22 February 2022 • 4 minute read
Raising the Bar on Blowing the Whistle: China’s New Whistleblower Rewards Measures Provide Additional Incentives (and Controls) for Whistleblowing
Synopsis
China’s new Whistleblower Rewards Measures provides up to RMB1 million (approx. USD157,000) in rewards for the reporting of major violations of China’s various market conduct regulations. The regulations aim to provide greater incentives to whistleblowers and deter illegal activities in the market more effectively, particularly in light of the increased importance of whistleblowing across different industries in China in recent years. In light of these new measures, companies with operations in China should implement or strengthen their internal controls and reporting mechanisms.
Article
On December 1, 2021, the Interim Measures for Rewards for Whistleblower Reports of Major Violations in the Field of Market Regulation (Interim Measures) issued by the State Administration for Market Regulation (SAMR) and the Ministry of Finance (MOF) came into effect. The Interim Measures establish SAMR’s first set of comprehensive rules surrounding the reporting of “major violations” of China’s various market conduct regulations.
In short, the Interim Measures provide that a whistleblower will be awarded a monetary sum when all of the following conditions are satisfied:
- The report relates to a “major violation of laws” (defined as a suspected crime or an illegal act for which administrative punishments such as suspension/shutdown of production and business, revocation/cancellation of licenses, and relatively large amounts of administrative fines should be imposed, or illegal gains confiscated);
- There is a clear subject against which a report is filed and there are specific facts or clues suggesting violations, and crucial evidence is provided. This specific requirement suggest that spurious reports will not qualify, and that the authorities to which a report is made will ultimately assess what facts and evidence are provided in support;
- SAMR is not already aware of the contents of the report, before the report in question is made; and
- The whistleblower reports are substantiated upon investigation, and the cases have been closed. Similar to the scheme in other countries (such as the U.S.), a report and its supporting facts will need to be substantiated by the authorities following their own investigative and enforcement processes.
The Interim Measures provide three tiers of whistleblower rewards. At its highest, monetary awards issued will be capped at RMB1 million (approx. USD157,000).
As a practical matter, the very technical nature of certain industries, such as food and pharmaceuticals, may make it easier to conceal illegal activities and misconduct in China. To address these challenges and encourage whistleblowers (in these industries and otherwise) to come forward, the Interim Measures require SAMR to align with the government’s finance departments and to raise the reward amounts above the capped amounts if the reports are filed by companies’ internal personnel.
The whistleblower rewards provide greater incentives to whistleblowers, which the authorities, in turn, anticipate will act to deter illegal activities in the market more effectively. As we have seen an increase in whistleblower reports across different industries in China in recent years, the Interim Measures may lead to increased reporting to local authorities by both company insiders and external parties, such as competitors and disgruntled ex-employees.
In response to these new measures, companies with operations in China should:
- Ensure that their business practices and processes in China are fully compliant;
- Review and take steps to secure their data and record-keeping to avoid unauthorized access and transfer; and
- Ensure that their whistleblower policies and programs can function effectively so that employees (and where appropriate, other third parties) feel confident in reporting matters of concern internally instead of choosing to report them externally.
