Anti-unfair Competition Law – Redefining Commercial Bribery in China

On 1 January 2018, the amendment to the P.R.C Anti-Unfair Competition Law (“AUCL”) officially came into force, after it was passed by the Standing Committee of the National People’s Congress on 4 November 2017. This is the first amendment to AUCL since its implementation in 1993 and it has made major changes to AUCL in response to current trends and requirements. Especially the rules regarding “commercial bribery” show some large changes in the 2017 AUCL. The Amendment will often influence the way inter-company deals and agreements, bonus structures and other reward systems are treated under Chinese law. Below all the major changes are listed and explained.

1. Redefining the scope of ‘bribe recipient’
In the 2017 AUCL, a fundamental change in the commercial bribery rules is the removal of transaction counterparties from the scope of bribe-recipient. This means that corporate-to-corporate commercial incentives, which have long been the targets of anti-bribery enforcement by the State Administration Industry and Commerce (“SAIC” which has recently been restructured as part of State Administration of Market Supervision and Administration) would most likely no longer be regarded as commercial bribery as defined under the 2017 AUCL.

Unlike the 1993 AUCL which generally refers the subject of bribe recipient as “transaction counterparty”, Article 7 of the 2017 AUCL clearly lists 3 types of subjects that may be categorized as bribe recipients, subject to investigation or punishment:

• Staff members of transaction counterparties;
• Entities or individuals entrusted by transaction counterparties to handle relevant matters; and
• Entities or individuals that may take advantage of the work position or influential power to exercise influence on transactions.

This change was based on comments collected in the draft consultation stage, these comments stated that China had been penalising commercial arrangements (e.g. sales bonus, incentives) between transaction parties as bribery which were, however, often regarded as legitimate in other jurisdictions. Furthermore, it was observed that the 2017 AUCL acknowledges the long-term administrative practice of SAIC in regulating the third party other than the transaction parties as the major bribe recipient, affected normal and fair transactions.

2. The definition of the ‘purpose of commercial bribery’ is expanded
In the 1993 AUCL, the purpose of commercial bribery is defined as “buying or selling goods”. In comparison, the purpose as defined in the 2017 AUCL has a broader scope: “seeking business opportunities or competitive advantages”, which sensibly encompasses a wider rage of commercial activities.

3. Liability of a business operator for its employees’ bribery
Article 7 paragraph 3 of the 2017 AUCL[1] signifies that bribery committed by an employee will be generally attributed to the business operator itself, without considering whether the business operator is aware of, or authorizes, such bribery. This results in the increasing of risk and liability borne by the business operator. Although the business operator may defend itself by demonstrating that the bribery is irrelevant to “seeking business opportunities or competitive advantages” for itself, it can be very challenging in practice to prove the irrelevance, which makes it difficult to use such a defence strategy successfully. Therefore, it is of vital importance for the business operator to strengthen internal control in its daily operation in order to avoid the legal risks extended to it by its employee’s bribery conducts.

4. Stringent law enforcement mechanism
Firstly, the administrative punishment appears harsher in the 2017 AUCL as compared to the 1993 version. In respect to commercial bribery, the minimum fine is raised from RMB 10,000 to RMB 100,000, while the maximum fine is lifted to RMB 3 million. Besides monetary punishment, business operators will be faced with revocation of business license in serious cases of commercial bribery.

Furthermore, SAIC is entitled more power when investigating commercial bribery. According to Article 13 of the 2017 AUCL, two additional administrative coercive measures are granted to SAIC, i.e. “sealing up and/or detaining the property involved in the suspected unfair competition conduct” and “inquiring into the bank account of the business operator that is suspected of the unfair competition conduct”. This enhancement of supervisory and investigative power of SAIC is in response to criticism claiming rules were inadequately supervised, inspected and enforced.

_{[1] “The bribery committed by an employee of a business operator shall be deemed as the practice by the business operator itself, unless otherwise proven by the business operator with evidence that such bribery is irrelevant to seeking a business opportunity or competitive advantage for the business operator.”}