Has Commercial Bribery Been Refined?

China’s New Anti-bribery Law

The new amendment to the Anti-Unfair Competition Law has been first since it was enacted in 1993. The amended AUCL draws on the lessons learned during the past two decades to make some major changes.

Co-authored by: Lei Shi and Feifei Yu

The Standing Committee of the National People’s Congress of the PRC has taken a remarkable step in their outlawing of commercial bribery in China by promulgating an amended anti-unfair competition law. The PRC Anti-Unfair Competition Law (AUCL), which governs commercial bribery, was amended on 4 November 2017, the first amendment to the law since its original enactment in 1993. The amended AUCL draws on the lessons learned during the past two decades to make some major changes.

Under the 1993 version of the AUCL and its subsidiary regulations, commercial bribery was defined only vaguely, leading to inconsistent interpretation by national and local regulators.  Certain types of payments between parties to a transaction have been categorized as bribes, even though they do not fall within the traditional and widely accepted understanding of bribery.

One example is so-called “shelf fee”, where a supplier pays a monetary sum to a supermarket or a retailer in exchange for a more prominent location on the shelves for its products.  While accepted as the usual practice in many countries, such payments have been targeted by some PRC local regulators as commercial bribery, on the basis that such payments may not have been accurately recorded in contracts, books or records. A few of those regulators have expressed an even more aggressive view, i.e. even if such payments are documented, they would still be treated as commercial bribes under the AUCL because of a concern that they are inherently anti-competitive.

The new legislation appears to suggest a departure from this position.  Paragraph 1 of Article 7 re-narrows the definition of bribery recipients as including (a) employees of the transaction counterparties, (b) entities or individuals entrusted by the transaction counterparties to handle relevant matters, and (c) entities or individuals that take advantage of their positions or influence to affect the transactions.

This could be read to exclude the direct counterparties to a transaction from potential bribery recipients, an interpretation supported by some officials from PRC enforcement agencies.

However, other limbs of the legislation cast doubt on this interpretation.  Paragraph 2 of Article 7 maintains the same books and records provision as contained in the 1993 version.  Article 19 appears to indicate that any violation of Article 7 will be viewed as a bribery issue.  Accordingly, the law may still treat as commercial bribery any direct payments between transaction counterparties if the provision or receipt of benefits is not properly documented in contracts or accurately recorded in the parties’ books and records.

In addition, the transmission of certain types of benefits between transaction parties remains prohibited by industry-specific regulations.  In the healthcare sector, for example, the current PRC Pharmaceutical Administration Law prohibits pharmaceutical manufacturers, dealers and medical institutions from offering or accepting kickbacks or other benefits off the books.

In light of the above, it may be premature to conclude that Article 7 of the amended AUCL has fundamentally changed the definition of commercial bribery.  Further clarification from the State Administration for Industry and Commerce (SAIC) will be necessary if the inconsistent understandings and practices of local regulators are to be standardized.

Another notable feature of the amended AUCL is the express provision regarding employers’ vicarious liability.  According to Paragraph 3 of Article 7, where an employee commits bribery, this shall be deemed to be an act undertaken by the employer, unless the employer can prove that the employee’s action was irrelevant to the employer’s seeking transaction opportunities or a competitive advantage.

The law is not crystal clear on the applicable test for this exception, whether the focus is on the objective impact of the employee’s conduct on the employer’s interests, or on the subjective intent of the employer and/or the employee.  This again calls for further practical guidance from the SAIC and its local branches.  In any event, with the introduction of this new provision, PRC regulators may have more incentive to pursue employers in respect of their employees’ misconduct in the bribery sphere.

What is clear is that the amended AUCL could provide a greater degree of consistency in the enforcement of China’s anti-corruption laws if some additional interpretive guidance is provided to the local enforcement agencies and companies seeking to comply in their business practices.