China: The Proposed Amendments To China's AUCL Commercial Bribery Provisions: Comments And Suggestions

Table of Contents

1. INTRODUCTION
2. PROPOSED AMENDMENTS TO THE COMMERCIAL ANTI-BRIBERY PROVISIONS
   
   
   1. Business Operators and Commercial Bribery
   2. Other Key Amendments
3. A COMPARISON BETWEEN U.S. COMMERCIAL ANTI-BRIBERY LAW AND THE DRAFT AMENDMENTS
   
   
   1. Legislative Structure
   2. Elements of the Criminal Commercial Bribery Statutes
   3. Bribery Involving Public Service
   4. Other Relevant Statutes
4. CONCLUSION

Abstract

Since the enactment of the Anti-Unfair Competition Law in 1993, China's economy has changed significantly. To better regulate the current market, a draft amendment to the AUCL was published on February 25, 2016. Specifically, Articles 7 and 20, the commercial anti-bribery provisions of the AUCL, reflect substantial changes to the current law. This paper will identify such proposed changes and analyze implications and potential issues of the elements of the commercial anti-bribery provisions, including burden of proof, vicarious liability of employers, bribery involving public service, books and records provision, extraterritorial jurisdiction, and penalties, etc. It will also look to the United States' domestic commercial anti-bribery laws for comparisons. This paper hopes to shed light on potential improvements the draft amendment should consider to achieve its desired purposes of better curbing commercial bribery and regulating the current market.

I. INTRODUCTION

The Legislative Affairs Office of the State Council of China published for public comment a draft amendment to the Anti-Unfair Competition Law (the "AUCL") on February 25, 2016 (the "Draft Amendment"). It was drafted by the State Administration of Industry and Commerce ("SAIC", and "AICs" for its local counterparts), the government agency responsible for the enforcement of the AUCL over the past 23 years. The AUCL is the major administrative legislation regulating various forms of unfair competition practices in China, including commercial bribery, product counterfeiting, monopoly power abuse, misleading commercial advertising and commercial secrets violations, etc. The commercial bribery provisions have been substantially revised by Article 7 and Article 20 of the Draft Amendment.

The preamble of the Draft Amendment acknowledges that the market economy has undergone dramatic changes since the enactment of the AUCL in 1993. Presumably, one of the major purposes behind the Draft Amendment is to adapt the law to current market conditions and address new issues that have emerged in the past two decades. Another possible purpose is to clarify the current law and eliminate inconsistencies between the AUCL and other overlapping legislations, such as the Anti-Monopoly Law, the Trademark Law, and the Advertisement Law. The legislators also presumably intend to make the anti-bribery provisions consistent with the tightened anti-corruption provisions in the Criminal Law.¹

This paper will introduce the major amendments to the commercial bribery clauses, analyze the implications and potential issues, and propose resolutions based on the legislative and enforcement experience in the United States.

II. PROPOSED AMENDMENTS TO THE COMMERCIAL ANTI-BRIBERY PROVISIONS

A. Business Operators and Commercial Bribery

Article 2 of the Draft Amendment updates the definition of "business operators,"² who are the only targets of the "commercial bribery" regulation set forth in Article 7 and administrative penalties under Article 20 for any violations.³

Under the current AUCL, the term "business operators" is defined as "legal persons, other economic organizations and individuals engaged in the trade of goods or profit-making services."⁴ This definition has been debated extensively by commentators, many of whom have argued that such definition is too narrow.⁵ In the Draft Amendment, "profit-making" is deleted from the definition of "business operators."⁶ There is also a concomitant change in Article 7(1), which now prohibits a "business operator" to "seek economic benefits for one's own employer or for oneself when performing public service or by performing public service."⁷

These changes were likely made for two reasons. The first is that local courts have been split on whether public service providers, such as public hospitals or public schools, should be subject to the AUCL. Some local courts have thought it would be unreasonable to exclude these entities if they seek economic benefits by performing public service.⁸ The second is in response to public concerns over the serious and widely publicized bribery incidents involving public hospitals and pharmaceutical companies in recent years, as demonstrated by the GlaxoSmithKline ("GSK") bribery case in which GSK was fined over 400 million U.S. dollars for bribing public hospitals.⁹ Hundreds of public hospitals were involved in the case.¹⁰ The Supreme People's Court has already reacted to such concerns by issuing the Opinions on Several Issues Concerning the Application of the Law in Handling Criminal Commercial Bribery Cases,¹¹ which prohibits public organizations in the medical services industry, education industry, and procurement agencies from taking bribes.¹² A number of highly publicized cases were decided since then, in which public hospitals and doctors were charged and sentenced for bribery.¹³

