Anti-corruption laws in Asia Pacific

Transcription

1 Anti-corruption laws in Asia Pacific FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE, MINING AND COMMODITIES TRANSPORT TECHNOLOGY AND INNOVATION PHARMACEUTICALS AND LIFE SCIENCES

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3 Anti-corruption laws in Asia Pacific A norton rose group guide

4 Norton Rose Group Law Firm of the Year The Lawyer Awards 2011 Norton Rose Group is a leading international legal practice. We offer a full business law service to many of the world s pre-eminent financial institutions and corporations from offices in Europe, Asia, Australia, Canada, Africa, the Middle East, Latin America and Central Asia. Knowing how our clients businesses work and understanding what drives their industries is fundamental to us. Our lawyers share industry knowledge and sector expertise across borders, enabling us to support our clients anywhere in the world. We are strong in financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and pharmaceuticals and life sciences. We have more than 2900 lawyers operating from offices in Abu Dhabi, Almaty, Amsterdam, Athens, Bahrain, Bangkok, Beijing, Bogotá, Brisbane, Brussels, Calgary, Canberra, Cape Town, Caracas, Casablanca, Dubai, Durban, Frankfurt, Hamburg, Hong Kong, Johannesburg, London, Melbourne, Milan, Montréal, Moscow, Munich, Ottawa, Paris, Perth, Piraeus, Prague, Québec, Rome, Shanghai, Singapore, Sydney, Tokyo, Toronto and Warsaw; and from associate offices in Dar es Salaam, Ho Chi Minh City and Jakarta. Norton Rose Group comprises Norton Rose LLP, Norton Rose Australia, Norton Rose Canada LLP, Norton Rose South Africa (incorporated as Deneys Reitz Inc), and their respective affiliates. nortonrose.com The purpose of this publication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Norton Rose Group on the points of law discussed. No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any constituent part of Norton Rose Group (whether or not such individual is described as a partner ) accepts or assumes responsibility, or has any liability, to any person in respect of this publication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of, as the case may be, Norton Rose LLP or Norton Rose Australia or Norton Rose Canada LLP or Norton Rose South Africa (incorporated as Deneys Reitz Inc) or of one of their respective affiliates. Norton Rose Group January 2012 Edition NR /12 (UK) Extracts may be copied provided their source is acknowledged.

5 Preface We are pleased to present Anti-corruption laws in Asia Pacific. This guide forms part of our key Asia Pacific publication series which currently includes Arbitration in Asia Pacific, Banking security law in Asia Pacific, Disclosure and privilege in Asia Pacific, M&A law in Asia Pacific, Joint ventures: protections for minority shareholders in Asia Pacific, Doing business in Asia Pacific and Renewable energy in Asia Pacific. The purpose of this guide is to provide an overview of international and national anti-corruption regimes within an Asia Pacific context. It highlights how corporations should best approach anti-corruption compliance, transactional and third party due diligence and corruption investigations. It also examines related issues from anti-money laundering and whistleblowing regimes. For ease of jurisdictional comparison, we have arranged for each chapter to be organised according to the following headings: TI rankings International anti-corruption conventions and inter-governmental organisations Anti-bribery legislation and major offences Facilitation payments, hospitality and gifts Corporate liability for the acts of subsidiaries, employees and third parties Liability of individual directors and officers Anti-money laundering legislation Whistleblowing legislation. We hope that this guide will provide a useful introduction to a field which has assumed a critical importance for companies, individuals and regulatory authorities alike. The information contained here is as accurate and up-to-date as possible as at 1 November The guide is simply a summary of the key issues relevant to anti-corruption and is not a substitute for legal advice. If you would like to discuss any of the issues raised here, please get in touch with us. Norton Rose Group is one of the few truly global practices with a proven expertise in handling international corruption matters, particularly, within Asia Pacific. The Business Ethics and Anti-Corruption Group advises clients on all matters relating to business ethics and anti-corruption and has acted in major corruption investigations within Asia Pacific.

6 Anti-corruption laws in Asia Pacific Acknowledgements The chapters on Australia, China, Hong Kong, Indonesia, Singapore, Thailand and Vietnam have been provided by Norton Rose Group and its associate offices. We gratefully acknowledge the assistance of the law firms who have contributed to the chapters on India, Japan, Malaysia, Philippines, South Korea and Taiwan. These firms are identified at the start of each chapter and further details on the contributors are given at the end of the guide.

