Beyond COVID-19: Crisis response or road to recovery?
Crisis response or road to recovery?
The Legislative Affairs Office of the State Council published the draft amendments (Draft Amendments) to the Anti-Unfair Competition Law (AUCL) on February 25, 2016 for public consultation. The AUCL is the major legislation disciplining various forms of unfair competition conduct in China, including commercial bribery, product counterfeiting, abuse of market monopoly power, misleading commercial advertisement and violation of commercial secrets. The current amendments, once approved through China’s legislative procedures, will be the first amendments to the AUCL since it came into effect from December 1, 1993.
The Draft Amendments aim to clarify the scope of unfair competition conduct under AUCL to adapt to the evolved market in the past over two decades and eliminate the legislative overlaps and gaps between the current AUCL and the Anti-Monopoly Law (effective from August 1, 2008), the Trademark Law (amended in 2013) and the Advertisement Law (newly amended in 2015).
As far as anti-commercial bribery is concerned, the Draft Amendments proposed several substantial changes to the current AUCL which we summarise as follows:
Under the current AUCL, business operators must not “resort to bribery, by offering money or property, in order to sell or purchase products” with two express exceptions including commissions or discounts genuinely recorded in the accounting records of the parties involved in the payment and receipt of the commissions and discounts. The use of “bribery” to define “bribery” is unhelpful and has resulted in ambiguity in the interpretations of what constitutes commercial bribery and uneven enforcement by regulatory authorities – especially by the nationwide local counterparts of the State Administration for Industry and Commerce (SAIC). This has remained the case over the years notwithstanding the various subsequent judicial interpretations and SAIC regulations (please refer to our article titled “Walking a fine line in China”).
The Draft Amendments define “commercial bribery” to mean a business operator “giving or promising to give economic benefits to business counterparties, or to any third party who may influence the underlying transaction, to entice it to seek transaction opportunities or competitive advantages for the business operator. Providing or promising to provide economic benefits shall constitute an offer of commercial bribery whilst accepting or agreeing to accept economic benefits shall constitute an acceptance of commercial bribery.”
In addition, the Draft Amendments also set out the following circumstances which may be considered as commercial bribery and are hence prohibited:
The Draft Amendments go on to provide that an employee’s act of commercial bribery in seeking transaction opportunity or competitive advantages for his/her employer shall be regarded as the conduct of the employer, unless evidence proves that the employee has taken bribes in violating the interests of the employer.
Compared to the current AUCL, the Draft Amendments provide clearer definition to commercial bribery with the following points worthwhile noting in particular:
Under the Draft Amendments, the administrative enforcement authorities may exercise various investigatory powers, which are wider and stronger than that under the current AUCL, including, inter alia,
Those in bold above are all introduced by the Draft Amendments.
The Draft Amendments provide that, in addition to the obligations of providing genuine information or evidence as stipulated in the current AUCL, business operators under the investigation, parties having any interest and other entities/organisations or individuals should, when enquired by regulatory authorities, also provide cooperation to the regulatory authorities and must not refuse or hinder regulatory investigations.
Under the current AUCL, a conduct of commercial bribery may receive administrative fines ranging from RMB10,000 to RMB200,000 (approx. USD 1,500 to USD 30,000) and confiscation of illegal gains. Under the Draft Amendments, administrative penalties for the conduct of commercial bribery range from 10% to 30% of the revenue generated from the business involving commercial bribery.
More noticeably, the Draft Amendments also provide that, in the course of a regulatory investigation, any act of refusing to provide relevant materials or information, or providing falsified materials of information, or concealing, destroying or transferring evidences, or otherwise hindering the regulatory investigation, may receive a regulatory order of rectification and fines ranging from RMB 20,000 to RMB 200,000 (approx. USD 3,000 to USD 30,000).
The Draft Amendments also impose very widely ranging fines of RMB 10,000 to RMB 1 million (approx. USD 1,500 to USD 150,000) on parties who provide assistance (e.g. production, sales, warehousing, transportation, network service, technical support, advertising, payment and settlement) to illegitimate conduct under the AUCL (including commercial bribery) when they knew or should have known the occurrence of such illegitimate conduct.
The Draft Amendments are open for public consultation until March 25, 2016.
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© Norton Rose Fulbright LLP 2021