the offence of money laundering and impose obligations on financial institutions to combat money laundering.
 
Article 191 of the Criminal Law makes money laundering activities an offence. The funding of terrorist activities is also an offence under Article 120(1) of the Criminal Law.
 
4 What constitutes a bribery/corruption offence in the PRC?
 
Generally, the giving of advantages to obtain an improper benefit, or taking advantage of authority or accepting benefits in return for providing improper advantages will constitute a bribery/corruption offence.
 
Public sector 
 
Accepting bribes
 
The offence of accepting bribes by state personnel includes doing the following acts:
 
• soliciting or accepting illegitimate advantages from, and seeking illegitimate benefits for, others by taking advantage of his position;
• accepting illegitimate kickbacks or service charges in violation of state provisions; or
• being an intermediary in the above acts where the circumstances of the offence are considered serious.
 
Giving bribes
 
The offence of giving bribes to state personnel may also be committed if, in giving the bribe to state personnel (as set out above), the person/corporation:
 
• offers advantages to state personnel and seeks illegitimate benefits;
• gives illegitimate kickbacks or service charges in violation of state provisions; or
• offers illegitimate advantages of relatively high value in economic activities.
 
The Supreme People’s Procuratorate has issued some guidelines on when investigations for giving bribes to state personnel may be commenced. An individual’s act suspected of satisfying one of the following circumstances must be investigated where:
 
• the amount of the bribe is over CNY10,000; or
• the amount of the bribe is less than CNY10,000, but one of the following circumstances exists:
(i) the bribe is for illegitimate benefits;
(ii) the bribe was offered to more than three personnel;
(iii) the bribe was offered to the party and government leaders, judicial staff, or staff who administer the People’s 
Republic of China (PRC) administrative law; or
(iv) the act results in significant loss to the state or the interests of society.
 
Even if an individual is forced to pay a bribe by government employees, he shall still be found guilty of committing a crime if he has nevertheless received illegitimate benefits.
 
A corporation’s act suspected of satisfying one of the following circumstances should be investigated:
 
• the amount of the bribe is more than CNY200,000; orGuide to Anti-corruption Regulation in Asia 2012/2013 4
• the amount of the bribe is between CNY100,000 and CNY200,000, but one of the following circumstances also exists:
(i) the bribe is for illegitimate benefits;
(ii) the bribe was offered to more than three personnel;
(iii) the bribe was offered to the party and government leaders, judicial staff, or staff who administer PRC 
administrative law; or
(iv) the act results in significant loss to the state or the interests of society.
 
If the illegitimate benefits derived from a bribe made by a corporation are received by an individual, the investigations shall be initiated in accordance with the standard for individuals (as set out above), and the individual shall be punished.
 
The latest amendment to the Criminal Law (which came into effect on 1 May 2011) has also made it an offence if one gives bribes to foreign officials or officials of international public organisations for the purpose of securing illegitimate commercial benefits. The National People’s Congress Law Commission has suggested that “foreign officials” include 
members of the legislature, administrative or judicial officials appointed or selected by the foreign country or other officials who perform public functions for the state organs, public institutions or public enterprises of the foreign country, and that “officials of international public organisations” means international public servants or personnel authorised by the international organisations to act on behalf of the organisations. The new offence echoes the United Nations Convention against Corruption and potentially has an extra-territorial effect in that Chinese nationals, Chinese local companies or Chinese subsidiaries or joint ventures of multinational companies will be caught by this provision if they bribe foreign officials in overseas jurisdictions.
 
Private sector
 
A person/corporation in the private sector (ie, non-state personnel) will commit the offence of accepting bribes only if the amount of bribes involved is of a “relatively large value”.
 
Individuals and corporations are capable of committing the offence of giving bribes to private sector individuals/corporations if the individual/corporation seeks illegitimate benefits and the amount of bribes concerned is of a “relatively large value”.
 
There is however no legislative or judicial provision setting out the criteria for determining what a “relatively large value” is.
 
Do local anti-corruption regulations have extra-territorial effect?
 
Yes, in the following circumstances, the Criminal Law has extra-territorial effect:
 
• crimes in respect of which either the act or the consequence takes place within the PRC;
• state personnel who commit certain crimes specified in the Criminal Law within or outside the PRC;
• foreigners who commit crimes against the PRC or Chinese citizens outside the PRC, provided that the Criminal Law stipulates a minimum sentence of three years’ imprisonment for the crime and the conduct is punishable according to the local law where the crime was committed;
• bribery of foreign officials and officials of international public organisations is prohibited by the Criminal Law; and
• crimes specified in international treaties to which the PRC is a signatory or member state, where the Chinese court chooses to exercise the jurisdiction.
 
Are there any statutory defences provided under the relevant legislation, eg, de minimis exceptions, payments that are legal in the country in which they are offered etc?
 