7 Contents 08 Introduction 12 Australia 19 China 29 Hong Kong 35 India 39 Indonesia 42 Japan 47 Malaysia 53 Philippines 59 Singapore 64 South Korea 68 Taiwan 72 Thailand 76 Vietnam 80 Key anti-corruption issues 89 Anti-bribery regimes in the UK and US 96 Contacts 98 Contributing law firms

8 Anti-corruption laws in Asia Pacific Introduction Anti-bribery regimes The OECD Convention on Combating Bribery of Foreign Public Officials (OECD Convention) requires countries to criminalise the bribery of foreign public officials (OECD offence). The OECD Convention established a form of peer review through a Working Group which is tasked with assessing each country s establishment of anti-corruption legislation, its implementation, enforcement and sector-related corruption issues. In December 2009, the OECD s Anti-Bribery Recommendation for Further Combating Bribery of Foreign Public Officials in International Business (the OECD s Recommendation) was released. The OECD s Recommendation is designed to assist member countries in preventing, detecting and investigating allegations of foreign bribery. Under the OECD s Recommendation, both individuals and corporations that bribe foreign public officials in international business will be subject to criminal sanctions. The United Nations Convention against Corruption (UNCAC) requires each participating State to put in place and enforce legislation prohibiting bribery of both public officials and persons in the private business sector. In contrast to the OECD Convention, there is no ongoing monitoring mechanism of anti-corruption compliance. The UNCAC also requires the institution of legislation criminalising bribery of public officials (both domestic and foreign). States are required to include corporate liability in these offences. A related convention is the United Nations Convention against Transnational Organized Crime (UNCTOC). UNCTOC entered into force in September 2003 and signifies a major step in the fight against transnational organised crime. States that ratify this convention agree to implement certain measures against transnational organised crime including the establishment of domestic criminal offences relating to, amongst other things, corruption and money laundering, mutual assistance and law enforcement cooperation. In November 2001, the Asian Development Bank (ADB) and the OECD brought together 28 Asian and Pacific economies that have committed to implement the OECD anti-bribery instruments (ADB/OECD Asia Pacific Anti-Corruption Initiative). In 2004, the leaders of the Asia-Pacific Economic Cooperation (APEC) countries agreed to implement UNCAC and, in 2005, set up the Anti-Corruption and Transparency Task Force to conduct peer reviews of anticorruption measures. Civil society organisations, such as Trace and Transparency International (TI), which publishes the Bribe Payers Index (BPI) and the Corruption Perceptions Index (CPI), and online resources such as the FCPA Blog, have proved remarkably effective at drawing international attention to the absence of adequate national and corporate anti-corruption measures. In response to international conventions and the pressure exerted by civil society organisations, many countries have introduced draconian national anti-bribery and anti-money laundering laws which extend both to the private and public sectors. In particular, stringent and extensive anti-bribery legislation has recently come into force in the UK. 08 Norton Rose Group

9 Introduction Most countries in Asia Pacific already have national and international anti-bribery legislation in place. China has recently amended its Criminal Law directed at international bribery of foreign public officials, while India and Indonesia are in the process of updating their legislation. Other countries are strengthening their laws or pledging to take tougher enforcement actions. Anti-money laundering Bribery and money laundering are often inter-related with one invariably giving rise to the other. The Financial Action Task Force (FATF), which was formed by the G7 in 1989, has responsibility for examining money laundering techniques and trends, terrorist financing, peer reviews and setting out the measures that need to be taken to combat money laundering. The obligations now imposed on most professional and financial institutions, to report suspicions of money laundering and not to tip off suspects, are in certain respects even more draconian than anti-bribery legislation. Most Asia Pacific countries are members of the Asia Pacific Group on Money Laundering (APG) and have criminalised money laundering and instituted financial intelligence units to share information about suspicion of money laundering activities globally. Most anti-money laundering systems will require professional and financial institutions and persons to report any suspicion of money laundering, often referred to as a suspicious activity or transaction report which will be underpinned by a tipping off offence to prevent prior disclosure of that report to the client or its advisers. A failure to submit such a report can lead to a prosecution and any unauthorised prior disclosure can be prosecuted as a tipping off offence. Although there has been a lot of recent commentary on the need for companies to selfreport instances of bribery, for those organisations which are already subject to anti-money laundering obligations, a self-reporting regime has already been in place for some time which requires effective compliance systems to be established in order to assess and detect potential money laundering risks. Many of those compliance systems will be similar to those now required to meet the challenges set by newly introduced anti-bribery legislation. Whistleblowing A number of countries in Asia Pacific have had long established whistleblowing regimes in place and others have recently introduced new whistleblowing legislation. For many US companies operating in the Asia Pacific region, the Dodd-Frank Wall Street Reform & Consumer Protection Act (Dodd-Frank Act) may have serious implications. Section 922 of the Dodd-Frank Act has introduced a new external whistleblowing regime with significant financial incentives. Although the Dodd-Frank Act is primarily directed at infractions of US securities law, its scope is wide enough to include any company operating in Asia Pacific that is exposed to US securities law and the Foreign Corrupt Practices Act (FCPA). As the financial incentives range from 10 per cent to 30 per cent of monetary recoveries made by enforcement agencies, potential whistleblowers are incentivised to go directly to the regulators. Norton Rose Group 09

