Nov 22, 2017
On 4 November 2017, the Standing Committee of the National People’s Congress (“NPC”) adopted the amended Anti-Unfair Competition Law of the People’s Republic of China (“New AUCL”), which will go into effect on 1 January 2018. At that time, the Anti-Unfair Competition Law (“Original AUCL”) will be retired after approximately 25 years of implementation.
The New AUCL consists of five chapters: General Provisions, Unfair Competitive Behavior, Investigations into Suspected Unfair Competitive Behavior, Legal Liabilities and Supplementary Provisions. The New AUCL revises a number of aspects of the Original AUCL, including (a) an expanded definition of business operator to include “non-profit” business operators; (b) amended definitions of acts of confusion, commercial bribery, false publicity, trade secret infringement, prize sales and commercial defamation; (c) new provisions on the regulation of unfair Internet competition; (d) eliminating prohibitions on unfair competition for public utilities, abuse of administrative powers, dumping, tie-in sales, and bid-rigging; and (e) strengthening the investigation powers of enforcement agencies and penalties for violations.
This article will analyze provisions on commercial bribery (which is a highlight of the New AUCL), and provide compliance advice for business operators.
1. Excluding Transaction Counterparties from the Scope of Commercial Bribery Recipients
Article 7.1 of the New AUCL explicitly provides that bribe-taking entities include three categories of entities or individuals, i.e., (1) employees of the counterparty; (2) an entity or individual entrusted with the relevant affairs by the counterparty; and (3) an entity or individual that influences a transaction using its authority or influence. The “counterparty” itself, however, does not fall within any of the three categories of bribe-taking entities. Literally, this means that under the New AUCL, benefits offered by a business operator to its counterparty in a transaction will generally no longer be treated as commercial bribery so long as the benefits are truthfully recorded in the account book. This amendment is consistent with relevant rules under PRC Criminal Law and marks a major breakthrough in China’s administrative enforcement against commercial bribery, because exchanges of benefits between companies have historically come under close scrutiny by the State Administration for Industry and Commerce (“SAIC”) and local AICs in their crackdown against commercial bribery. In practice, there are a large number of improper interventions against the legitimate exchange of benefits and cost allocation between enterprises.
This amendment is quite positive, because companies that offer “rewards, sponsorships, or economic benefits to business counterparts generally will not be deemed as engaging in bribery under the New AUCL, as long as the benefits are given to a company and not its employees. However, it must be advised that this does not mean that all financial arrangements between companies would not be considered commercial bribery under the New AML. We still need to continue closely following the interpretation and enforcement of Article 7 in practice.
2. Benefits Offered to State-owned/Public Entities would Likely Constitute Commercial Bribery
Article 7 of the second draft of the AUCL published by the NPC for public comments (“Second Draft”) provided that bribe-taking entities include four categories of entities or individuals: (a) employees of the counterparty; (b) entities or individuals entrusted with relevant affairs by the counterparty; and (c) state organs, state-owned companies and enterprises, public institutions or people’s groups, or state functionaries; or (d) any other entities or individuals that may take advantage of the positions of state functionaries to influence transactions. It is clear that the Second Draft didn’t exclude all kinds of “counterparties” from bribe-taking entities. Instead, a state-owned/public entity can be a statutory bribe-taking entity.
In the third round of legislative review, according to the review report of the NPC, the members of the NPC standing committee did not suggest removing state-owned/public entities from the scope of the bribe-taking entities, but rather suggested combining categories (c) and (d) above into one category, i.e., entities and individuals that influence a transaction using authority or influence.
Based on the above information, we understand that although the New AUCL does not explicitly list “state organs, state-owned companies and enterprises, public institutions or people's groups” as a category of bribe-taking entities, it seems that the NPC does not intend to exclude such state-owned/public entities from the scope of commercial bribery recipients. Therefore, benefits offered to such state-owned/public entities would still likely constitute commercial bribery. We suggest that companies exercise caution when dealing with state-owned/public entities, and await further interpretation from the competent authorities.
3. Recommendations when Offering Benefits to Private Companies
As mentioned above, the benefits offered to private companies generally will not be deemed as commercial bribery under the New AUCL. Nevertheless, we still have the following recommendations:
As one of the fundamental laws for the market competition, the New AUCL will certainly exert significant impact on the business behavior and compliance obligations of all market players. We recommend business operators closely follow any effects the New AUCL may have on your business, especially the types of behavior which could constitute commercial bribery, and promptly seek advice from Chinese legal counsel to avoid violating provisions on commercial bribery and other kinds of behaviors prohibited by the New AUCL. Moreover, business operators should closely monitor law enforcement practices of the AICs to mitigate their legal risks.