CMS Expert Guide To Mandatory Reporting Of Criminal Offences For Companies And Their Responsible Persons in China

The following shows a selection of reporting obligations in conjunction with criminal offences.

1.1 Reporting Obligation under PRC Criminal Procedure Law

Most prominent is Article 110 of the PRC Criminal Procedure Law, which provides that any company or individual, who becomes aware of facts, which indicate a crime or the identity of a criminal suspect, is obliged to report the matter or provide the relevant information to the Public Security Organ, the People’s Procuratorate or the People’s Court. This reporting obligation applies to all criminal offences, which are governed by the PRC Criminal Law.

1.2 Additional Reporting Obligations

Additional reporting obligations exist for companies and their responsible persons, which are not criminal law reporting obligations, but which may trigger criminal investigation. The following shows a selection of these reporting obligations.

Reporting Obligations for Suspicious Transactions

According to Articles 8 and 16 of the PRC Anti-Money Laundering Law, financial institutions and their employees are required to report suspicious transactions to the anti-money laundering authority under the State Council. Failing to report such transactions may lead to administrative penalties.

Reporting Obligations by Listed Companies

According to Article 161 of the PRC Criminal Law, a listed company, its controlling shareholders, actual controllers, and responsible individuals may be subject to criminal liability if the company provides false or misleading financial reports, conceals significant facts, or fails to disclose other material information as required by law - especially if such actions result in a serious harm to shareholders or to the public.

Articles 80 and 81 of the PRC Securities Law clarify that “material information” includes, for example, if the company is under criminal investigation, or if any actual controller, director, supervisor, or senior executive is subject to compulsory legal measures. Such information must be reported promptly and accurately to the securities regulatory authority under the State Council and to the stock exchange. 

Reporting Obligations for Workplace Accidents 

Article 21 of the PRC Work Safety Law provides that the company’s principal individual-in-charge is legally obliged to report workplace accidents occurred in the company truthfully and promptly to the work safety supervision and administration-related authorities. Non-reporting of the workplace accident may constitute a crime for the individual according to the Articles 134 and 139a of the PRC Criminal Law, if this non-reporting resulted in delayed rescue efforts with serious consequences.

Reporting Obligations for Environmental Pollution

Articles 338 and 346 of the PRC Criminal Law provide that companies - and individuals directly in charge or otherwise responsible - may be held criminally liable, if they breach state regulations by discharging, dumping, or disposing of radioactive waste, infectious disease-related waste, toxic substances, or other hazardous materials, which result in serious environmental pollution. According to Article 47 of the PRC Environmental Protection Law, companies are obliged to take action immediately and inform the affected entities and residents, as well as report the incident to the environmental authorities.

In principle, any employee of a company may report a suspected criminal offence. However, civil acts carried out by the company’s legal representative in the name of the company are legally binding on the company itself. As a result, it is most likely often the company’s legal representative who assumes responsibility for reporting criminal matters. That said, specific reporting obligations may fall to particular individuals, depending on the type of offence and the overall circumstances. For instance, the principal individual-in-charge of a company is specifically required to report workplace accidents truthfully and promptly.

In addition to the reporting to Public Security Organs, the People’s Procuratorate and the People’s Courts, companies may also be required to report certain offences to other authorities, depending on the type of incident.

For example:

• Work safety-related offences are reported to the authority responsible for the work safety supervision and administration (Article 46, PRC Work Safety Law).
• Environmental pollution related offences are reported to the competent environmental protection department (Article 47, PRC Environmental Protection Law).
• Suspicious financial transactions are reported to the anti-money laundering authority under the State Council (Article 16, PRC Anti-Money Laundering Law).
• Information disclosure breaches by listed companies are reported to the securities regulatory authority under the State Council and to the stock exchange (Articles 80 and 81, PRC Securities Law).

Whether or not failing to report the criminal offence or its perpetrators triggers legal risks depends on the individual scenario and specifically on the affected criminal offences. For a number of criminal offences, there is currently no specific legal risk triggered, if not reported. However, exceptions exist. See the answers to question 1, which show that the failure of reporting can trigger criminal liability and also administrative liability.

In general, reporting a criminal offence does not trigger legal risks if the reporting company or the reporting individual is not involved in the criminal offence. However, if the offence occurs within the company - particularly if it is committed by the company itself or its employees - the reporting may have significant implications for the company. That applies specifically to listed companies, where the disclosure of criminal activity can adversely affect the company’s reputation and market position.

Whether a company or an individual may be subject to criminal liability depends on whether they have actually committed a criminal offence or are deemed to be legally responsible for a criminal offence. Simply reporting a criminal offence on behalf of the company will usually not result in accessory criminal liability of the company or the individual submitting the report.