10 Anti-corruption laws in Asia Pacific Corruption Perceptions Index and Bribe Payers Index The CPI ranks countries according to the perceived levels of corruption in the public sector. The CPI is an aggregate indicator of information gathered by TI sources. The information is based on independent surveys and assessments relating to bribery of public officials. Countries are only ranked where at least three sources of information are available. The 2011 version of the CPI ranks 183 countries and territories, with the number one ranking being the country/territory with the lowest perceived level of corruption. The BPI looks at the sources of corruption in the international marketplace, both in terms of where the bribes are paid and by which businesses. The results illustrate how corruption is viewed by senior business executives operating in a range of industries. The 2011 version of the BPI ranks 28 of the world s most economically influential countries according to the likelihood of their firms to bribe abroad. The rankings of countries in this guide under one or both of these indices will be listed in the following chapters. Please note that not all countries have been ranked on both surveys. 10 Norton Rose Group

11 Introduction Abbreviations A number of abbreviations have been used throughout the guide. For ease of reference, they are as follows: Institution/Convention/Legislation Asia Pacific Group on Money Laundering Bribe Payers Index 2011 Corruption Perceptions Index 2011 Dodd-Frank Wall Street Reform & Consumer Protection Act 2010 Financial Action Task Force Financial Intelligence Units Foreign Corrupt Practices Act Organisation for Economic Cooperation and Development OECD Convention on Combating Bribery of Foreign Public Officials Transparency International United Nations Convention against Corruption United Nations Convention against Transnational Organised Crime Abbreviation APG BPI CPI Dodd-Frank Act FATF FIU FCPA OECD OECD Convention TI UNCAC UNCTOC Norton Rose Group 11

12 Anti-corruption laws in Asia Pacific Australia Contributed by Norton Rose Group TI rankings 8th on the CPI. 6th on the BPI. International anti-corruption conventions and inter-governmental organisations Ratified and implemented OECD Convention and ratified UNCAC. Member of ADB/OECD Asia Pacific Anti-Corruption Initiative. Ratified UNCTOC. Member of FATF and APG. Anti-bribery legislation and major offences Legislation State State and Territory laws criminalise corruptly giving or offering an inducement or reward to an agent for doing or not doing something in relation to the affairs of the agent s principal. Generally, the giving or offering is done corruptly where the person gave or offered the inducement with the intention of influencing the agent to show favour. The offences extend beyond rewards given to State and Territory Government officials and apply to rewards given to employees or agents of private or public companies and individuals. Persons who aid, abet, counsel, procure, solicit or incite the commission of the offences are also guilty of an offence. Commonwealth Australia implemented the OECD Convention in 1999 by enacting anti-bribery provisions in the Criminal Code Act 1995 (Criminal Code). The Criminal Code applies to bodies corporate in the same way as it applies to individuals. Criminal responsibility of corporations also extends to situations where the corporation attempts to commit the offence, aids, abets, counsels, procures or incites the commission of the offence or conspires to commit the offence. Private sector The Criminal Code does not apply to bribery in the private sector. State and Territory laws deal with private sector bribery. Public sector Under Commonwealth legislation, bribery in the public sector can be broken down into bribery of a foreign public official and bribery of a Commonwealth public official. 12 Norton Rose Group

13 Australia Bribery of a Foreign Public Official Under Division 70 of the Criminal Code, it is an offence to bribe a foreign public official. The offence has a number of elements which must all be satisfied. There must be an intention to provide a benefit (which includes not only actual benefits, but also offers or promises to provide benefits) which is not legitimately due, with the intention of influencing a foreign public official in the exercise of his duties in order to obtain or retain business or a business advantage which is not legitimately due. The offence applies to Australian citizens, residents and corporations or any person who engages in conduct constituting the offence and that conduct occurs wholly or partly in Australia, aboard an Australian aircraft or ship, or occurs outside of Australia but is committed by an Australian citizen or resident or an Australian body corporate. Criminal liability may extend to a person who attempts to commit the offence or aids, abets, counsels, procures or incites the commission or the offence or conspires with another person to commit the offence. The category of persons who are foreign public officials for the purposes of the Criminal Code is broad. In particular, it includes, amongst others: employees, contractors or officials of foreign Government bodies which includes companies in which a Government has a controlling interest or stake or with which it has a special relationship. Accordingly, foreign state owned enterprises are generally a foreign Government body. The definition also includes individuals who are employed by or perform duties or services for a public international organisation. For example, the United Nations is a public international organisation. Bribery in respect of Australian Commonwealth Public Officials Under Division 141 of the Criminal Code it is an offence for any person or body corporate (Australian or foreign) to dishonestly provide a benefit (which includes not only an actual benefit but also an offer or promise to provide a benefit) with the intention of influencing a Commonwealth Public Official in the exercise of that official s duties as a public official. It is also an offence for a Commonwealth Public Official to dishonestly ask for, receive or agree to receive or obtain a benefit with the intention that the exercise of the official s duties will be influenced. Criminal liability may also extend to a person who attempts to commit the offence or aids, abets, counsels, procures or incites the commission of the offence or conspires with another person to commit the offence. The category of persons who are Commonwealth Public Officials is broad. It includes a member of Parliament, an administrator of a Territory, a Commonwealth judicial officer or public servant, persons who perform duties of an office established under the laws of the Commonwealth as well as any employee of a Commonwealth Authority or an individual who is contracted to or is an officer or employee of a service provider contracted to the Commonwealth. The offence applies whether or not the conduct constituting the offence occurs in Australia, whether or not it was conducted by an Australian citizen or body corporate, and whether or not a result of the conduct constituting the offence occurred in Australia. Norton Rose Group 13