"Business operators" do not include employees or agents acting on behalf of the business operators, and any act of bribery by an employee is regarded as an act of the employer through a form of strict liability. The Draft Amendment does not change that, but it does provide a defense to the bribe recipient's employer.¹⁴

B. Other Key Amendments

Aside from the important change to the definition of "business operators," the Draft Amendment differs from the current law in the following key aspects.

1. The Definition of "Commercial Bribery"

The current AUCL does not define "commercial bribery." Rather, it states that "business operators" shall not give bribes "in the form of property or other means for the purpose of selling and purchasing products and services."¹⁵ In 1996, SAIC promulgated the Provisional Rules on Prohibition of Commercial Bribery Activities ("1996 Rules"), but it still uses essentially the same language as the existing AUCL.¹⁶

The Draft Amendment now provides the definition of "commercial bribery" as a business operator "(1) providing or promising to provide (2) economic benefits to (3) the counter-party in a transaction, or to a third party who is able to influence the transaction, (4) to entice it to seek a transaction-related opportunity or a competitive advantage for the business operator."¹⁷ Additionally, "accepting or agreeing to accept an economic benefit" also constitutes "commercial bribery."¹⁸

The proposed language substantially broadens the coverage of the statute. First, under the current statute, an action is not bribery unless the bribe has been offered and accepted. The Draft Amendment adds that to "promise to provide" and to "agree to accept" also constitute acts of bribery.

Second, the current statute only proscribes bribes given to a counter party in a transaction. The Draft Amendment states that the bribe may be given to a counter-party as well as to any third party, i.e. to "anyone."

Third, the proposed language uses "economic benefits" to replace "property or other means" in the current statute. The 1996 Rules contain a lengthy definition of "property", providing that "property" means "any cash and non-cash payments, including, but not limited to, property disguised as marketing fees, publicity fees, sponsorship fees, R&D fees, labor service fees, consulting fees, or commission fees, as well as reimbursement of various expenses, etc."¹⁹ It also gives examples of "other means" – offering domestic or international tours, expensive meals or entertainment, etc.²⁰ In practice, the definition under the 1996 Rules is interpreted as "anything of value."

The proposed language "economic benefits" simplifies the term and makes it consistent with the existing practice carried out in accordance with the 1996 Rules. It is also closer to the statutory language used in the anti-bribery statutes adopted by other jurisdictions (e.g., "anything of value" under U.S. Foreign Corruption Practice Act (the "FCPA"), "benefits" under the Brazil Clean Companies Act, or "financial or other advantage" under the UK Bribery Act).²¹

The proposed definition does not clarify whether a bribe giver who has been coerced, e.g., a supplier who involuntarily gives a bribe coerced by a procurement agent, will be accused of commercial bribery. However, SAIC has previously responded to this issue by citing the Administrative Law, which states that while coercion is a mitigating factor in assessing the amount of fines, it does not change the nature of the offense. ²² Similar principle applies to the provisions under the Criminal Law.²³

2. Vicarious Liabilities of Employers

The current law does not differentiate between the liability of employers and employees. As noted above, SAIC only regulates and punishes "business operators," i.e. employers. For example, in the published administrative penalty decision against Shanghai Kai En Medical Device Company in 2015, Shanghai Municipal AIC does not differentiate between the conduct of the employee and the employer, but only refers to the conduct of the "accused party" and imposes penalties upon the "accused party," which is the company. ²⁴ The proposed draft does not change this, but rather makes it clear that the employer will be "deemed" liable for commercial bribery paid or received by its employees.²⁵ However, the employer of the bribe recipient - but only the recipient - is given an affirmative defense. If the recipient's employer can show that accepting the bribe is contrary to its business interest, the bribery will not be considered as the employer's conduct.²⁶

3. Books and Records

Article 7(2) of the Draft Amendment proscribes commercial bribery conduct in which business operators "pay each other economic benefits without truthfully recording in contracts and accounting documents."²⁷ This clause is already included in the current AUCL, which provides that business operators paying or accepting kickbacks "off the books" shall be punished for offering or taking bribes.²⁸ The proposed language broadens the coverage of the provision to cover any economic benefits and not just kickbacks.

