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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by YAN Lan and Chantal DUBERTRET
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During the history of the People’s Republic of China (PRC), the country’s criminal law regime has undergone tremendous change. The regime has developed from one in which the key considerations were political to one in which the police, the procuratorate and the judiciary are increasingly independent. The evolution of the PRC’s criminal law reflects the development of a market driven economy. In recent legislation, increased importance is placed on preventing and punishing economic crimes.
The first few decades of the PRC may be characterized as a period during which the rule of law was not one of the government’s priorities. This was certainly true of criminal law, and from 1949 to 1979, no specific laws or regulations were issued regarding principles or standards of punishment to be exercised by the government with respect to individuals. Nevertheless, although there was no statutory basis, during this time, almost all illegal acts continued to be punished as crimes.
In 1979, along with many other reforms, the PRC promulgated several basic laws. Among these was the Criminal Law, which was adopted at the Second Session of the Fifth National People’s Congress (NPC) on July 1, 1979, and which came into effect on January 1, 1980. Although this new criminal code represented a major step forward towards the rule of law, it was still dominated by political considerations, and crimes of counter-revolution constituted the bulk of its Specific Provisions. Little attention was paid to economic crimes.
The 1979 Criminal law also suffered from a lack of precision and certainty. Many crimes were either defined inadequately or not defined at all.1 Moreover, the law allowed people to be prosecuted for acts not listed as crimes. Specifically, article 79 of the 1979 Criminal Law stipulated that in cases where no specific provisions applied to a particular act, other provisions defining very similar acts as crimes could instead be applied.2 This made it possible for people’s courts to try cases by analogy, thereby seriously undermining the legal certainty that is an integral part of the rule of law.
In addition, soon after the passage of the 1979 Criminal Law, China’s rapid economic development and the attendant social changes were accompanied by an increase in criminal activity. As a result, there was a need to apply heavier punishments to crimes, such as drug dealing or smuggling, which became much more common during this period. In addition, it became necessary to criminalize various acts related to securities, money laundering, computers, and other matters.
The difficulties encountered in the implementation of the 1979 Criminal Law finally led to its amendment in 1997. Strictly speaking, though only an amendment of the original law, the 1997 Criminal Law is totally different in spirit from its predecessor. Where many of the provisions in the 1979 Criminal Law resembled political slogans, the 1997 version explicitly fostered both the rule of law and democratic principles in terms of the application of the law. In its statement of principles, the 1997 Criminal Law places great importance on the determination of both crime and punishment according to the law, the equality of all persons before the law, and the proportionality of penalties.
Overall, the 1997 Criminal Law aimed to maintain the stability and continuity of the system, while at the same time creating a more consistent and systematic criminal law3 that provided more precise and concrete definitions for offences. In pursuit of the latter goal, the 1997 law added a total of 261 articles to the 192 articles existing under the 1979 version.
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It is significant that a large proportion of the new offences defined under the 1997 Criminal Law were economic crimes;4 most of these appear in Chapter III of the Specific Provisions entitled “Crimes of Disrupting the Order of the Socialist Market Economy”. These crimes include:
Chapter VIII, on Crimes of embezzlement by civil servants and bribery, was also added.
Furthermore, the 1997 law introduced the liability of work units, a term which includes enterprises and companies.
In common with many foreign legal systems, almost all Chinese laws contain prohibitions that may give rise to administrative or judicial sanctions, including matters left largely outside the Criminal Law.
A particularity of Chinese criminal law is that almost any illicit activity may be characterized as criminal if it transgresses a standard of scale (e.g. “enormous profits”) or significance (e.g. “grave consequences”).
Since 1997, the Criminal Law has been amended six times, mostly either to take into account international issues such as terrorism5 or in response to economic development. Notably, amendments have concerned financial crimes related to securities,6 credit card7 or banking fraud.8 In order to clarify particular aspects of the Criminal Law, the Standing Committee of the NPC has also released seven interpretations since 1997.
This chapter focuses on the bribery of officials, commercial bribery, money laundering and corporate fraud.
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Bribery is probably the key crime for China to tackle. The phenomenon is extremely widespread and is an obstacle both to social stability and to the development of a healthy economy. Given the extensive control still exerted by the Chinese government over the economy, the bribery of officials makes up a significant proportion of such offences.
Pursuant to the 1997 Criminal Law, whoever, for the purpose of obtaining “illegitimate benefits”, gives “property” to a “civil servant”9 or to a State organ, State-owned company, enterprise, institution, or people’s organization10 commits bribery.
As indicated, to fall within the terms of the Criminal Law, the bribe must be in the form of “money or property”, i.e. something of value that can be kept by the recipient. Examples of property that qualify as a bribe would include cash, stock, gold or gifts in-kind. Given that the criminal law should be interpreted strictly, benefits that do not involve a transfer of property should not give rise to a criminal violation but may still trigger a legal violation under the Anti-Unfair Competition Law.11 However, certain PRC courts have recognized that incentives such as fake business travel or tuition payments are forms of criminal bribery in as much as their monetary value is relatively easy to measure.