14 Anti-corruption laws in Asia Pacific Under Division 142 of the Criminal Code, there is also an offence in respect of a Commonwealth Public Official giving or receiving a corrupt benefit. This involves similar elements to the offence of dishonestly providing a benefit to a Commonwealth Public Official except that it does not involve an intention to influence. Instead it involves the receipt or expectation of the receipt of the benefit which would tend to influence the public official in the exercise of the official s duties. Extra-territorial application Most State and Territory laws can apply extra-territorially if conduct constituting an element of the offence occurs partly in the State or Territory, or if the conduct occurs wholly outside the State or Territory but has an effect in the State or Territory. The offence of bribing a foreign public official may be prosecuted where the requisite conduct occurs outside of Australia but is committed by an Australian citizen or resident or an Australian body corporate. Where the person alleged to have committed the offence is a resident but not a citizen of Australia the Attorney General must give written consent to the prosecution. The offence of bribing a Commonwealth public official may be prosecuted where the conduct occurs outside of Australia. Where the offence occurs wholly in a foreign country and the person alleged to have committed the offence is neither an Australian citizen nor a body corporate under the law of Australia, the Attorney General must give written consent to a prosecution. Defences and mitigation measures In relation to the offences discussed above, where a corporation is prosecuted because the contravening conduct was authorised or permitted (whether expressly or tacitly), the corporation will not be found guilty of an offence if it can prove that it exercised due diligence to prevent the conduct, the authorisation or permission. This will typically involve the corporation maintaining and implementing compliance programs and anti-corruption policies. A person is not criminally responsible for an offence if it is carried out under duress (which involves having a reasonable belief that a threat made will be carried out) or is in response to circumstances of sudden or extraordinary emergency. In each case the conduct must be a reasonable response to the threat or emergency. It is a defence to prosecution for bribery of a foreign public official if the benefit or advantage was permitted or required by the written laws that govern the foreign public official (Division 70.3). It is not sufficient to demonstrate that the benefit or advantage is consistent with business culture. Penalties Individuals who are found guilty of bribing a foreign public official will be liable to a maximum of 10 years imprisonment, a fine of AU$1.1 million or both except in the case of incitement (that is, persistently urging a person to commit an offence) for which the penalty is imprisonment for not more than five years or a fine of AU$33,000 or both. 14 Norton Rose Group

15 Australia Corporations found guilty of bribing a foreign public official may be subject to even more onerous pecuniary penalties of the greater of: AU$11 million three times the value of any benefit that the corporation has directly or indirectly obtained that is reasonably attributable to the conduct constituting the offence (including the conduct of any related corporation) if the court cannot determine the value of that benefit, 10 per cent of the annual turnover of the corporation during the 12 months preceding the offence. Individuals who are found guilty of dishonestly providing or offering to provide a benefit to a Commonwealth Public Official, or a Commonwealth Public Official who is found guilty of dishonestly asking for, receiving or obtaining a benefit, will be liable to imprisonment for not more than 10 years or will receive a fine of not more than AU$1.1 million or both, except in the case of incitement for which the penalty is imprisonment for not more than five years or a fine of not more than AU$33,000 or both. Corporations found guilty of dishonestly providing or offering to provide a benefit to a Commonwealth Public Official may be subject to pecuniary penalties which are identical to those in respect of bribing a foreign public official, described above. Individuals who are found guilty of giving or receiving a corrupt benefit in relation to a Commonwealth Public Official will be liable to a maximum of five years imprisonment or a fine of not more than AU$33,000 or both. Corporations found guilty of this offence may be subject to a fine of not more than AU$165,000. Under State and Territory laws individuals found guilty of bribery offences will generally be liable to a maximum of between three and 10 years imprisonment or fines (there is some variation between States and Territories). Corporations found guilty of bribery offences are liable to substantial fines. Further, in some States individuals and corporations can also be ordered to repay the value of any benefit received. Facilitation payments, hospitality and gifts Currently, the Criminal Code permits facilitation payments for the performance of a routine Government action of a minor nature if the payment is of a minor value (Division 70.4). A corporation or individual who makes a facilitation payment must record that payment under Division 70.4(3) as soon as practicable after the conduct, and the record must adhere to the Section s requirements. Failure to adhere to the exact requirements will result in the payer not having recourse to the defence. Routine Government action does not include any decision to award or continue new business, and the person receiving the payment does not need to have a legal entitlement to the payment for this defence to be available. Difficulties with this defence include identifying the exact recipient of the payment, as well as determining whether the payment was in fact a minor benefit. Norton Rose Group 15