4. Payments to Third Parties

As noted above, under the Draft Amendment, the bribe recipient could be any party, as opposed to just a counter-party in the current AUCL. Article 7(3) provides that it is commercial bribery if a business operator pays or promises to pay economic benefits to "third parties" who may influence the business transactions, "harming the lawful rights and interests of other business operators or consumers."²⁹ This clause essentially overlaps with, or even repeats the definition of "commercial bribery." The legislator may have wanted to set out the offense of bribing third parties as a specific example to alert business operators since it is the first time that bribing third parties is proscribed under the law.

However, the new provision appears to be both repetitive and potentially confusing. Under Article 7(3), the element of "harming the lawful rights and interests of other business operators or consumers" seems to imply a carve-out for facilitation payments to third parties because facilitation payments often do not result in harms to competitors or consumers. However, the general definition of "commercial bribery" does not require this element and therefore does not have such a carve-out. SAIC should clarify its legislative intention, or delete Article 7(3).

5. More Severe Penalties

For non-criminal commercial bribery, the current AUCL imposes a fine of between RMB 10,000 and 200,000 (around $1,500 to $30,000), along with confiscation of illegal income.³⁰ Under Article 20 of the Draft Amendment, SAIC would impose fines of between 10% and 30% of business revenue attributable to the illegal conduct without any cap.³¹ When commercial bribery is so severe that it comes into the purview of Criminal Law, the offender is subject to both incarceration and fines.³² Any fines imposed by SAIC can be deducted against the fines imposed under the Criminal Law, if SAIC had already imposed fines before the conclusion of the criminal proceeding.³³ As to what constitutes "business revenue", although there has not been a clear definition, in practice, business revenue includes illegal income and reasonable costs. This amendment presumably gives SAIC more discretion and allows SAIC to impose appropriate punishment to commercial bribery involving large-scale projects that potentially cause serious negative impacts to society, regardless of how small the illegal income or the bribes are.

III. A COMPARISON BETWEEN U.S. COMMERCIAL ANTI-BRIBERY LAW AND THE DRAFT AMENDMENTS

Commentators on the commercial bribery statute under the AUCL usually compare it with the FCPA.³⁴ Although the FCPA is a frequently discussed topic when anti-corruption is mentioned, there are two important distinctions.

Firstly, a key element of a FCPA violation is corrupt payments to "foreign officials."³⁵ The AUCL has no such requirement. Secondly, the FCPA is of broad extraterritorial nature while the AUCL is a domestic law and does not include language that suggests its extraterritorial jurisdiction. The Draft Amendment has not changed that.

Therefore, this paper will focus on U.S. domestic commercial bribery laws, instead of the FCPA, compare them with the AUCL commercial bribery provisions, and propose potential improvements to the Draft Amendment based on the comparison.

A. Legislative Structure

Unlike China which has two comprehensive commercial bribery statutes under the AUCL and the Criminal Law, the U.S. does not have a general federal level commercial bribery statute,³⁶ although there have been unsuccessful attempts to enact one.³⁷ Instead of enacting a single comprehensive statute, Congress has inserted commercial anti-bribery provisions into laws that regulate specific industries.³⁸ Examples include commercial anti-bribery provisions pertaining to labor representatives,³⁹ licensed classifiers of cotton or grains,⁴⁰ dealers of perishable agricultural commodities,⁴¹ parties involved in the referral of federal health care program business,⁴² and federal meat inspectors.⁴³ If a commercial bribery offense occurs outside of these contexts, it could be prosecuted under the umbrella of several federal statutes, including the Travel Act, mail and wire fraud statutes, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and the Robinson-Patman Act, etc.⁴⁴ Congress also enacted a set of civil statutes to deter commercial bribery and compensate parties who are prejudiced by the bribery practices.⁴⁵

On the state level, over three quarters of the states have criminalized commercial bribery across all industries. Of the other states, most of them have enacted targeted statutes that proscribe bribes in particular industries.

