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China demonstrates intent to clean up corruption through law change

Thomson Reuters Accelus - Wed, 23 Mar 2011 12:18 GMT
Author: Complinet
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The Chinese government has started to make inroads in its commitment to clean up corruption in the country by undertaking a review of the Criminal Law of the People's Republic of China. The review has prompted significant changes to be made to Article 164 of the law, which deals with the bribery of foreign public officials in a commercial context. The addition of a commercial bribery offence under Article 164, according to law firm Baker & McKenzie, is striking as it suggests that China's law enforcement bureaus are beginning to put foreign activity under scrutiny. What is also significant is that the amendments add to a provision which addresses bribery between and among commercial parties — an explicit reference to foreign public officials and international public organisations, according to Beatrice Schaffrath, a partner at Baker & McKenzie in Beijing. The amendments to the law will come into effect on May 1, 2011. Schaffrath, who specialises in the area of compliance, said that the revisions to Article 164 could have far-reaching implications for companies that operate in China — be they home-grown Chinese companies or foreign-invested Chinese companies. A recent publication from Baker & McKenzie provided an English translation for the revised Article 164. It stated: "If anyone, in order to obtain an unfair commercial benefit, gives property to a foreign public official or the official of an international public organization, then s/he shall be punished in accordance with the provisions of the preceding paragraph." Schaffrath said that the revisions sent a strong message to China-based companies that their international commercial transactions would be subject to scrutiny and that bribing foreign public officials, be it inside or outside of China, will not be acceptable and thus can be subject to criminal sanctions. She also pointed out something that will only become clearer when revised Article 164 is implemented — that of enforcement priorities. "It is unclear whether the intended targets of the revised provision are Chinese companies involved in acts of bribing foreign public officials abroad, or foreign-invested enterprises in China involved in such acts. It seems that both are possible," she said. Although revised Article 164 does not state explicitly whether it applies to acts of corruption undertaken outside of China by China-based companies (whether they are home-grown or foreign-invested), Schaffrath thinks that the extraterritorial reach of the law is inevitable. According to the Baker & McKenzie publication, "Article 6 of the Criminal Law deems as crimes occurring within China, those crimes which take place outside of China, but which have 'consequences' within China. Conceivably, an arrangement under which a China-based company, in order to obtain an unfair commercial benefit, bribes a foreign public official in some foreign nation, can be said to have consequences in China — if only because the benefit which it might obtain from that bribe, would impact that China-based company." Motivations behind law amendments There has been speculation that the latest revisions to Article 164 could be tied to increasing outbound activities of Chinese entities (both of home-grown and foreign-invested enterprises) outside China, as well as those of Chinese entities and foreign companies in China. Lawyers specialising in Chinese law said a lot of these activities had to do with the increasing number of foreign firms setting up regional bases in China for their businesses in Asia. The latter trend, they said, was in part due to several laws instituted a few years ago by the Chinese government which encouraged foreign firms to set up their regional headquarters in China. Schaffrath saw a number of factors as possible drivers behind the change in law. She pointed to China's increasing involvement in the international arena including its participation in various international anti-corruption agreements, such as the United Nations Convention Against Corruption, as likely incentives for China's government to demonstrate its commitment to anti-corruption. She said China was examining and adjusting its regulatory and enforcement regime to address the international regulatory landscape. The hanging questions Given the extra-territorial implications of revised Article 164, Schaffrath said it remains to be seen what mechanisms and resources the Chinese government will put in place to carry out this amended provision. If the latest amendments to Article 164 are also aimed at eradicating bribery acts outside China, she said there would be a number of important questions to address. These include: how much capacity and resources the relevant law enforcement bureaus in China have to carry out monitoring and investigative work outside China; and whether there will be substantive means and avenues for enhanced corporation between those China bureaus and their counterparts in jurisdictions outside China. Schaffrath said she was "cautiously optimistic" about the likely outcomes for affected businesses. "The revisions to Article 164 are significant but it's too early to say whether it is a breakthrough. The value and impact of the revisions will be clearer once we see when and how the new provisions are interpreted and enforced by China's courts and law enforcement bureaus," she said.

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