Save for the aforementioned Supreme People’s Procuratorate guidelines on when investigations may be commenced, there are no de minimis exceptions for public sector bribery offences. The private sector bribery offences only apply where the advantages involved in the bribery are of a “relatively large value”. 
 
The Judicial Opinions of the Supreme People’s Court and the Supreme People’s Procuratorate on Certain Issues Concerning the Application of Law in Commercial Bribery Cases (“the Judicial Opinion”) has said that the following factors may be taken into account in determining the legality of the relevant payment/gift/benefit:
 
• the relationship between the offeror and the recipient, such as relatives or friends;
• the value of the benefit;
• whether the offeror seeks any interest by taking advantage of the recipient’s position, considering the purpose, timing and manner of delivering the advantages; and
• whether the recipient actually seeks the benefits for the offeror by taking advantage of his position.
 
In respect of money-laundering and terrorist financing, there are no de minimis exceptions.
 
7 What powers of investigation do the relevant regulatory authorities have and what are the consequences of non-compliance?
 
RPP and PSB are empowered to:
 
• interrogate suspects;
• question witnesses;
• search the person, belongings and residence of an individual suspected of a criminal offence and anyone who might be hiding a criminal or criminal evidence, as well as other relevant places;
• conduct an examination of property, objects, people and corpses relevant to embezzlement and bribery;
• request or seize material and documentary evidence;
• appoint experts to evaluate specialist issues;
• seize relevant accounting documentation in cases of embezzlement or bribery;
• if a suspect has fled the country, the RPP may take all reasonable steps to repatriate the suspect and request assistance from international organisations as necessary; and
• order the return of stolen money or goods.
 
RPP and PSB also have powers to intercept communications and conduct covert surveillance.
 
8 What are the powers of arrest and detention of the relevant regulatory 
authorities?
 
PSB and RPP as law enforcement agencies may detain suspects who attempt to flee, have already fled, or who attempt to destroy or fabricate evidence. Any arrest must be approved by RPP and executed by PSB.
 
RPP may issue a warrant for the arrest of a suspect in circumstances where there is sufficient evidence to support a conviction for embezzlement or bribery, and it is suspected that an order for bail or residence under surveillance would not be effective.
 
The discipline inspection committees may detain (“shuang gui”) CPC members who are suspected of committing any criminal offence, including corruption and bribery.
 
Do the relevant regulatory authorities have powers to freeze properties which may be proceeds of a bribery/corruption offence pending conclusion of their investigation?
 
Yes.
 
10 Are there any provisions requiring investigations or information disclosed during the course of investigations to be kept quiet?
 
In the course of an investigation by RPP or PSB, the investigators are required to keep the following information confidential: (i) the identity of the person who makes the complaint; (ii) the identity of any suspects; (iii) the identity of any witnesses; and (iv) any state secrets. Further, the investigators are not permitted to disclose any details of the investigation to the witness in the course of any interview.
 
There is also an obligation imposed on a suspect who is released on bail or who is permitted to reside under surveillance not to disclose any details of the investigation. There is no express confidentiality obligation for witnesses. However, a witness shall keep any information relating to 
state secrets confidential. Further, if the “whistle-blower”, complainant or informant wishes to keep their names and actions secret, the public security organs, the people’s procuratorates and courts shall keep this information confidential.
 
11 Are there protections available when responding to investigations by the relevant regulatory authorities, eg, right to legal representation at interviews, privilege against self-incrimination and legal professional privilege?
 
A suspect is required to honestly answer all questions relevant to the investigation put to them by the investigator. A suspect has the right to refuse to answer any questions that are irrelevant to the investigation. A suspect under investigation is entitled to instruct a lawyer, but only after the first interview has taken place. However, a suspect is not allowed any legal representation during interviews.
 
In cases involving state secrets, a lawyer may only be retained with the express approval of the investigating authority. 
 
Meetings between a lawyer and a suspect held in custody may not necessarily be private. The investigating authority has the power to monitor such meetings as it considers appropriate.
 
Chinese law does not recognise privilege against self-incrimination or legal professional privilege.
 
12 Do the relevant anti-corruption measures relate only to the bribery of “public” individuals and/or bodies?
 
No, the anti-corruption measures extend beyond public functionaries to private companies and private individuals engaged in commercial corruption or bribery, including giving bribes and receiving bribes.
 
13 What sanctions/sentences may be imposed?
 
A public prosecution may be brought by RPP in circumstances where there is sufficient evidence of guilt. However, RPP and PSB are not able to impose any sanctions themselves.
 
