Recalibrating functional claiming: A way forward
What are the misconceptions and what should be done to recalibrate functional claiming standards accordingly?
China is ranked 83 out of 168 on the TI CPI 2015.
China has ratified the UNCAC. It is a member of ADB/OECD Anti-Corruption Initiative for Asia and the Pacific, the FATF and the APG.
The existing Chinese anti-bribery regime consists of a patchwork of legislation, with some overlap between the various regulations, which include the:
Both the PRC Criminal Law and the PRC Anti-Unfair Competition Law penalise active and passive bribery in the private sector (commercial bribery).
Commercial bribery is punished as a crime under the following articles of the PRC Criminal Law:
For an active commercial bribery to constitute a criminal offence under the PRC Criminal Law, the value of the transaction must be relatively large:
Commercial bribery is also administratively punished under the PRC Anti-Unfair Competition Law, which penalises acts of unfair competition committed by private individuals or companies:
Bribery of public officials (official bribery) is punished as a crime under the following articles of the PRC Criminal law:
The key provisions relating to official bribery are contained in Articles 385 and 389 of the PRC Criminal Law (the Official Bribery Rules). Under the Official Bribery Rules, a person is deemed to have committed an offence of active official bribery if he or she has “given articles of property to state functionaries in order to seek improper benefit”.
The term “state functionaries” is defined in Article 93 of the PRC Criminal Law and includes:
Therefore, the definition of “state functionaries” is relatively wide, as it not only refers to public servants and officials but also employees of state-owned enterprises and even non-state-owned enterprises.
As a result of China’s commitments under UNCAC, the PRC Criminal Law was amended in 2011 to include the prohibition of bribes to “foreign officials” and “officials of international public organisations”. Companies and individuals who provide property to a foreign official or an official of an international public organisation for the purpose of seeking an improper commercial benefit will be punished in accordance with the provisions applicable to commercial bribery under the PRC Criminal Law.
In accordance with Articles 6 and 7 of the PRC Criminal Law, this provision applies to Chinese nationals both within and outside China, and to all companies incorporated in China (and their managers) which carry on business overseas.
There is no express defence of adequate anti-bribery compliance procedures under key anti-corruption laws in the PRC. However, since 2013 the PRC government has initiated a new, comprehensive anti-corruption campaign, targeted indiscriminately at officials, state-owned enterprises, and domestic and foreign private companies. All business operators will be expected to have taken adequate measures in response to this campaign, including codes of conduct, employee policies and trainings etc. The absence of such measures will be viewed unfavourably by local authorities, from both a political and legal perspective. In practice, the implementation of bribery prevention measures by a company may be presented to the authorities or the courts as evidence that the illegal actions of the company’s employees or agents were contrary to the company’s regulations and serve to prevent a prosecution of individuals from becoming a prosecution of the company.
The PRC Criminal Law provides an express defence for extortion. According to Article 389, if a person gives property to a state functionary due to extortion but does not gain any improper benefits, he or she will not be liable for bribe giving. Extortion is usually defined by Chinese courts as the act of obtaining money or property from a person by the use of force or threats.
There is no facilitation payments exception under PRC law.
No specific types of gifts or gratuities are considered permissible under the PRC Criminal Law, and theoretically official bribery constitutes a crime regardless of the amount at stake.
However, as clarified by Interpretation of Several Issues Concerning the Application of Law in Handling Criminal Cases Related to Graft and Bribery jointly issued by the Supreme People’s Court and the Supreme People’s Procuratorate on April 18, 2016, active official bribery cases will generally only be prosecuted if the amount at stake is over RMB 30,000. Nevertheless, when the amount at stake is less than RMB 30,000 but exceeds RMB 10,000, the person giving the bribe may still be prosecuted if
The 1993 Regulations of the State Council on Giving and Receiving Gifts in Official Functions Involving Foreigners provided a threshold of RMB 200 which is considered to be a safe limit and is often used as a reference point by companies in setting the maximum gift value in their internal compliance policies.
There are two exceptions to the general prohibition of commercial bribery under the Anti-Unfair Competition Law: (a) discounts or commissions to intermediaries are permitted if they are duly recorded in the company’s accounts; and (b) promotional goods of small value (such as company-branded stationery) are permitted if they accord with commercial practice. However, those exceptions are subject to scrutiny and judgement by the authority from an anti-unfair competition perspective.
In China, corporates can be held liable for the acts of their employees, directors and officers under criminal, administrative and civil regulations.
Under Article 30 of the PRC Criminal Law, any entity may be an offender of a crime and be held criminally liable for this crime accordingly. According to the judicial practice in the PRC, a crime committed by the officers, employees and agents of an entity may risk being treated as committed by the entity itself, and the following elements may be considered:
Under regulations governing civil and commercial activities, corporates may also be held responsible for the actions of their employees, directors and officers. In particular, Article 43 of the General Principles of the Civil Law of PRC provides that “an enterprise as a legal person shall bear civil liability for the operational activities of its legal representatives and other personnel”. Article 63 further provides that corporates shall also be liable for acts of their appointed agents. The Interim Regulations of the State Administration for Industry and Commerce on Prohibition of Commercial Bribery issued by the State Administration for Industry and Commerce provide that: “the conduct of commercial bribery by the staff of a business operator for the purpose of sale or purchase of commodities shall be regarded as the conduct of the business operator”.