The Federal Trade Commission of the U.S. (the "FTC") is the equivalent of SAIC in combatting unfair competition. FTC had used antitrust regulations to challenge commercial bribery in its earlier years. However, commercial bribery had no longer been the focus of its enforcement activities decades ago.⁴⁶ Now, commercial bribery is usually prosecuted under criminal laws at the federal and state levels.

B. Elements of the Criminal Commercial Bribery Statutes

The Travel Act prohibits the use of the U.S. mail or interstate or foreign travel for criminal acts, including bribery in violation of the state laws.⁴⁷ The Travel Act has been frequently used to prosecute domestic commercial bribery cases in the past two decades. Prosecutors brought highly publicized Travel Act charges against members of the Salt Lake City Bid Committee for violating the Utah commercial anti-bribery statute in the Salt Lake City Olympic bid scandal.⁴⁸ Prosecutors have also used the Travel Act in conjunction with the FCPA to combat commercial anti-bribery abroad. For example, in United States v. Control Components Inc., California-based valve maker Control Components Inc. pleaded guilty to the Travel Act charge for bribing employees of private companies in violation of California's commercial anti-bribery law and the FCPA charges for bribing employees of state-owned companies who are considered as "public officials" under the FCPA.⁴⁹

On the state level, the basic elements of these criminal commercial bribery statutes are generally consistent from state to state: (1) the offering or soliciting, agreeing to accept, or accepting; (2) by the employee or agent; (3) anything of value; (4) intent to influence; (5) done without the knowledge or consent of the employer or principal of the bribe recipient. Some states also require an additional element of "contrary to its interest" in which the prosecutor must show that the bribe recipient's "conduct.... actually be contrary to the interests of the employer or principal."⁵⁰

Given that more cases have arisen under the New York statute than that of any other state,⁵¹ we will use the commercial anti-bribery statute in the New York Penal Code as an example. The New York statute penalizes any person who pays or promises to pay to an agent or employee, any gift or gratuity, with intent to influence such agent's or employee's action in relation to their principal's or employer's business.⁵² Receiving the bribe is also penalized.⁵³ To convict the offenses, the prosecutors are also required to prove that the bribe is given or received without the knowledge and consent of the principal or employer of the bribe recipient.⁵⁴ There is no value threshold for a class A misdemeanor charge. When the bribe's value exceeds $1,000 and causes economic harm to the employer or principal exceeding $250, it becomes a felony.⁵⁵

The basic elements of the Draft Amendment are similar to those in U.S. commercial bribery laws, i.e. they all include (1) giving or promising to give, accepting or agreeing to accept; (2) anything of value; and (3) an intent to influence or entice to be awarded with business opportunities or competitive advantages. However, there are several significant distinctions between the Draft Amendment and the U.S. state commercial bribery laws, and these distinctions will be outlined below.

1. Burden of Proof

The standard of proof of the U.S. criminal prosecutions is "beyond a reasonable doubt," which is the same under China's criminal proceedings. In an administrative enforcement, agencies' actions are usually governed by the preponderance of the evidence standard.⁵⁶ The Supreme Court of the U.S. has held that Section 7(c) of the Administrative Procedure Act establishes "a standard of proof and . . . the standard adopted is the traditional preponderance-of-the evidence standard."⁵⁷

The AUCL is an administrative law, which does not provide clear guidance for the standard of proof under China's legal system. There are several different academic views on this issue. Some commentators are of the opinion that the standard should be somewhere between "preponderance of evidence," which is the standard applied in civil cases, and "beyond reasonable doubt."⁵⁸ Other commentators believe that SAIC should apply a "beyond reasonable doubt" standard to cases in which potential penalties are jail time or confiscation of large amounts of personal property, while a "preponderance of evidence" standard should apply to administrative judgments in other cases.⁵⁹ In practice, many local AICs choose to adopt the second approach while some do not.⁶⁰

Given that one of the purposes of the Draft Amendment is to clarify the law and to unify the enforcement practices by local AICs, SAIC should provide clear guidance on the standard of proof in sanctioning AUCL violations. Even if the administrative procedure does not provide a clear guidance, the AUCL could provide its own standard of proof. For example, Section 5 of the Federal Trade Commission Act of the U.S., which prohibits "unfair or deceptive acts or practices in or affecting commerce,"⁶¹ provides its own standard of proof, which requires the Commission to prove that "the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition."⁶²

