Amendment of the Anti-Unfair Competition Law
Amendments to the Anti-Unfair Competition Law of the People’s Republic of China (AUCL) were passed last year, rewriting the anti-bribery legal regime. The amended AUCL became a weapon in the arsenal of the Chinese government on 1 January 2018. For a summary, please see our Global Bribery and Corruption Outlook 2018.
Since enactment of the amended AUCL, enforcement actions have, in our observation, slowed. There are multiple reasons for this, including the slowdown of China’s economy, resulting changes in enforcement priorities, as well as confusion while the authorities try to understand the scope of the law. Indeed, some investigations based on “novel” interpretations of the previous AUCL came to a standstill when the amendments to the law took effect. The few published enforcement actions have tended to focus on bread-and-butter acts of bribery. Examples include payments of kickbacks and channeling of improper benefits, particularly in the life sciences sector.
Enactment of the Supervision Law
The National People’s Congress also enacted the Supervision Law of the People’s Republic of China (Supervision Law) on 20 March 2018. It’s another milestone in the ongoing anti-corruption campaign led by the current administration.
The Supervision Law forms the National Supervisory Committee as the highest supervisory entity exercising monitoring power, and its branches at provincial, municipal, and district levels.
The Supervisory Committee can exercise power over a broadly defined group of “public officials.” These include civil servants of Communist Party organs, the organs of people’s congresses and their standing committees, people’s governments, supervision committees, people’s courts, people’s procuratorates, the organs of the committees of the People’s Political Consultative Conference at all levels, the organs of democratic parties, the organs of federations of industry and commerce, and other persons subject to the Law of the People’s Republic of China on Civil Servants; persons who engage in official duties in organizations that administer public affairs upon authorization by laws and regulations or entrustment by state organs under the law; management personnel of state-owned enterprises; persons who engage in management in publicly run education, research, culture, medical and healthcare, sports, and other institutions; persons who engage in management in grass-roots people’s self-governing organizations; and other persons who perform public duties under the law.
The Supervisory Committee is empowered to educate and supervise public officials; investigate public officials’ violations and crimes (such as bribery, abuse of power, dereliction of duty, improper transfer of benefits, favoritism, and waste of state assets); punish non-compliant public officials through administrative disciplinary actions (e.g., warnings, records of demerits, demotion, removal from office, and dismissal of officials); and transfer the case to the people’s procuratorates for criminal proceedings if the misconduct constitutes a crime.
The Supervisory Committee can carry out investigations, including collecting evidence and questioning witnesses. It can seize properties or documents, and detain the public officials subject to investigation under certain conditions. In 2018, we saw investigations aggressively launched by local supervisory committees across the country, with a focus on healthcare providers, hospitals, and medical associations in the life sciences sector. In a number of these investigations, local supervisory committees have sought cooperation from multinational businesses in developing evidence. This was despite the fact that supervisory committees have no direct jurisdiction over such businesses.
Reorganization of the market regulators
To streamline the framework on market regulations, the National People’s Congress, by adopting the Decision of the First Session of the 13th National People’s Congress on the State Council Institutional Reform Proposal on 17 March 2018, created the State Administration for Market Regulation (SAMR), and its local branches, as a unified market regulator. This act stands as the single largest reorganization of enforcement authorities in modern Chinese legal history.
The SAMR absorbed the former State Administration of Industry and Commerce (the regulator of all business conduct in China); the General Administration of Quality Supervision, Inspection, and Quarantine (the product quality regulator); the Food and Drug Administration; the price supervision and anti-monopoly functions of the National Development and Reform Commission; the anti-monopoly function of the Ministry of Commerce; and the functions of the Anti-Monopoly Commission of the State Council, the Food Safety Commission of the State Council, the Certification and Accreditation Administration, and the Standardization Administration.
According to the Provisions on the Functions, Structure, and Staffing of the State Administration for Market Regulation, which came into force on 30 July 2018, SAMR assumes responsibility for 17 major functions. These range from day-to-day market regulation, registration of business undertakings, anti-monopoly enforcement, product quality control, and food safety, as well as measurements and standardization. As the former State Administration of Industry and Commerce, SAMR will continue to act as the enforcement authority of the anti-commercial bribery provision and the other provisions of the amended AUCL.
The immediate impact of SAMR has been modest, as the component regulatory and enforcement components jockey for position. In the long run, the hope is SAMR will streamline regulatory enforcement efforts, and eliminate some of the inconsistent and often contradictory enforcement by different agencies with overlapping jurisdiction.
The new criminal blocking statute of China
On 26 October 2018, the Standing Committee of the National People’s Congress enacted the Law of the People’s Republic of China on International Criminal Judicial Assistance (ICJA Law). The ICJA Law specifies procedures for criminal judicial assistance between China and foreign countries, including service of documents, evidence collection, witness testimony, freezing, seizure, and confiscation of assets, and transfer of convicted persons.
The ICJA Law reiterates the long-standing principle established in civil cases: that such international criminal judicial assistance shall not harm the sovereignty or security of the country, the public interest of society, or violate the basic principles of the PRC laws. It’s noteworthy, however, that Article 4 paragraph 2 of the ICJA Law provides further: “Without the approval of the competent authority of the People’s Republic of China, foreign agencies, organizations, and individuals shall not initiate criminal proceedings hereunder within the territory of the People’s Republic of China, and agencies, organizations, and individuals within the territory of the People’s Republic of China shall not provide to a foreign country any evidentiary material or the assistance set forth hereunder.”
Some commentators believe this new provision is China’s response to the growing and more aggressive use of long-arm jurisdiction of some countries (such as the United States) against China-based individuals and entities. This provision bans on its face any agency, organization, or individual in China from providing criminal evidence to a foreign government authority (such as the U.S. Department of Justice), or otherwise assisting the conduct of activities within China to further criminal proceedings by a foreign government authority, without seeking and receiving approval from the Chinese government in advance.
However, it remains a question how broadly this provision will be interpreted and enforced; also, how it may influence a multinational company’s internal investigations in China. For example, while the provision arguably won’t apply to routine company-initiated internal investigations, there’s a risk that giving evidence to foreign headquarters, which is subsequently used in a criminal proceeding, could potentially be considered a violation of the ICJA Law. It’s also noteworthy that the ICJA Law itself doesn’t contain any penalty provision. And as noted above, the principle of the ICJA Law has been in place for many years in the civil context, preventing parties from taking depositions or witness testimony in China to further foreign civil proceedings.
Given the increasing attention by foreign authorities on China-based conduct, it will be important to monitor closely the implementing guidelines and the enforcement of the ICJA Law before opining on the true significance of the new blocking statute.