Kyle Wombolt, global head of corporate crime and investigations, and Anita Phillips, a professional support consultant, have published a guide to corporate investigations in China. This forms part of GIR’s acclaimed 2018 text, The Practitioner’s Guide to Global Investigations, available in print and online. Our chapter covers the legal and regulatory framework in China, running an internal investigation, dealing with cross-border investigations and responding and reporting to the Chinese authorities.
Since publication, there have been two key legislative and regulatory developments, as highlighted below.
The legal framework for civil bribery and IP-related offences like passing off, false advertising and trademark infringement was updated in January 2018. The amended Anti-Unfair Competition Law (AUCL) represents a mixed bag for corporates, with some revisions representing a subtle widening of offences, whilst others narrowing their exposure. In terms of civil bribery, the scope of prohibited activity is now slightly broader, the categories of bribe recipient include state as well as private entities and individuals, and vicarious liability for acts of employees is expressly presumed. However, transaction counterparties are excluded from the categories of bribe recipients and demand-side bribery is no longer addressed. Overall, the AUCL confers enhanced enforcement powers on administrative authorities and increases civil and administrative penalties for unfair competition. The authorities wasted no time deploying the new law, with fresh investigations concerning alleged passing off and false advertising commencing immediately in January. Recent statements from the China’s State Intellectual property Office have highlighted China’s enhanced IPR regime, in part thanks to the updated AUCL. To date, published cases invoking the new law have all concerned trademark infringement. We await enforcement of the amended civil bribery provisions.
In terms of China’s regulatory framework, various announcements were made at the 13th National People’s Conference, including the creation of the powerful National Supervision Commission (NSC). This merges the Party’s anti-graft watchdog, the Central Commission for Discipline Inspection, with other anti-graft departments, including the Ministry of Supervision. The NSC will monitor misconduct by China’s 90 million Communist Party members but also managers of state-owned enterprises, hospitals, educational and cultural institutions, sports organisations and provincial and local government organs. This places an additional 60 million people under the organisation’s remit. The NSC has been granted wide-ranging powers including rights to interrogate, detain (up to six months without charge), freeze assets and search premises. Although multinational companies will not fall directly under the NSC’s purview, there is an increased risk that companies will become caught up in NSC investigations targeting the business dealings of state-owned entities and individuals. Companies should remain mindful of the heightened anti-corruption environment when investing in or setting up operations in China, particularly interactions with public officials and managers of state enterprises or bodies. The NSC represents the high watermark of president Xi Jinping’s five year anti-corruption campaign and there will no doubt be an uptick in surveillance and investigations in light of its creation. Recent figures indicate that in the last five years, almost 200,000 corruption and bribery cases involving over 250,000 individuals have been heard. Over US$150 million is estimated to have been recovered to date by the Chinese authorities.