PRC Ministry of Public Security Specifies Statutory Rules on Explosive Dangerous Chemicals

On July 6, 2019 the PRC Ministry of Public Security released the Measures on Public Security Administration of Explosive Dangerous Chemicals (“Measures”). They have come into effect on August 10, 2019. The legislative purpose of the Measures is to enhance the administration of Explosive Dangerous Chemicals (“EDC”) in order to protect the safety of peoples’ lives and properties and the public security.

1. Important Items

EDC are a special type of Dangerous Chemicals (“DC”) used for producing explosives, and thus have a particularly increased grade of dangerousness. EDC include, for instance, nitric acid, nitrates, perchloric acid, perchlorates, sodium, sulphur, etc. which are all listed and regulated in the PRC Catalogue for EDC (2017 version).

Therefore, all laws and regulations on DC are generally applicable for EDC. For instance, production of DC is subject to at least a DC Work Safety License; sale, distribution and storage of DC is subject to a respective DC Operation License; transportation of DC requires among others a Dangerous Goods Road Transportation License.

Due to increased dangerousness EDC are subject to additional and enhanced statutory administration. Below are some highlights regulated in the Measures. They either are new or specify some general rules existing under the PRC Regulations on Safety Administration of Dangerous Chemicals (latest amended by the PRC State Council in 2013).

• Establishment of EDC enterprises: the competent industrial department is the local Emergency Administration on municipal level, while for normal DC the lower level Emergency Administration is responsible.
• DC licenses covering EDC: enterprises engaging in EDC business shall have a respective DC license with a permitted scope of items covering EDC.
• Qualification requirements for purchase: EDC shall only be sold to enterprises having a corresponding DC license, Explosives Production License or other documentation evidencing the identity of the purchaser and elaborating the legitimate use purpose of EDC. It is prohibited to sell EDC to individuals.
• Payment: it is not allowed to use cash or in-kind transaction for sale, purchase or transfer of EDC. Payments shall only be made via the transaction parties’ own bank accounts.
• Filing and tracking: EDC deals shall be filed at the county-level public security administration within 5 days after the transaction. EDC manufacturers and sellers shall keep record of details of EDC purchases and purchasers for at least 1 year. EDC manufacturers, importers and repackaging entities shall equip EDC with e-tracking marks.
• Transportation: unusual delay, loss or leak of EDC during their transportation shall be reported to the Public Security Administration and dealt with emergency measures by the transport staff.
• Logistics: postal and express enterprises are not allowed to collect or deliver EDC.
• Internet: EDC enterprises shall only publish EDC information or establishment a respective interlinkage on their own homepages after the Non-operational Internet Information Service Filing is completed with the provincial level Telecommunication Administration. Non-EDC enterprises or individuals are not allowed to publish EDC information on internet.
• Public security: EDC enterprises shall set up a security department responsible for the public security of EDC and file such department including its qualified staffing with the local Public Security Administration.

2. Legal consequences of major incompliance (examples without limitation)

Violation of DC / EDC laws will trigger administrative punishments and even criminal liability in severe cases. For instance,

• Unlicensed DC activities: operation suspension for rectification; fines from RMB 100,000 – 500,000; possible criminal liability.
• Sale of uninspected or unqualified DC-packaging materials or vessels by their manufacturers: fines from RMB 100,000 – 200,000; confiscation of illegal proceeds; possible criminal liability.
• Incompliant DC operation in general: fines from RMB 50,000 – 100,000; operation suspension for rectification; possible personal criminal liability of responsible personnel.
• Sale of EDC to unqualified purchasers: confiscation of illegal proceeds; fines from RMB 100,000 – 200,000; operation suspension or even withdrawal of DC licenses in case of refused rectification.
• Incompliant EDC transaction filing: fines from RMB 10,000 up to 3 times of illegal proceeds.
• EDC deals using cash or without e-tracking: fines up to RMB 100,000 (up to RMB 10,000 on direct responsible persons) according to the PRC Anti-terrorism Law.
• Violation of DC laws causing major accidents and severe consequences: imprisonment up to 3 years.

3. Recommendations

Enterprises in the chemical industry or otherwise dealing with DC shall in general raise and strengthen their awareness of work safety and environmental protection. These are 2 topics of great concern since a series of industrial accidents in the recent years. Company management is advised to conduct regular self-inspection of the company’s operation according to applicable laws so as to timely identify potential or existing incompliance and to avoid unintended violation of laws. In case of identified incompliance or violation, it is recommendable to adopt a positive and transparent approach aiming at correction and improvement using legitimate and most cost-efficient measures. Meanwhile, company management may need to seriously consider reporting any case of incompliance or violation jointly with any correction counter-measures to its supervisory organ and even to in-charge authorities.

Personal liability of company management: PRC administrative laws on work safety and environmental protection often impose personal administrative liability on the so-called “principals directly in-charge” and /or “persons directly responsible” without stipulating a clear legal definition for these terms. This uncertainty has increased the risk exposure of DC company’s management personnel which, literally interpreted, would include the relevant department head, the general manager, the board members and the legal representative of a DC company. Whether or not there is any chance of exculpation, this might very much depend on factors like, for instance, a formal working title, job description in the labor contract, possibilities of factual control or decision power, etc. In order to eliminate or reduce the potential risk of being held personally liable, shareholders and managers of DC companies are recommended to draw up and implement, which process should ideally be documented, clear and sufficient internal rules on department setting, management’s duties and responsibilities, work safety and risk management system, as well as emergency plans, in addition to the above-mentioned routine inspection and rectification. Such rules, their implementation and the documentation of the whole exercise may be helpful to build arguments for exculpating the managers from work safety liability or at least for reducing such liability.

In case you have questions or for further information, please contact the author of this newsletter: Stephen Wu.