2. Business Operators and Vicarious Liability

In contrast to the FCPA, which frequently targets companies, the U.S. state commercial bribery laws generally regulate the behavior of employees. Their employer may be convicted of bribery if the prosecutors can prove that the organization is vicariously liable for the offenses committed by its agents under the doctrine of respondeat superior, which establishes employer's liability when "the employee acts within the scope of his or her employment and with the intent to benefit the organization."⁶³ Some jurisdictions require that the employer either approves or participates in the employee's or agent's conduct.⁶⁴ Some states, such as New York, have included "criminal liability of corporations" in the penal code which reflects similar principles.⁶⁵

The general rationale is that a corporation is a legal fiction comprised only of individuals. Therefore, it has no existence separate and distinct from those whom it has clothed with authority and commissioned to act for it, whether such individuals are directors, officers, shareholders or employees.⁶⁶

In contrast, the current AUCL only regulates "business operators" and not their employees or agents. ⁶⁷ The Draft Amendment emphasizes this point by adding a clause stating that the employers are "deemed" liable for their employees' conduct.⁶⁸

There are potential problems in the Draft Amendment in the following three respects:

First, the proposed language will continue to bring challenges from the employers. In the past, employers have complained that administrative penalties were imposed although they had no knowledge of their employees' corrupt conduct. However, there was no legal basis for their challenges as the word "employee" is not even mentioned in the statute. The Draft Amendment does not adequately address this issue and the employers likely will continue to believe they are being treated unfairly in such situation.

To avoid such challenges, the AUCL could add express language to address the concept of "vicarious liability." The legislator could follow the practice of the U.S. to require proof that the employees engaging in bribery intend to benefit their employer and act within the scope of their employment, instead of imposing strict liability.

Another approach is to follow the Criminal Law practice to establish the employers' vicarious liability. The Supreme People's Court has held that crimes committed by the employees or agents in the name of the employer and "with the illegal benefits belonging to the employer" are considered the crimes of the employer.⁶⁹

Secondly, if the law requires proof of vicarious liability and it has been duly established, affirmative defense or mitigating factors should be made available to all employers, not just the employers of bribe recipients. The Draft Amendment only includes "contrary to interest" as an affirmative defense for the employer of bribe recipients. As a practical matter, the bribe givers are more likely to be found to commit the offense to benefit their employers, whereas the recipients usually act for their own benefit. However, the legislation should not make such an overall assumption, since it is possible that a breach of the law will hurt a company's business in the long run, even though it may obtain temporary business opportunities through its employees' bribe giving activities.

In addition, the legislation should give more guidance as to what constitutes "contrary to interest." For example, it could specifically provide that the existence of an effective compliance and ethics program and self-reporting, cooperation, or acceptance of responsibilities may be used as a defense for vicarious liability under the AUCL. Similar guidance has been adopted by the U.S. Sentencing Commission as mitigating factors for employers' vicarious liability.⁷⁰ If an employer has (1) already had strict internal policies monitoring employees' behavior and prohibiting them from committing bribery, (2) indicated to the employees that violating the law does not benefit the company but is rather against the company's interest, and (3) reported any violations to SAIC immediately, the "contrary to interest" defense may be established.

Finally, given that the limited jurisdiction of the Draft Amendment does not cover an employee or agent who acts corruptly, such an act may be left unpunished under China's legal system when the bribe is of relatively minor value.⁷¹ The Criminal Law only penalizes individuals engaged in commercial bribery practices when the value of the unlawful payment is "relatively large."⁷²

SAIC could resolve this issue by revising the AUCL to cover the employees' liability. There is no legal barrier for an administrative agency to regulate individuals' conduct within China's legal regime, and there are precedents for SAIC to follow. For example, in a 2005 SAIC regulation named the Administrative Regulations on Direct Selling, companies engaged in "direct selling" and their employees may both be held liable for the offense.⁷³

3. Without the Employer's Consent

The commercial bribery statute in New York, as in most states in the U.S., requires the prosecutor to prove that the bribery is without the recipient's employer's consent or knowledge. As the courts have noted, "secrecy" is a necessary element of commercial bribery,⁷⁴ and the essence is "the corruption of the duty that an agent owes his principle,"⁷⁵ the logic being that if the recipient takes the bribe under the instruction of its employer, the bribe could presumably be considered as a promotional discount received indirectly by the company in the form of compensation to its employees who take the bribes.⁷⁶

The AUCL does not require this element. SAIC could thus, in theory, convict business activities such as a promotional discount which would otherwise be lawful in the U.S. However, given the fact that the AUCL is an anti-unfair competition law, one can presume that SAIC would not go after business activities that do not have anti-competitive effects.

