Legal experts at Baker & McKenzie give fresh guidance on new anti-bribery laws in China, which carry significant implications for foreign investors into the country.

Editor's note: The article was prepared by the following Baker & McKenzie lawyers: Beatrice Schaffrath, partner, Baker & McKenzie, Beijing; Michelle Gon, partner, Baker & McKenzie, Shanghai; and Richard Wagner, Baker & McKenzie LLP. This publication is very grateful to the firm for being allowed to republish this item.

Revisions to China’s Criminal Law Signal Scrutiny of Foreign-Related Activities

The latest revisions to Article 164 of the Criminal Law of the People’s Republic of China (“Criminal Law”), which were announced in late February 2011, suggest that a more international focus by China’s law-enforcement bureaus will be involved in China’s overall efforts to combat what some of its leaders have referred to as China’s problem of “rampant” corruption.

On its face, the changes to Article 164 appear slight. The new provision itself is not very long – it adds one sentence. But this sentence is novel in that it targets bribery, in a commercial context, of foreign public officials (i.e. the officials of a foreign (non-China) country or of an international organisation). And, the reach of this provision is potentially extra-territorial – the bribery of a foreign official abroad, by a Chinese national, a Chinese company, or an employee of a Chinese company, could lead to a violation of Article 164 and thus could be prosecuted in China.

Official news releases suggest that the revisions to Article 164 were motivated, in part, by China’s international treaty commitments. A first-of-its-kind White Paper issued by the State Council late last year, China’s Efforts to Combat Corruption and Build a Clean Government, among other things, highlights China’s efforts to increase its role in international cooperation concerning anti-corruption. And, the recently-unveiled outline of China’s Twelfth Five-Year Plan (2011-2015) echoes those ideas, while also expressing China’s resolve to strengthen its anti-corruption efforts domestically.

Further-revised Article 1643

The text of Revised Article 164, in translation, is set out below (with the key changes underlined):

If anyone, in order to obtain an improper benefit, gives property to the working personnel of a company, enterprise or other unit, and the amount is comparatively large, that person shall be sentenced to a fixed term of imprisonment or criminal detention of not less than three years. However, if the amount is very large, then the person shall be sentenced to a fixed term of imprisonment of more than three but not greater than ten years in addition to a fine.

If anyone, in order to obtain an unfair commercial benefit, gives property to a foreign public official or the official of an international public organisation, then s/he shall be punished in accordance with the provisions of the preceding paragraph.

If a unit commits the crime specified in the two preceding paragraphs, the unit shall be sentenced to a fine and the main perpetrators, as well as those who are directly responsible, shall be punished in accordance with the provisions of the first paragraph.

If the person who offers a bribe voluntarily confesses his/her act of bribery before s/he is prosecuted, his/her/its punishment may be mitigated or exempted.

Unlike the phrase “improper benefit” in the first paragraph of Article 164, the new sentence uses the phrase “unfair commercial benefit”. The reason for the different terms is not yet clear. Nonetheless, the idea seems to build upon concepts in other of China’s laws and regulations concerning commercial bribery. For instance, Article 2 of China’s Anti-Unfair Competition Law requires companies to abide by generally-accepted business ethics, and to play fairly in the market place.

Significance to foreign investors in China

In most cases, foreign investors operating in China will be subject to the new provisions in Article 164. Foreign persons or foreign companies who operate in China often do so via their investment in companies which are established in China (e.g., sino-foreign joint venture companies, wholly foreign-owned enterprises). Such foreign-invested Chinese companies, as all Chinese persons and entities in China must, are required to abide by China’s laws, including its criminal law.

Under Revised Article 164, when foreign-invested Chinese companies operate abroad, the PRC nationals who are their employees must not engage in bribery of foreign public officials. And, when such foreign-invested Chinese companies operate outside of China, the company itself, as further discussed below, is likely to be subject to the new anti-foreign-official-bribery provisions of Revised Article 164.

Extraterritorial effect, unit involvement?

While it remains to be seen how Revised Article 164 will be implemented in practice, it seems that it would also apply, not only to PRC nationals, but also to those entities which are established in China, regardless of whether they are foreign-invested (collectively, “China-based companies”).

Revised Article 164 clearly applies to PRC citizens who pass a bribe to foreign officials in foreign countries. Article 7 of the Criminal Law states that the Criminal Law applies to citizens of China who commit, outside of China’s territory, crimes which are specified in the criminal law.

The more compelling implication, perhaps, is that Revised Article 164 applies to those acts by China-based companies that take place outside of China. The Revised Article 164’s third paragraph clearly prohibits bribery, by a “unit”, of those officials of foreign governments or of international public organisations.

Although Revised Article 164 itself is silent as to whether its new anti-foreign-official-bribery provisions are also applicable to bribery acts undertaken, outside of China, by China-based companies – e.g., a bribe paid by a China-based company to a foreign official in Angola – the extraterritorial aspect of the Revised Article is likely. 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.

Another enforcer on patrol?

China-based Companies, in growing numbers, are investing outside of China – and they are challenged by the corruption risks which often arise in situations where there is increasingly fierce competition for the resources, commodities, and market opportunities which these investment destinations offer.

The Criminal Law’s revisions to Article 164 signal to China-based companies that bribery of foreign public officials, whether inside or outside of China, is not acceptable – and is a reminder to these companies to “do good and play fair” in the international marketplace, or be subject to criminal sanctions in China if they fail to do so.

The amendment to Article 164 was implemented on 1 May 2011.