Amendments of PRC Criminal Law in relation to Corruption in Public and Private Sectors

On 29 December 2023, the Standing Committee of the National People's Congress ("NPC") has issued the Amendment XII to the Criminal Law of the People's Republic of China (“Amendment XII to the PRC Criminal Law”), which will become effective on 1 March 2024.

Following its previous Draft for Comment (see the previous client alert "Stricter Liability Risks for Corruption in China Due to Amendments of PRC Criminal Law"), the Amendment XII to the PRC Criminal Law has confirmed most of the changes that have been proposed previously in its Draft for Comment and has made some additional changes.

Foreign-invested enterprises and their executives in China must watch out to the following changes:

1. New Personal Criminal Liability Exposure of Executives in Foreign-Invested Enterprises in China

The Amendment XII to the PRC Criminal Law closes the gap of personal criminal liability exposure under the Articles 165, 166 and 169 of the current PRC Criminal Law. These amendments will provide new personal criminal liability risks on the management and employees in foreign-invested enterprises similarly to the Chinese state-owned enterprises.

Certain individuals such as directors, supervisors, managers, persons in charge and other employees of foreign-invested enterprises in China shall also be subject to personal criminal liability with regard to specifically defined misconducts and may face an imprisonment of up to 7 years and fines. These misconducts include for example:

1. obtaining illegal benefits by operating for themselves or for another the same business as that of the company or enterprise in which they hold the office (for directors, supervisors and senior management);
2. transferring the profitable business to their relatives and/or friends (for employees);
3. purchasing commodities or accepting services from a company, which is managed by their relatives and/or friends at a price obviously higher than the market price, or selling commodities or providing services to a company, which is managed by their relatives and/or friends at a price obviously lower than the market price (for employees);
4. accepting substandard commodities or substandard services from a company, which is managed by their relatives and/or friends (for employees);
5. selling assets of the company or enterprise at a price, which is obviously lower than the market price (directly responsible persons in charge); and
6. when such incompliance behaviours have caused heavy losses to the interests of the company.

2. Clarification of the Aggravating Circumstances in conjunction with Giving Bribes in the Public Sector

The Amendment XII to the PRC Criminal Law provides under Article 390 of the PRC Criminal Law seven aggravating circumstances, which shall trigger stricter penalties for the offender on the giving side.

These seven circumstances are the following:

1. multiple bribery, bribery to more than one person;
2. bribery by State officials;
3. bribe-giving in important national work, key projects, major projects;
4. bribery for securing promotions or adjustments in position or rank;
5. bribery-giving to supervisory, administrative law enforcement, or judicial officers;
6. bribery-giving in the areas of ecology and environment, financial and fiscal affairs, work safety, food and drugs, disaster prevention and relief, social security, education and medical care; and
7. using the proceeds of the offence to pay bribes.

Compared with the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning Application of Law for Handling Criminal Cases of Bribe Offering, the Amendment XII to the PRC Criminal Law has further regulated bribe-giving in important national work, key projects, major projects, bribery for securing promotions or adjustments in position or rank and bribery-giving in the areas of financial and fiscal affairs, disaster prevention and relief, social security, education and medical care.

Further, the Amendment XII to the PRC Criminal Law provides that the maximum term of imprisonment of the individuals or the directly responsible person in charge and other responsible persons of an entity for giving bribes to entities in the public sector under Article 391 shall be lifted from up to 3 years to up to 7 years. Further, the maximum term of imprisonment of the directly responsible person in charge and other responsible persons of an entity for giving bribes in the name of such entity to the state officials in the public sector under Article 393 shall be lifted from up to 5 years to up to 10 years.

3. Five Take Aways

• The new PRC Criminal Law mirrors that the Chinese regulator is keep fighting against corruption across all industry sectors and also in both public and private sectors in China. Media are reporting constantly about new corruption cases in China.
• Executives should not underestimate the personal risk exposure in conjunction with misconducts of companies. In practice, it remains difficult to draw the red line between the misconduct of the company and the compliant behavior of the executive. This challenge will primarily affect the legal representatives as the directly person in charge of those companies, which are subject of allegations of corruption.
• The new PRC Criminal Law provides new personal liability risks of executives in foreign-invested enterprises in China. Foreign headquarters, or whoever is in charge of the compliance management in China, should clarify that certain behaviors, which were in the past not subject to personal criminal liability, are now subject to personal criminal liability.
• Companies, which are planning their compliance and internal audits in China in the new year 2024, should address also those scenarios, which become now subject to criminal liability given to the new PRC Criminal Law.
• Anti-corruption policies of companies in China should reflect the changes under the PRC Criminal law. Companies may consider now updating their anti-corruption policies in China.