4. Extraterritorial Jurisdiction

The Travel Act prohibits the use of foreign travel for criminal acts. Through the Travel Act, the U.S. state commercial bribery laws obtained extraterritorial jurisdiction.

Commentators have called for adding extraterritorial jurisdiction to the AUCL.⁷⁷ The Anti-Monopoly Law, which took effect in 2008, gives very clear extraterritorial jurisdiction to the statute, which covers foreign monopolistic practices that have the effect of eliminating or restricting Chinese market competition."⁷⁸ However, the Draft Amendment to the AUCL does not include such language. Given that more and more Chinese companies commit commercial bribery or other unfair competition activities abroad,⁷⁹ jeopardizing the fair competition or customers' interest in China, the legislator should consider adding similar language to the AUCL.

5. Books and Records

While the commercial bribery statutes in the U.S. do not regulate accounting violations, Section 13 of the Securities Exchange Act of 1934 requires all the registered issuers to make and keep books, records, and accounts, which "in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." A violation of this requirement is often prosecuted under the FCPA.⁸⁰ "Registered issuers" refers to issuers who trade securities on a national securities exchange.⁸¹

Article 7(2) of the Draft Amendment provides that any payment of economic benefits, if not reflected in the books and records, is commercial bribery. It draws no distinction among listed, private, large or small companies.

The language is not clear as to whether the offense under Article 7(2) also requires proof of the "intent" element, i.e. "to seek a transaction-related opportunity or a competitive advantage for the business operator," which is included in the general definition of "commercial bribery," or alternatively, it intends to regulate any accounting violation, e.g., any mis-categorized payment without a corrupt intent. In effect, SAIC and the AUCL may not have jurisdiction over purely accounting violations, which are governed by other statutes, e.g., Accounting Law and Regulations on Business Enterprise Financial Reporting.

Therefore, the legislative intent is presumably targeting the hiding or mis-categorization of corrupt payment only, not any payment. In this case, Article 7(2) is redundant, since making a corrupt payment is already commercial bribery under the definition, and failing to record such payment does not add anything.

It is understandable though, that SAIC wants to add Article 7(2). Given SAIC's own experience, accounting violations are frequently an indication of commercial bribery. Imposing penalties on accounting violations under the commercial bribery statute may encourage companies to keep proper books and records. It may also make it easier for SAIC to discover unlawful payments. However, the proposed draft runs the risk of imposing undue burden to business operators, especially small companies. Expenses for compliance with the record and book keeping requirements could be high.

A more sensible approach would be to use more flexible language, leave more discretion to SAIC, and give more guidance as to the level of details of the payments. For example, it may include language such as "reasonable detail," as in the Securities Exchange Act. It could also stay consistent with the requirements under the Accounting Standards for Business Enterprises - Basic Standards (2016), which requires that accounting information shall reflect all "important transactions or events" that relate to its financial position, operating results and cash flows.⁸²

C. Bribery Involving Public Service

The Draft Amendment broadened the definition of "business operators" to include private entities engaging in public service or public service entities, such as public schools, public hospitals, etc., and Article 7(1) specifically proscribes business operators from soliciting bribes in the performance of public service.⁸³ This provision has its counterpart in U.S. federal criminal law.