Where a corruption-related crime is committed by a state functionary, the sentence varies from a disciplinary sanction by the entity to which they belong in the case of a minor offence right up to the death penalty in extreme circumstances. Administrative penalties may be imposed by the Supervisory Bureaux in circumstances where the action does not constitute a criminal offence. Such penalties include a warning order, a demerit record, demotion, and dismissal. Confiscation of property and illegal proceeds may also be imposed.
 
Private individuals found guilty of the criminal offence of bribery may be jailed for up to 10 years and fined. Confiscation of property and illegal proceeds may also be imposed.
 
14 Is it possible to enter into a settlement to resolve any enforcement action/prosecution by the relevant regulatory authorities?
 
No.
 
15 Are there provisions for persons to appeal against any enforcement action/prosecution taken against them?
 
An individual who is successfully prosecuted may appeal the judgment/sentence to the higher court. A judgment at 
second instance (ie, on appeal) is the final judgment and is not appealable.
 
16 Do the police and other local regulatory authorities assist the relevant regulatory authorities in their investigations?
 
RPP will request the assistance of PSB as necessary.
 
17 How do the relevant regulatory authorities interact with overseas regulators?
 
China is a party to and has implemented the United Nations Convention against Corruption. The Convention was signed by more than 30 countries and was brought into force on 14 December 2005. The Convention requires the signatories to cooperate in combating corruption, including offering assistance in extradition, legal assistance, 
enforcement and transfer of convicted criminals.
 
The PBC may exchange relevant anti-money laundering information and establish mechanisms of cooperation with overseas anti-money laundering agencies to carry out transnational anti-money laundering supervision and administration. The PBC will apply the principles of equality and reciprocity when undertaking such cooperation.
 
18 Are there any laws or regulations imposing obligations on persons to “whistleblow” or disclose suspected corruption or money laundering within an organisation?
 
The Criminal Procedural Law prescribes a general obligation on individuals or entities to report any suspected crimes or 
criminal activity.
 
The Anti-Money Laundering Law imposes various obligations on financial institutions designed to combat money laundering, including an obligation to report large or suspect transactions. For example, a financial institution must report any large transactions to China Anti-Money Laundering Monitoring and Analysis Centre. The following amount will be deemed “large” for the purpose of the above reporting obligation: (i) daily cash transaction of CNY200,000 or over; (ii) daily bank transfer of CNY2 million or over amongst legal persons, other organisations and/or sole traders; (iii) daily bank transfer involving an individual in the amount of CNY500,000 or over; and (iv) daily cross-boarder transaction involving an individual in the amount of US$10,000 or over. Any director, senior manager or employee of a financial 
institution who is directly responsible for a breach of this obligation may be held personally liable to pay a fine ranging from CNY50,000 to CNY500,000 and/or disciplined, removed from their position or barred from engaging in financial work.
 
19 What is the impact of overseas anti-corruption laws such as FCPA and the UK Bribery Act on companies and/or individuals in China?
 
The US Foreign Corrupt Practices Act (the “FCPA”) prohibits the bribery of “foreign officials”. It is extra-territorial in effect and impacts all US companies and persons as well as foreign companies and persons if they issue securities on a US Exchange or otherwise engage in activities in furtherance of a bribe in US territory. Importantly, in pursuing potentially unlawful acts under the FCPA, the US Department of Justice has adopted an expansive definition of what it means to be committing an act of bribery in the US and has interpreted it to catch the transfer of money through US bank accounts including, potentially, all US dollar transactions that are cleared through bank accounts in the US.
 
The FCPA also contains a books and records provision requiring issuers to make and keep accurate books, records and accounts, which, in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets. In addition, the FCPA’s internal controls provision requires issuers to devise and maintain reasonable internal 
accounting controls aimed at preventing and detecting FCPA violations. These provisions apply to all companies, both US and non-US, that have their securities issued on a US exchange. They are expansive provisions and have been used to prosecute companies in cases where bribes have been paid to private individuals.
 
The UK Bribery Act 2010 (the “Bribery Act”) covers bribery of private persons as well as public officials. It also has extra-territorial application. For example, the Bribery Act prohibits offering or accepting a bribe outside the UK provided that the offender has a close connection with the UK. Persons with a “close connection” include British citizens and organisations incorporated in any part of the UK. Similarly, the Bribery Act’s corporate offence – which occurs when an organisation fails to prevent those performing services on its behalf from paying bribes – applies not only to organisations incorporated under UK law, but also to any other company carrying on a business, or part of a business, in the UK, regardless of where the act of bribery takes place.
 
The fact that conduct may not constitute an offence under local law does not necessarily mean it is permitted under the FCPA or the Bribery Act. Companies doing business in China are advised not only to comply with domestic legislation, but should also be fully aware of the far-reaching extra-territorial effect of both the FCPA and the Bribery Act.
 
 
For further information, please contact:
 
May Tai, Herbert Smith
 
Jessica Fei, Herbert Smith

 

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