16 Anti-corruption laws in Asia Pacific However, in a consultation paper released in November 2011, the Australian Government has outlined its proposal to remove the facilitation payment defence under Division 70.4 in order to align Australian anti-bribery laws more closely with the UK Bribery Act It has been stated that this will bring the law into line with international best practice. This reform and others, which ensure that bribery is an offence irrespective of the value or benefit offered and that prosecutions can proceed where the recipient of a bribe cannot be identified, are being considered. Corporate liability for the acts of subsidiaries, employees and third parties A body corporate can commit any of the offences discussed above and also be held criminally responsible for the actions of its employees, officers or agents (which could include a subsidiary) acting within the actual or apparent scope of their employment or authority. In addition, an act of foreign bribery committed by an employee can be attributed to the company if it can be shown that the company created and maintained a corporate culture which resulted in the conduct occurring. Authorisation or permission can be established by proving: that the board of directors intentionally, knowingly or recklessly carried out the conduct or expressly, tacitly or impliedly authorised or permitted the commission of the offence that a high managerial agent intentionally, knowingly or recklessly engaged in the conduct or expressly, tacitly or impliedly authorised or permitted the offence that a corporate culture existed that directed, encouraged, tolerated or led to the commission of the offence that the company failed to create and maintain a corporate culture that required compliance. A corporation s criminal responsibility also extends to situations where the corporation attempts to commit the offence, aids, abets, counsels, procures or incites the commission of the offence or conspires to commit the offence. Liability of individual directors and officers A director or officer of a corporation can be prosecuted for an offence committed by the corporation if the director or officer, aids, abets, counsels or procures or incites the commission of the offence by the corporation or conspires with another person to commit the offence. The director or officer must also have intended that his or her conduct would aid, abet, counsel or procure or incite the offence or conspired in the commission of the offence. It will not be adequate for that director or officer to simply have failed to engender an appropriate corporate culture. Anti-money laundering legislation The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML Act) was introduced in response to a critical FATF report that Australia was materially non-compliant with the FATF s 40+9 recommendations. The legislation requires customer identification, 16 Norton Rose Group

17 Australia verification and ongoing due diligence, transaction monitoring, suspicious transaction reporting, record keeping, and AML/CTF risk based reporting and compliance programs. In many cases, the money laundering offences catch a wider range of conduct such as receiving, possessing or disposing of money or other property that is merely reasonably suspected of being proceeds of crime. This means that the payment or receipt of a bribe may also infringe the AML Act. The Crimes Legislation Amendment (Serious and Organised Crime) Act (No 2) 2010 also amends the various money laundering offences to extend them to individuals or corporations who deal with proceeds or suspected proceeds of a criminal offence (such as foreign bribery) while overseas. This amendment means that Australian individuals and companies are at risk of prosecution for money laundering offences, even if the relevant proceeds never enter Australia. The penalty for the offence of dealing with money or property valued at more than AU$100,000 that is reasonably suspected of being proceeds of crime has also been increased to three years imprisonment or a fine of AU$19,800 or both for individuals and AU$99,000 for companies. These amendments expand the ability of the Australian Federal Police to investigate and prosecute Australian companies suspected of involvement in foreign bribery. Further, if it is suspected that a benefit has been gained as a result of corrupt conduct, property or assets may also be seized under the relevant Proceeds of Crime legislation. Whistleblowing legislation Part 9.4AAA of the Corporations Act 2001, which was introduced in 2004 in response to a critical report by the Australian Prudential Regulation Authority (APRA), contains detailed whistleblowing provisions. An officer, employee or contractor will be a protected whistleblower provided that: pre-disclosure identification is given there are reasonable grounds for suspecting breaches of the Corporations Act, the ASIC Act or the relevant court rules and the revelations are made in good faith disclosures are made to the Australian Securities and Investments Commission (ASIC), the company s auditors, a director, secretary or senior manager or a nominated person. A protected whistleblower will have extensive protection against retaliation, defamation or any other civil or criminal liability for making the revelation. A protected revelation must be handled in a prescribed manner. It can be passed on to ASIC, APRA or the Australian Federal Police without the whistleblower s consent but only to someone else with consent. Equivalent protections are contained in Part 29A of the Superannuation Industry (Supervision) Act Norton Rose Group 17

