- New Interpretations of Criminal Commercial Bribery Cases -
Commercial bribes under the guise of gifts, entertainment, and favors have long catered to the operational norms of foreign and domestic businesses in China, where it is often hard to distinguish local customs from bribes. Statistics show that alarmingly, foreign companies have been involved in the majority of corruption scandals investigated in the PRC. Millions of dollars and items of value have been exchanged in thousands of cases of commercial bribery. A State news agency reported that in 2007, 1000 cases of bribery were uncovered in the health sector estimated at $4.3 million, and 7450 cases in the industrial sector with over $3.3 million in illicit gains. The PRC government remains focused on cracking down on bribes involved in property and land transactions, pharmaceutical sales, government procurement contracts and major construction projects, which due to their high profiles still remain the primary areas of scrutiny.
Administrative Violations.
Over the past decade China has enacted several laws and regulations to battle this illegal activity both through administrative and criminal sanctions. Commercial bribery was first recognized under provisions of the PRC Anti-unfair Competition Law which came into effect in 1993. This law defines administrative violations with respect to commercial bribery and was further reinforced and clarified by (i) The Tentative Provisions for the Prohibition of Acts of Commercial Bribery (1996); (ii) Opinions on the Launch of a Special Task Force to Tackle Commercial Bribery (2006); and (iii) Implementation Opinions on the Investigation and Treatment of Commercial Bribery by Law (2006).
Criminal Violations
The focus here is on certain classes of bribes which were criminalized in 1996 under the PRC Criminal Code (amended 2006) (the “Code”). Most recently, to shed light on the application of the Code, on November 20th, 2008 the Supreme People’s Court and the Supreme People’s Procuratorate released the Opinions on Several Issues Regarding the Application of Laws in Commercial Bribe-Related Criminal Cases (the “Opinions”). The Opinions clarify and expand the Code on the following issues:
I. Scope of commercial bribes;
II. Definition of “other organizations”;
III. Scope of criminal liabilities in medical, educational and government procurement;
IV. Gifts vs. bribes; and
V. Settlement of joint crimes between state and non-state personnel.
What Constitutes a Criminal Offence of Commercial Bribery?
Under the Code, ‘commercial bribery’ is defined as (i) the act of offering money or property to the personnel of a company or enterprise, a government official, or other organization; (ii) in return for a benefit or the assistance to obtain a benefit; (iii) involving a relatively large or very large amount.
Attempt and the Act of Asking are now part of the definition
Under judicial interpretation of the Code, the ‘act of offering bribes’ has commonly included cases involving persons (a) who in exchange for money or property of substantial value, take advantage of their standing to secure benefits for the briber; (b) who in the course of business, accept illegal kickbacks or commission; or (c) who offer bribes, kickbacks, or commission to government officials to illegally facilitate the course of business.
In one of the most significant changes, the Opinion has expanded the above definition of what actions constitute a bribe. Now amended, an actual bribe does not even have to be extended because violations also include (i) “seeking inappropriate benefits” - plainly said, the attempt of gaining unfair advantages through the violation of laws, regulations, rules or policies; or (ii) the act of asking the bribe recipient to make or help to make matters convenient through violation of laws, regulations, rules or policies.
“Other organizations” includes ad hoc organizations
The Opinions clarify that “other organizations” mentioned in the Code include not only private institutions, non-governmental organizations, civil organizations, village and neighbourhood committees, but also ad hoc organizations or certain business relationships such as those with contractors or event organizing committees and even ad hoc committees within an organization.
By What Definition is the Determination of ‘Money or Property’ Made?
Financial Benefits of Any Kind
Over the years bribery has taken various and sophisticated forms. Certain classes of bribes have clearly fallen under the Code’s definition of “offering of money or property” such as: tours/trips, resident permits, foreign passports, housing renovations, designer clothes and electronics, club memberships, etc. But the grey area of bribes which are difficult to categorize, although still remain illegal, fall under the not so obvious such as: zero to no interest loans, employment arrangements, admission into educational institutions, etc. The Opinion has tackled this issue by enlarging the statutory definition of bribes to distinctly include “inappropriate financial benefits” of any kind that bring illegitimate benefit to the recipient, with the specific amount subject to the actual gains or costs.
