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 entitled 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:
- seeking benefits in the course of, or relying upon, the provision of public services
- failing to accurately record in contracts and accounting records the giving of economic benefits between business operators
- giving or promising to give, any third party who is influential to the underlying transaction, economic interests which damage the legitimate interests of other business operators or customers.
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:
Increased risk with third parties
Bribery through third parties is expressly identified and prohibited under the Draft Amendments which is generally in line with the provisions contained in the ninth amendments to the PRC Criminal Law effective from November 1, 2015 pursuant to which the offence of giving bribes to relatives of state functionaries or individuals who have close relationships with state functionaries, or to former state functionaries or their close relatives, or individuals with whom they have close relationships, for the purpose of obtaining improper benefits may receive up to ten-year imprisonment plus mandatory fines.
Increased risks with employees
As mentioned above, bribery act of an employee may be regarded as the conduct of the employer unless the employee has taken bribes in violation of the employer’s interests. This confirms the position, by way of law – sitting at the very top end of China’s legislative hierarchy, that the SAIC provides in its Interim Measures of Prohibiting Commercial Bribery back in 1996.
Increased emphasis on keeping accurate accounting records as well as contracts
The AUCL requires commissions and discounts to be accurately reflected in the accounting records of the parties concerned in order to qualify as exceptions to a commercial bribery. The Draft Amendments removed the reference to specific examples but generally provide that failing to accurately record in contracts and accounting records the giving of economic benefits between business operators may constitute a commercial bribery. It re-emphasizes the importance of accurate accounting records for all transactions involving the giving of economic benefits to other parties and also, for the first time, raises the importance of written contracts accurately documenting the transactions.
Non-defined economic benefits
The Draft Amendments do not give a definition to ‘economic benefits’. However, given the numerous judicial interpretations and SAIC regulations on this particular point, it could capture everything, e.g. cash, property, anything else with monetary value, and beyond.