18 Anti-corruption laws in Asia Pacific Enforcement agencies Anti-bribery Responsibility for investigating corruption offences is divided between the State and Territory police forces, the Australian Federal Police and specialised bodies such as the Australian Crime Commission and ASIC. Once an investigating body has completed its investigation of a corruption offence, the case is referred to the relevant Director of Public Prosecutions, who makes an independent assessment whether to prosecute the case. AML/CTF The Australian Transaction Reports and Analysis Centre is the primary AML/CTF regulator and compliance enforcement agency. n 18 Norton Rose Group

19 China China Contributed by Norton Rose Group TI rankings 75th on the CPI. 27th on the BPI. International anti-corruption conventions and inter-governmental organisations Ratified UNCAC. Member of ADB/OECD Asia Pacific Anti-Corruption Initiative. Ratified UNCTOC. Member of FATF. Anti-Bribery legislation and major offences Legislation The existing anti-bribery regime consists of a patchwork of legislation, with overlapping regimes, including: the PRC Criminal Law (which punishes the most serious cases of bribery) the PRC Unfair Competition Law (which covers cases of bribery undertaken by business operators for a business purpose which can be criminal or non-criminal in nature) the Interim Regulations on Prohibition of Commercial Bribery issued by the State Administration for Industry and Commerce other relevant interpretations issued by the Supreme People s Court, the Supreme People s Procuratorate or the State Administration for Industry and Commerce regulations issued by the Communist Party of China, targeted at officials who do not necessarily participate in bribery but act passively, ie, do not take action against bribery and corruption in the jurisdiction under their authority. Criminal bribery The PRC Criminal Law sets out eight different types of criminal bribery, distinguished by their type (active or passive) and the parties involved. Where the party receiving the bribe is a public official or entity, this will constitute an offence of Official bribery. Where the party receiving the bribe is a private individual or entity, this will constitute an offence of Commercial bribery. On 25 February 2011, the PRC National People s Congress passed an amendment to the PRC Criminal Law setting out a clear prohibition on the payment of bribes to foreign officials and officials of international public organisations (the Amendment). The Amendment came into effect on 1 May The Amendment consists solely of one additional sub-article to the PRC Criminal Law which provides as follows: Norton Rose Group 19

20 Anti-corruption laws in Asia Pacific whoever provides 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. The Amendment has not been inserted into the Graft and Bribery chapter of the PRC Criminal Law which deals with corruption of public officials (where one may ordinarily expect it to be placed) but in the Crimes against the Order of Socialist Market Economy chapter, which deals with Commercial bribery. While at first glance the placing of the Amendment in the PRC Criminal Law may appear surprising, it is consistent with China s obligations under the UNCAC. Moreover, by stating that the purpose of the bribe should be the receipt of an improper commercial benefit, the Amendment itself suggests that an offence will only be committed when the purpose of the bribe is of a commercial nature. Both companies and individuals can be punished under the Amendment. In accordance with Articles 6 and 7 of the PRC Criminal Law, the Amendment will be applicable to PRC nationals both in the PRC and outside the PRC, and all PRC companies (and their managers) which carry business overseas (including Sino-foreign joint ventures, and wholly foreign-owned enterprises). The Amendment will empower the Chinese authorities to exercise greater vigilance in monitoring the overseas activities of all PRC companies and PRC nationals when carrying on business outside of China. Chinese authorities will be able to conduct thorough investigations in China when they suspect that an offence may have been committed. Unfortunately, the Amendment provides little detail on the behaviour that will actually be prosecuted by PRC authorities, or the prosecution thresholds, potential affirmative defences and potential exemptions. Implementing rules are expected to provide guidance and greater legal certainty regarding the operation of the Amendment in due course. Official bribery Official bribery is punished as a crime under the following articles of the PRC Criminal law: acceptance of a bribe by a public official (Article 385) acceptance of a bribe by a public entity (including state-owned enterprises and other public entities) (Article 387) active bribery of a public official by an individual (Article 389) active bribery of an entity by an individual or an entity (Article 391) active bribery of a public official by an entity (Article 393) serving as an intermediary in the commission of an illegal bribe (Article 392). The key provisions relating to public official bribery are Articles 385 and 389 of the PRC Criminal Law (the Official bribery rules). Under the Official bribery rules, a person is deemed 20 Norton Rose Group