Directors and officers are at risk of incurring personal liability for bribery offences committed by the companies in which they serve.
In the context of criminal offences, the PRC Criminal Law provides that where an entity engages in criminal activity, penalties can be imposed on both the entity and the personnel in charge. The PRC Criminal Law stipulates penalties for crimes committed by companies or crimes arising from the acts of “directly responsible person(s) in charge” and other “directly responsible person(s)” in the course of business. Neither directors nor officers bear criminal liability by virtue of their office, but may be liable if they are held by the court to be the “directly responsible person(s) in charge” or other “directly responsible person(s)”. A person who falls within the ambit of these two descriptions has to be judged on a case-by-case basis, but generally speaking directors or officers who are acting in good faith and without negligence would not be criminally responsible for proscribed activities in the course of performing their duties.
In the context of non-criminal offences, individual directors and officers of a company can be held liable for compensation to the company or the company’s shareholder(s) if they breach their duties. The general duties and liabilities of directors and officers are set out in the PRC Company Law (as amended in December 2013 and in effect on 1 March 2014). Directors and officers are required to comply with laws, regulations and articles of association and to perform their duties faithfully and diligently (Article 147 of the PRC Company Law). The income that a director or officer may derive from violating his or her fiduciary obligations to the company belongs to the company (Article 148 of the PRC Company Law). It is further stipulated that if a director or officer violates any provision of laws, regulations or articles of association when he or she performs his or her duties for the company, and thus causes losses to the company or the shareholder(s), the director or officer may be held liable to compensate the company or the shareholder(s) (Articles 149, 151 and 152 of the PRC Company Law).
Criminal sanctions for official bribery range from short term detention to life imprisonment. The courts may also impose fines upon individuals or companies and confiscate property.
Criminal sanctions for individuals who commit commercial bribery range from short-term detention to imprisonment of up to 10 years. The courts may also impose fines upon individuals or companies, and confiscate property.
The administrative sanctions under the Anti-Unfair Competition Law are fines ranging from RMB 10,000 to RMB 200,000 depending on the gravity of the conduct. Administrative authorities can also confiscate illegal income generated through tainted business. It is worth noting that China released draft amendments to the Anti-Unfair Competition Law for public comments on February 25, 2016, which propose to impose fines between 10% and 30% of the illegal revenue associated with the conduct of commercial bribery.
The agencies in China to enforce anti-bribery legislations and party regulations include:
and their local counterparts.
The PRC Anti-Money Laundering Law (the AML Law) and the PRC Criminal Law form the basic legal framework for the prevention, monitoring, regulation, investigation and punishment of money laundering activities in China.
Article 191 of the PRC Criminal Law criminalises the activities of a person to conceal or disguise the proceeds that such person knows to be sourced from certain crimes, for example, drug-related crimes, organised crimes, terrorist crimes, smuggling, corruption, bribery and financial fraud. Such criminal activities include, without limitation: providing bank accounts, assisting in converting the illegal proceeds into cash, financial instruments and negotiable securities; assisting in transferring the proceeds by wire transfer or otherwise; and assisting in remitting the proceeds abroad.
The primary targets of AML Law remains financial institutions in China who must fulfil their anti-money laundering obligations (including customer identification, verification and on-going due diligence, transaction monitoring, suspicious transaction reporting, record keeping and internal AML control systems building). According to the Administrative Measures on Reporting of Large-Sum Transactions and Suspicious Transactions by Financial Institutions issued by the People’s Bank of China (PBOC) which will take effect from 1 July 2017, non-financial institutions which engage in certain financial business may be determined by PBOC to perform anti-money laundering obligations as PBOC may consider necessary.
Following with the national anti-corruption campaign since the end of 18th National Congress of the CPC in 2012, many government agencies have set up websites, hotlines or created whistleblowing mobile phone applications in order to encourage whistleblowing activities. China has also taken efforts to enhance the reward system and protection of whistleblowers.
CCDI launched an official website in 2013 for whistleblowers to report corruption and other wrongdoings of government officials. In 2015 and 2016, CCDI created a mobile phone application and a social media public account on “WeChat” as additional platforms to encourage tips reporting.
On 30 March 2016, the Supreme People’s Procuratorate, Ministry of Public Security and Ministry of Finance released Several Provisions on Protecting and Rewarding Whistleblowers for Reporting Duty Crimes (New Provisions) to crack down on corruption, official bribery, embezzlement and malfeasance crime of state functionaries. Under the New Provisions whistleblowers are incentivized with social honors and monetary reward up to RMB 500,000 for significant contributions. Whistleblower who made “extraordinarily significant contributions” could expect unlimited reward with the approval of the Supreme People’s Procuratorate. The retaliation activities which the New Provisions expressly prohibit cover not only safety or property threats to the whistleblowers and their close relatives but also other covert measures such as defamatory libel, employment termination, demotion, wage or bonus deduction, or denial or delay of reasonable applications without justifiable reasons.
