Draft Amendment to the Anti-Unfair Competition Law

On November 22, 2022, the State Administration for Market Regulation of China (SAMR) released for public comment draft revisions to the Anti-Unfair Competition Law (AUCL). While SAMR’s proposals would modify the AUCL’s disciplines on a wide range of deceptive and unfair commercial practices, proposed refinements to the AUCL’s rules against commercial bribery substantially raise the stakes for antibribery compliance in China.

Bribe offerors v. Bribe recipients

The AUCL provides for the general prohibition of commercial bribery against business operators in China under an administrative law regime, which offense does not amount to a crime but attracts administrative law penalties such as fines, revocation of business license and other sanctions against corporate offenders. However, the current AUCL anti-bribery provisions only specifically target business operators who commit the offending acts of offering commercial bribes. In the past, this has caused significant uncertainty for corporates in the China market as to whether by extension, the same prohibitions should also apply to bribe recipients. The draft revisions would now extend the AUCL’s prohibition of commercial bribery to bribe recipients.

Principals v. Agents

While past enforcement practices among local SAMRs indicate that business operators would be punished if the bribes are provided by their agents, the current AUCL anti-bribery provisions do not specifically clarify this principal and agency principle. The draft revisions now make it clear business operators are prohibited from providing bribes “either by themselves or by instigating others”.

Entity Bribery

The original 1993 commercial bribery rules of the AUCL was often construed to prohibit the provision of incentives and benefits to commercial counterparties as entities (as opposed to the employees of counterparties). Although amendments in 2017 appeared to narrow the scope of commercial bribery recipients, enforcement actions continued to target distributor incentive and sales promotion schemes as commercial bribery. On October 29, 2020, SAMR issued new Interim Provisions on the Regulation of Sales Promotion (PRSP). Article 9 of these measures provides that “a business shall not, under the guise of sales promotion, bribe others through property or other means in order to seek trading opportunities or competitive advantages.” The draft revisions echo this language and the recent enforcement principles, prohibiting the provision of bribes to transaction counterparties (entities) for the purpose of seeking transaction opportunities or competitive advantages.

Increased Penalties

The draft revisions would dramatically increase the upper limit of administrative penalties against commercial bribery from RMB 3 million (approx. USD 420,000) to RMB 5 million (approx. USD 700,000) while the lower limit would remain unchanged at RMB 100,000 (approx. USD 14,000). The same penalty range would apply to both the offenses of offering and accepting commercial bribes.

Takeaway

The proposed revisions to the AUCL would increase the penalties for commercial bribery and codify broad targeting of bribery through intermediaries, bribe recipients, and “entity bribery” offenses. Companies active in China should update internal policies and procedures to track AUCL amendments, train employees and third-party business partners based on updated standards, conduct periodic compliance audits, and update the compliance terms of contracts and agreement templates. In particular, companies should ensure that their anticorruption and competition compliance procedures account for China’s unique “entity bribery” rules.