21 China to have committed an offence of Official bribery if they have given articles of property to state functionaries in order to seek illegitimate benefit. The sanctions for individuals who commit Official bribery range from short-term detention to life imprisonment. The courts may also impose fines upon individuals or companies, and confiscate property. The offence must concern state functionaries. This term state functionaries is defined in Article 93 of the PRC Criminal Code to include: persons who perform public service in state organs (in the legislative, administrative or judicial branches or the military), in state-owned enterprises or units, or state institutions such persons assigned by state-owned entities to companies, enterprises or institutions not owned by the state to perform public services other persons who perform public services according to law. The definition is relatively wide. It not only refers to public servants or officials in the state organs but also includes employees in state-owned enterprises and other state institutions. Strictly speaking, state functionaries are not allowed to take any bribes no matter how small the amount involved. However, as clarified by a circular issued by the Guidelines for Bribery Prosecution Standards issued by the Supreme People s Procuratorate on 22 December 2000, official bribery cases will generally only be prosecuted if the amount at stake is over RMB10,000. Nevertheless, where the amount at stake is less than RMB10,000, the person giving the bribe is likely to be prosecuted if the purpose of the bribe was to seek illegal interests, if the bribes were given to a communist party official or Government leader, a member of the judiciary or police, or if more than three people at the same time have been bribed or if the bribery actions heavily damaged national or social interests. Commercial bribery The term Commercial bribery refers to acts of unfair competition committed by private individuals or companies. There is both a criminal and a non-criminal offence of Commercial bribery. For Commercial bribery to constitute a criminal offence under the PRC Criminal Law, the value of the transaction must be relatively large: at least RMB10,000 where committed by an individual at least RMB200,000 where committed by a company or other organisation. An individual convicted of the criminal offence of Commercial bribery may be imprisoned for up to ten years and a fine. Companies and organisations may be fined, and officers or employees of the company or organisation who were directly responsible for commissioning the offence may be punished in the same way as private individuals. The Unfair Competition Law and Commercial Bribery Regulations give a broader definition of Commercial bribery than the PRC Criminal Code. Article 8 of the Unfair Competition Law provides that business operators commit Commercial bribery if they offer business counterparts property or use other means to purchase or sell products in a manner that excludes competition. Norton Rose Group 21

22 Anti-corruption laws in Asia Pacific Under the Commercial Bribery Regulations the term property includes cash, assets and disguised kickbacks (such as commission, payments for promotion, sponsorship, research, or consultancy services). Other means includes benefits such as subsidies for travel or entertainment. Given the broad definition of Commercial bribery under the Unfair Competition Law and the Commercial Bribery Regulation, the giving of practically any gifts or benefits conferred in a commercial context is capable of constituting Commercial bribery. Defences and mitigation measures There are two exceptions to non-criminal Commercial Bribery: discounts or commissions to intermediaries are permitted if they are recorded in a company s financial accounts promotional goods of small value are permitted if they accord with commercial practice. The use of third party agents for liaising with Government entities, applying for approvals, bidding for public procurement, etc, is ubiquitous in the PRC. The work of such agents should be closely monitored to ensure that no grey payments are made as any bribery offences committed by the agent will ultimately effect the company itself. Anti-bribery representations and warranties should also be included in any third party agency agreement. There is no provision in PRC anti-bribery regulations stating that the implementation of anti-bribery measures by a company could provide a defence against prosecution by local authorities and the courts. However, since 2009 the PRC Government has initiated a new 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, training, 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 agents were contrary to the company s regulations and serve to prevent a prosecution of individuals from becoming a prosecution of the company. Penalties Individuals found guilty of Official bribery may be imprisoned for up to life imprisonment. The courts may also impose fines upon individuals or companies, or confiscate property. Commercial bribery is punished as a crime under the following articles of the PRC Criminal law: acceptance of a bribe by a non-public official (Article 163) active bribery of a non-public official by an individual or an entity (Article 164). While Official bribery is always considered a crime, no matter how small the bribe may be, Commercial bribery is only considered a crime where the amount offered as a bribe is relatively large (as discussed above). Non-criminal Commercial bribery (eg, bribery 22 Norton Rose Group

