Thursday, March 3, 2011

Significant China Law Development

The June 2010 OECD Working Group on Bribery Annual Report (here) notes that China's "Ministry of Supervision informed the [OECD] Secretariat that China had begun considering how it would establish an offence of bribing a foreign public official, but was not yet at the stage of drafting legislation."

As this recent Covington & Burling alert highlights: "on February 25, 2011, the legislature of the People’s Republic of China (“PRC”), the National People’s Congress, passed a slate of 49 amendments to the Criminal Law, one of which is a provision that criminalizes paying bribes to non-PRC government officials and to officials of international public organizations (“the Amendment”)." The alert explain that "this Amendment represents the first instance in which PRC law has prohibited PRC nationals and PRC companies from paying bribes to non-PRC government officials."

Eric Carlson (here), an attorney based in Covington's Beijing office who specializes in anti-corruption compliance with a particular focus on China and other regions of Asia and one of the authors of the alert, answered the following questions.

Is this China’s version of the FCPA?

At one level, the Amendment’s aim appears to be similar to the FCPA’s -- prevent citizens and companies based in the country from bribing government officials outside the country. This is China’s first foray into this area, however, and the provisions are not as detailed or developed as in certain other countries’ anti-bribery laws. The PRC Amendment is a rather high-level law, whereas the text of the FCPA includes considerably more detail, even if the interpretation of those details is being actively debated and litigated. The absence of clear definitions, exceptions, and affirmative defenses also would appear to require PRC prosecutors to exercise somewhat more discretion in interpreting and enforcing the law.

Is China really going to enforce this law against its own companies operating outside of China?

Unclear. China’s enforcement of its domestic bribery laws historically has been somewhat uneven and focused mainly on the demand side (i.e., prosecuting officials who take bribes). Recently, however, the government has shown an increasing willingness to target bribe-payers as well, as corruption remains a primary concern of the general population and thus a concern for the government and ruling Communist Party, which is at its core focused on social stability. It remains to be seen whether the Amendment will actually be enforced in a way that deters bribe-paying by PRC companies and citizens. (To be fair, a goodly number of countries have strict laws criminalizing bribery of foreign officials outside their countries but have done little to enforce these laws.)

How will this new law affect multinationals operating in China?

The impact will obviously depend on how a multinational structures its operations in China. The Amendment (like the underlying Criminal Law) applies to all PRC citizens, wherever located, all natural persons of any nationality within China, and all companies, enterprises, and institutions organized under PRC law, which generally includes, in addition to PRC domestic companies, Sino-foreign joint ventures, wholly foreign-owned enterprises (WFOEs), and representative offices. Under the Amendment, a joint venture between a PRC company and a non-PRC company organized under PRC law, or a WFOE, could be prosecuted for paying bribes to non-PRC government officials. (Paying bribes to Chinese government officials is of course already illegal under pre-existing law.)

For most multinationals whose China operations don’t do any business outside of China, the larger risk may be China’s existing criminal and commercial bribery laws. (Many multinationals operating in China are not aware of local commercial bribery laws, which prohibit both public- and private-sector bribery.)


As suggested above, having a law on the books and enforcing a law can sometimes be two different things. However, based on numerous media reports (see here for instance) there would seem to be plenty of enforcement opportunities when China's law comes into force.

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