The Chinese regulator, the Fourth Session of the Standing Committee of the 14th National People’s Congress of the People’s Republic of China (“PRC”), has most recently examined the Draft Amendments XII to the PRC Criminal Law (“Draft Amendment XII”), which has been published on 26 July 2023 for public comments for 30 days.
The Draft Amendment XII aims at further strengthening China’s anti-corruption regime following the ongoing anti-corruption campaign in the country. The proposed amendments provide stricter liability risks in certain scenarios of corruption in the public and private sectors. Executives in foreign-invested enterprises in China need to anticipate new personal liability risks following the regulator’s objective to close gaps of personal criminal liability exposure.
1. Key Changes
The following shows a selection of the proposed amendments of the PRC Criminal Law.
a) New Personal Criminal Liability Exposure in Privately Held Companies
The Draft Amendment XII aims at closing a gap of personal criminal liability exposure under the Articles 165, 166 and 169 of the current PRC Criminal Law.
Articles 165, 166 and 169 of the current PRC Criminal Law provide that certain individuals such as directors, managers, persons in charge and other employees of state-owned enterprises shall be subject to personal criminal liability with regard to specifically defined misconducts. These misconducts include for example obtaining benefits for themselves, their relatives or others by using the power of their positions; purchasing commodities from a company, which is managed by their relatives at a price, which is obviously higher than the market price; and selling commodities to such a company at a price, which is obviously lower than the market price.
The personal criminal liability risks, which are triggered by these misconducts, apply currently only to certain individuals in state-owned enterprises. However, those individuals who are committing the same misconducts in privately held companies, are currently not subject to the personal criminal liability under the Articles 165, 166 and 169 of the PRC Criminal Law. Depending on the individual scenario, they may be subject to other personal criminal liability risks, but they may not be held criminal liable under the current Articles 165, 166 and 169 of the PRC Criminal Law.
If the proposed amendments in the Articles 165, 166 and 169 of the PRC Criminal Law will be adopted, this gap of personal criminal liability exposure between state-owned and privately held companies will be closed, and in both scenarios the affected individuals may face an imprisonment of up to 7 years and fines.
These proposed amendments, if implemented, will provide new personal criminal liability risks on the management and employees in foreign-invested enterprises, given that foreign-invested enterprises are operating mainly as privately held companies in China, unless they are operating in the form of Sino-foreign joint ventures with Chinese state-owned enterprises. If implemented, these proposed amendments will provide foreign-invested enterprises in China a new tool to address these misconducts against the management and employees in their organization.
b) Stricter Punishment for Receiving Bribes in the Public Sector
The Draft Amendment XII provides stricter punishment under Article 387 of the PRC Criminal Law, which prohibits bribery in the public sector on the receiving side. Article 387 of the PRC Criminal Law prohibits that a State organ, State-owned company, enterprise, institution or people’s organization extorts from another person or illegally accepts from another person money or property in return for securing benefits for this person.
The Draft Amendment XII provides that the maximum time of imprisonment of the persons, who are directly in charge and the other persons who are directly responsible for the offence shall be extended from currently up to 5 years to up to 10 years.
c) Stricter Punishment for Giving Bribes in the Public Sector
Clarification of the Aggravating Circumstances in conjunction with Giving Bribes in the Public Sector
The current PRC Criminal Law does not provide aggravating circumstances for giving bribes. It just provides special circumstances, including “giving bribes to more than three individuals”, which shall then lower the prosecution threshold from RMB 30,000 to RMB 10,000. The Draft Amendment XII provides under Article 390 of the PRC Criminal Law six aggravating circumstances, which shall trigger stricter penalties for the offender on the giving side.
These six circumstances are the following:
(1) multiple bribery, bribery to more than one person;
(2) bribery by State officials;
(3) bribe-giving in important national work, key projects, major projects;
(4) bribery-giving in the areas of organisation and personnel, discipline and law enforcement justice, ecological and environmental protection, finance and monetary affairs, safe production, food and drugs, daily help and disaster relief, pension and social security, education and medical care;
(5) bribe-giving for the purpose of committing illegal and criminal activities; and
(6) using the proceeds of the offence to pay bribes.
It is to be expected that for the six circumstances the prosecution threshold will be also lowered in practice from RMB 30,000 to RMB 10,000.
Increase of Maximum Term of Imprisonment
Further, the Draft Amendment XII provides that the maximum term of imprisonment for giving bribes in the public sector with regard to the scenarios in Article 391 and Article 393 shall be lifted to up to 7 years.
2. Development of the Regulator’s Playbook
The Draft Amendment XII reflects the further development of the regulator’s playbook as follows:
- Individuals who are giving bribes in the public sector shall face stricter personal liability risks, given that the maximum time of imprisonment shall be increased.
- Specific areas shall be stricter protected against bribery, which is reflected in stricter penalties for giving bribes in these areas. These areas include for example “discipline and law enforcement justice”, “ecological and environmental protection”, “finance and monetary affairs”, “safe production” and “food and drugs”.
- The gap of the personal criminal liability exposure between state-owned and privately held companies in relation to the Articles 165, 166 and 169 shall be closed. As a result executives in foreign-invested enterprises in China will be subject to new personal criminal liability risks.
3. Risk Proof against Corruption
China’s anti-corruption laws and regulations are getting stricter and most recent prominent corruption cases mirror that the liability risks for companies and its management are not of theoretical nature. Companies doing business in China need to develop tools of transparency, prevention and crisis management, which are embedded in a solid compliance and risk management strategy, for making their businesses risk proof against corruption.
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