Bank Cards
For the first time in PRC bribery legislation, the Opinion specifically pointed, if bank cards are received under an act of bribery, that the actual account deposits will constitute the amount of the bribe, whether or not such amounts have actually been withdrawn or used. If the bank account is overdrawn, and the offering party is responsible for the balance of the account, the overdrawn sum shall also be deemed as a bribe.
Joint Settlement of Crimes between State and Non-state Personnel
Under the Code, state-personnel and non-state personnel are punished according to Articles 385 and 163 respectively. The thresholds and punishments for state vs. non-state personnel vary significantly. Under the Opinions, if non-state personnel together with state personnel jointly receive bribes they shall be prosecuted according to their respective crimes. If however, the principal and accessory cannot be distinguished then the crime shall be punished according to the more stringent bribery laws governing state-personnel.
What Criminal Liabilities are Specifically Expressed in the Opinions?
Although not explicitly stated, the Code was designed in such a way that the criminality of certain groups (such as those mentioned below) implicated in bribery was implied. The recent articulations in the Opinions with regard to medical and educational personnel and bid evaluation committees, demonstrates the Chinese government’s seriousness in its efforts to eradicate bribery.
Medical Purchases and Sales
By definition ‘medical personnel’ includes physicians, physician assistants, nurses, emergency medical technicians, dentists, etc. In China, by way of market design and medical expertise medical personnel retain a type of monopoly control over the choice of drugs and equipment available to their often uninformed patients. This often leads to rampant abuse of the system where bribes are exchanged to push the sale of drugs and equipment. The Opinions stress that state and non-state medical personnel, who abuse their position to obtain kickbacks or commissions from pharmaceutical companies and manufacturers of medical apparatus and supplies, will be subject their respective crimes under the Code.
Bid Evaluation Committees/ Government Procurement
The changes in this section are subtle though should not be ignored. The new rule states that:
A member of a legally established bid-evaluation committee, a negotiation panel of competitive negotiation procurement, or a consultation panel is prohibited from illegally receiving bribes to gain advantage for others in bids or government procurement processes.
With respect to government procurement, the Code focused specifically on the liabilities of ‘state personnel or related units’ as perpetrators. Now under the Opinions, any other ‘party’ which has some relation to the transaction may be deemed the offeree. In a practical move, the Opinion also considers these bribery actions in light of ‘industrial norms’ and indeterminate ‘rules’ and ‘policies’.
Bribes in Relation to Schools and Learning Institutions
Likely in reaction to the public outcry and scandals surrounding the collapsed school buildings in Sichuan Province earlier this year, the Opinions have especially mentioned punishment of bribes with respect to educational institutions from the procurement of books and supplies to the construction of buildings and sale of lands. Officials will be keeping a close eye on any profits made under these transactions.
Differentiating Gifts from Bribes
As in many neighbouring countries, in China gift giving is an important and socially beneficial function. When gifts are actually bribes is sometimes hard to distinguish because promotional gifts and customary holiday gifts are given year round. The Opinions have now elaborated the following factors which are taken into consideration when differentiating ordinary gifts from bribes.
(a) Relationship between the parties / background on the property or financial exchange
The courts will consider whether the parties are relatives or friends and other historical context relating to the transaction.
(b) Value of the property / financial exchange
Small Gifts: What may be considered ‘excessive’ is a matter of administrative or judicial discretion, but in most instances small gifts of insignificant value (pens, mugs, t-shirts, moon cakes) are generally acceptable. The caveat here is to be in line with prevailing commercial practices.
Travel and Meals: When guests are invited to events (such as medical symposiums), all meal and travel expenses should be duly recorded and directly related to the event. Particularly lavish meals and additional entertainment should be avoided.
(c) The reasons, timing and methods of the property/ financial exchange
Consideration is given to the circumstances that may have prompted the offeror, and whether the receiving party is in a position that may be manipulated to confer benefit on the offeror.
(d) Whether the receiving party takes advantage of his or her position to seek profits for the offering party
Minimizing Risk
Commercial bribery has become engrained into the way business is done in China because it is such a common social phenomenon. All links in a commercial chain are susceptible to corruption and keeping abreast of the most recent developments in PRC laws and regulations can aid companies in designing their internal compliance mechanisms and avoiding costly fines and/or imprisonment of those involved.
** this is not legal advice.
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