With regard to economic crimes, including commercial bribery, the Ministry of Public Security launched an online reporting access and announced to provide monetary reward between RMB 500 to RMB 50,000 to whistleblowers. Some local Administrations for Industry and Commerce offer financial incentives to whistleblowers, as a reward for disclosing valuable information on commercial bribery. In several first tier cities, the monetary reward to whistleblowers offered by local authorities can be up to RMB300,000.
There is no overarching law in China to regulate the protection of data privacy. The protection is provided through diverse laws, regulations and local rules, including without limitation the PRC Constitution, the PRC Criminal Law, the General Principles of the Civil Law of the PRC, the PRC Tort Liability Law, the Law on Resident Identity Cards, the Postal Law, the Social Insurance Law, the PRC Cybersecurity Law, the PRC Telecommunication Regulation, and the Provisions on Protecting the Personal Information of Telecommunications and Internet Users.
Under the PRC Criminal Law, unlawful trading, offering, stealing and illegally obtaining personal information of citizens by individual or entity may be subject to a criminal penalty of up to imprisonment of seven years plus monetary fines.
It is worth noting that the PRC Cybersecurity Law was promulgated on 7 November 2016 which will take effect 1 June 2017. The new law has significant implications for the data privacy and cybersecurity practices of both Chinese companies and international organisations doing business in China and has attracted a lot of media attention. The new PRC Cybersecurity Law intends to combat online fraud and protect China against Internet security risks. Amongst others, the new law imposes new security and data protection obligations on “network operators”, puts restrictions on transfers of data outside China by “key information infrastructure operators”, and introduces new restrictions on critical network and cybersecurity products.
Under the PRC Cybersecurity Law, a range of new obligations are imposed on organisations that are “network operators” (i.e. network owners, network administrators and network service providers). Some commentators are of the view that the relevant definitions contained in the law suggest that “network operators” could capture any business that owns and operates IT networks/infrastructure or even just websites in China. Amongst others, network operators are required to make publicly available data privacy notices (explicitly stating purposes, means and scope of personal information to be collected and used) and obtain individuals’ consent when collecting, using and disclosing their personal information. Network operators must adopt technical measures to ensure the security of personal information against loss, destruction or leaks, and in the event of a data security breach must take immediate remedial action and promptly notify users and the relevant authorities. They must also comply with principles of legality, propriety and necessity in their data handling, and not be excessive, not provide an individual’s personal information to others without the individual’s consent, nor illegally sell an individual’s personal data to others. There are also general obligations to keep user information confidential and to establish and maintain data protection systems.
Monetary penalties for breach of provisions under the PRC Cybersecurity Law can result in a fine up to RMB1 million (if no illegal gains) or 10 times of the illegal gains plus confiscation of illegal gains and administrative penalties, i.e. revocation of relevant permit or business license of the entity in breach.
There is still a question mark on whether the PRC Cybersecurity Law shall apply to a non-cyber service focused corporation, which uses cyber services to store and manage the personal data of its employees in the daily business operation. More clarity is expected in the implementation rules which may be issued before the PRC Cybersecurity Law takes effect.
The concept of legal privilege does not exist under the PRC law. The latest version of the PRC Lawyer’s Law (effective from 1 January 2013) (the Amended Lawyer’s Law)has given increased protection to lawyer-client confidential communications but it is not equivalent to the concept of legal privilege under the common law. Article 38 of the Amended Lawyer’s Law imposes on a lawyer a duty to keep the following information confidential: information which he or she receives in the course of his or her legal practice and that his or her client or other person is not willing to disclose, except information regarding any crime being committed or in contemplation by his or her client or other person which would severely impair national or public security, and/or cause serious personal injury.
Despite the foregoing, a general disclosure obligation has been set out in the PRC Civil Procedure Law (Article 72), where “any person aware of the details of the case is obligated to give testimony”. One interpretation would be that PRC lawyers would not need to testify in court on a specific fact of a civil case so far as it falls within Article 38 of the Amended Lawyer’s Law, but uncertainties exist.
For criminal cases, a new provision (Article 46) to protect lawyer-client communications has been added in the latest version of Criminal Procedure Law (effective from 1 January 2013). Under this Article 46, a lawyer has the right to keep confidential information of the client obtained in the course of his or her professional practice; but for information regarding any crime being committed or in contemplation by his or her client or other person which would severely impair national or public security and/or cause serious personal injury, the lawyer must inform PRC judicial authorities. This is a step forward in the protection of lawyer-client communications in China, but how far Article 46 will go in judicial practice is not clear.
What are the misconceptions and what should be done to recalibrate functional claiming standards accordingly?
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