Under 18 U.S.C. §§666 (a)(1) & (2), soliciting or demanding and giving or offering a bribe in connection with non-governmental agencies receiving annual federal funds of $10,000 or more is a federal crime.⁸⁴ The Department of Justice must also prove that the bribe-giver acted corruptly with the intent to influence or be influenced in connection with the transaction, ⁸⁵ and that the transaction had a value more than or equal to $5,000.⁸⁶

D. Other Relevant Statutes

The following statutes, among others, have also been used to combat commercial bribery in the United States:

For example, RICO is usually used to combat systematic and more serious organized crimes, including commercial bribery. Different from the Travel Act, it requires that the accused participated in the operation of an enterprise through "a pattern of racketeering activity."⁸⁷ Racketeering activity includes "bribery.... which is chargeable under state law and punishable by imprisonment for more than one year."⁸⁸ A pattern is established by proving that the defendant committed two or more illegal acts of the type associated with organized crimes.⁸⁹

Commercial bribery cases are also prosecuted under the Mail and Wire Fraud Act ("Mail Fraud Act"). The Mail Fraud Act targets fraudulent transactions, which requires elements of "(1) a scheme to defraud, which includes a scheme to deprive another of the intangible right of honest service; (2) an intent to defraud; and (3) use of the mails or wires in furtherance of the scheme."⁹⁰ Although mostly used to prosecute public officials who take bribes, courts have held that a purely commercial bribery scheme also constitutes "a scheme to defraud", if the bribe recipient misuses his fiduciary relationship for gain at the expense of the party to whom the fiduciary duty is owed.⁹¹

Section 2(c) of the Robinson – Patman Act proscribes the payments of brokerage fees, commissions, and other compensation to an agent or intermediary of the counterparty in relation to the sale of goods.⁹² Courts have held that the Act prohibits bribery in the sale of goods.⁹³ Although the major enforcement agency of the Robinson-Patman Act is FTC, commercial bribery conduct violating Section 2(c) has usually been used in private actions brought by an injured party.⁹⁴ Similarly, Section 1 of the Sherman Act, which prohibits the formation of combinations and conspiracies in restraint of trade,⁹⁵ has frequently been used to bring private actions for commercial bribery violations.⁹⁶

IV. CONCLUSION

Proposed changes have been made to the commercial anti-bribery provisions in articles 7 and 20 of the Draft Amendment to better adapt to the growth of the Chinese economy, to conform to other overlapping legislations and to provide more clear enforcement guidance to the enhanced anti-corruption efforts by the government. Compared to the current AUCL, the Draft Amendment also broadens the scope of what constitutes a commercial bribery offense to include a corrupt payment made to any party, and for the first time makes it clear that a business operator engaged in non-profit business may be held liable for commercial bribery the same as for-profit business operators.

The proposed language in Article 7 of the Draft Amendment is similar to what has been adopted in the U.S. commercial bribery laws. There are still a few differences between the U.S. practice and Article 7, some of which may be taken into consideration by the legislator in the next draft:

First, the burden of proof of the offense under the Draft Amendment needs clarification. Currently many courts apply a "beyond reasonable doubt" standard to cases involving jail time or confiscation of large amounts of personal property and a "preponderance of evidence" standard to administrative judgments in other cases, but some do not follow this practice.

Second, further clarification and amendments are required to better address the relationship between employees and employers in a commercial bribery context. For example, an employer's vicarious liability should be established before being held liable. Clearer guidance on affirmative defense or mitigating factors for the employer's liability needs to be provided and applied equally to both the bribe giver's as well as recipient's employer.

Third, an employee's liability, when the bribe amount is relatively small, is addressed in neither the Draft Amendment nor the Criminal Law. Adding a provision to such effect would close or at least reduce the loophole.

Fourth, the legislation should draw a distinction between legitimate commercial promotional behavior and bribery. Whether or not the employer of the bribe recipient consents to the gift is an important differentiating factor. For example, when a private company consents to a gift received by its employees, even though the giver's intention may be to seek competitive advantage, it may be considered a form of legitimate discount, not a bribe.

Fifth, one of the main purposes of the AUCL is to limit the ability of business operators to compete unfairly by the use of bribery. Considering that more and more Chinese companies are competing for business overseas, the inclusion of extraterritorial jurisdiction would be appropriate.

Finally, with regards to Article 7(2) which requires companies to record economic benefits received or given, there is no qualification as to the size of the company or guidance as to the level of detail of the book keeping requirements which can put smaller companies at a disadvantage due to the high cost of compliance. Leaving more discretion to SAIC and conforming to already established accounting standards would be more sensible.

To read this article in full together with footnotes, please click here.

Originally published by Tsinghua China Law Review.

Special thanks to our intern Shuchen Gong and our colleague Bodi Jia for their hard work on the research and editing of this essay.

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