23 China that does not exceed the threshold amounts) will be investigated and prosecuted under administrative regulations set out below. An individual convicted of the criminal offence of Commercial Bribery may be imprisoned for up to ten years and liable to pay a fine (of undefined value). Companies and organisations may be fined, and officers of employees of the company or organisation who were directly responsible for commissioning the offence may be punished in the same way as private individuals. The penalty for individuals, companies and organisations guilty of the non-criminal offence of Commercial Bribery is a fine of between RMB10,000 and RMB200,000, and confiscation of any income generated from the illegal conduct. Facilitation payments, hospitality and gifts Facilitation payments are not permissible under PRC law. Internal regulations prohibit public officials from receiving any gifts over a certain value, and require public officials to hand over such gifts to the State if they cannot be returned to the giver. Entertainment and hospitality should be considered offers of property, and shall not be provided to public officials for the purpose of obtaining an illegitimate benefit. Similarly, hospitality and entertainment which are provided to private individuals or companies may constitute the criminal or administrative offence of Commercial Bribery if the corresponding thresholds are met. Corporate liability for the acts of subsidiaries, employees and third parties 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 which commits a crime can be held criminally liable for this crime and fined accordingly. Although certain offences of the Criminal Law can only be committed by entities, the Supreme Court of the PRC has clarified that any crimes committed by the officers, employees and agents of an entity can be treated as crimes committed by the entity itself, if: the crime is committed on behalf of the entity the crime is committed for the benefit of the entity there is a gain of illegal income by the entity. Under civil regulations, corporates will 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. In addition, Article 63 of the General Principles of the Civil Law of PRC provides that corporates shall also be liable for acts of their appointed agents. Finally, the Interim Regulations of the State Administration for Industry and Commerce on Prohibition of Commercial Bribery issued by SAIC provide that Norton Rose Group 23

24 Anti-corruption laws in Asia Pacific 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. As can be seen from the regulations quoted above, the PRC legal framework enables authorities and courts to hold companies responsible for the acts of their agents. However, the authorities and the courts will also consider separately the liability of agents and companies with a view to protecting jobs and the local economy. Liability of individual directors and officers Directors and legal representatives are at risk of individual liability for PRC companies activities. The duties and liabilities of directors and legal representatives are set out in the PRC Company Law (PRC Company Law). Directors and legal representatives are required to perform their duties faithfully, to uphold the interests of the company and to refrain from using their position in the company to seek personal gain, or to accept bribes or other illegal income (Article 148 of the PRC Company Law). Article 149 of the PRC Company Law specifies the following types of conduct as constituting a breach of legal representatives and directors duties towards the company: misappropriate the funds of the company deposit the funds of the company in a bank account opened in their personal name or in the name of another individual in violation of the articles of association of the company, lend the funds of the company to other persons or offer company property as security for other persons unless consent has been given at a shareholders meeting, a shareholders general meeting or by the board of directors take advantage of their position in the company to seek for themselves or other persons commercial opportunities that belong to the company, or operate by themselves or for another person the same type of business as the company, unless consent has been given at a shareholders meeting or shareholders general meeting accept as their own the commissions of a transaction between the company and other persons disclose company secrets without authorisation other acts that violate their fiduciary obligations to the company. The PRC Company Law explicitly stipulates that all the income that a director or legal representative may derive from violating the provisions of Article 149 of the PRC Company Law shall belong to the company. 24 Norton Rose Group

25 China In addition to the above, some specific rules apply to legal representatives of companies. PRC Company Law specifies that a company s legal representative may be subjected to administrative sanctions and fined and, if the offence constitutes a crime, criminal responsibility shall be investigated in accordance with the law, if the company has: conducted illegal operations beyond the range approved and registered by the registration authority concealed facts from the registration and tax authorities and practised fraud secretly withdrawn funds or hidden property to evade repayment of debts disposed of property without authorisation after the enterprise is dissolved, disbanded or declared bankrupt failed to apply for registration and make a public announcement promptly when the enterprise undergoes a change or terminates, thus causing interested persons to suffer heavy losses engaged in other activities prohibited by law, damaging the interests of the State or the public interest. Legal Representatives and Directors liability to compensate the company and shareholders Article 150 of the PRC Company Law provides: if a director of the company violates laws or administrative regulations or the company s articles of association in the execution of company duties and causes losses to the company, he shall be liable for compensation. Under the PRC Company Law, shareholders may employ significant private enforcement mechanisms against management indiscretions. If a director or legal representative commits an offence under Article 150, any shareholder (in the case of a limited liability company) or shareholders holding jointly or independently one per cent of the shares (in the case of a company limited by shares), may require the supervisor or the supervisory board of the company to institute proceedings against this director or legal representative in a People s Court, in order to recover the losses caused to the company. Additionally, if in violation of laws or administrative regulations or the company s articles of association, a director or the legal representative harms the interests of a shareholder, the shareholder may institute proceedings in a People s Court to recover its losses. Legal Representatives and Directors liabilities under the PRC Criminal Law Several PRC Company Law provisions impose criminal liability. In addition, the PRC Criminal Law pierces the corporate veil by providing that where an entity engages in criminal activity, penalties can be imposed on both the entity and the personnel in charge. Norton Rose Group 25