The definition of “civil servant” under article 93 of the Criminal Law is very comprehensive and includes public service personnel in State-owned corporations, enterprises, institutions and people’s organizations. It also includes personnel assigned to engage in public service in non State-owned corporations, enterprises, institutions and social organizations as well as other working personnel engaged in public service according to the law.
When the amount of the bribe is “relatively large” or when it consists of rebates or service charges, the offeror is presumed to be guilty12 and he is not allowed to argue that he may have acted in good faith.
To constitute the crime of bribery, the bribe must actually be delivered. Promising or offering to pay does not constitute a crime. The law in the PRC thus differs from the OECD Convention and the Foreign Corruption Practices Act, which both punish attempted bribery.
The fact that the offeror does not receive the benefit he was seeking by offering a bribe is irrelevant. As long as a bribe has been given with the intent of securing illegitimate benefits, the offeror has committed bribery, regardless of the result. However, there is one exception to this rule: when the bribe is extorted by the offeree.
For individuals, the penalties incurred for bribery range from short-term criminal detention13 to life imprisonment, depending on the seriousness of the case.14 Their property may also be confiscated.
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If the bribe is offered by an employee in the course of employment, the offence will also be attributed to the legal person-employer and it may be fined. It is worth noting that neither the law nor any interpretation of the law specifies a minimum or a maximum value for such a fine, the amount of which is left to judges’ discretion, according to the seriousness of the case.
Moreover, people who are “directly responsible” for the crime and people who are “directly in charge” may face sentences ranging from short-term criminal detention to fixed term imprisonment of up to five years.15 The person “directly responsible” for the offence refers to the person who physically made the bribe. The “person in charge” of a company refers not only to its legal representative, but also to the directors, managers and senior executives directly in charge. For example, if an internal accountant of a company commits bribery, the chief financial officer of such company may be liable as the “person in charge”. Some courts have also deemed that the designation of persons “directly in charge” encompasses the people who negotiate or sign the agreement in relation to which bribery has been committed.
In practice, the Supreme People’s Procuratorate has set value thresholds for criminal bribery. For an individual, the act of bribery will not be considered, in principle, as criminal bribery, if the value of the bribe is less than RMB 10,000. For a unit (for example, a company or other such entity), an act is normally regarded as an offence if the value of the bribe is equal to or exceeds RMB 200,000. However, even if the value of the bribe does not reach these thresholds, the crime of bribery may still be constituted if, for example, bribes have been paid to three persons or more, to Chinese Communist Party leaders or have caused severe damage to national interests.16
In determining applicable sanctions, consideration is given to whether the bribe was solicited by civil servants or State-related units or proposed by the recipient of the bribe. The fact that the bribe was requested will probably constitute a mitigating circumstance. On the other hand, if an offeror has given a bribe solely of his free will, it may be treated as an aggravating circumstance.
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Occurrences of bribery in the context of bidding procedures are frequent. When they are not paid to civil servants, the conduct may still constitute commercial bribery.17
Unlike many Western countries, China has not yet put in place a comprehensive framework providing for mandatory bidding on all public infrastructure projects. However, since the promulgation of laws on tenders, construction and, more recently, on urban utility concessions, bidding has tended to be the rule and private negotiation the exception.
Tendering parties may not collude in the submission of tenders in order to force the tender price up or down. Tendering parties and the party that invited the tender may not collude with each other in violation of fair competition.18 However, bidders are sometimes tempted to offer bribes to the party inviting bids or to members of the bid evaluation committee in order to have their bid accepted.
It is worth noting that in addition to the criminal punishment provided by the Criminal Law,19 article 53 of the Law with respect to tendering sets out complementary sanctions.20 According to the latter law, if the acceptance of a bribe renders a bid void, the bidder may be fined not less than 0.5% and not more than 1% of the amount of the project that it won illegally, and the persons directly in charge and other directly responsible personnel of the company may be fined not less than 5% and not more than 10% of the amount of the fine imposed on the company. Any illegal income may be confiscated. Moreover, if the circumstances are serious, the bidder’s bidding qualifications may be suspended for a period of one to two years and the defendant must give public notice of such suspension, otherwise the business licence of the bidder will be revoked.
Bribery committed in bidding can be illustrated by the “Zha Ke Ming” case.21 In 2001, Zha Ke Ming, former vice director of Huang Neng Group, was prosecuted for having accepted USD 61,000 in cash from a Japanese company during a bidding process. In 1996, when Zha Ke Ming was the vice minister of the Ministry of Electricity, he had been in charge of the tender for a power plant construction project in Jia Xing, Zhejiang province. During the tender process, he accepted a bribe from a Japanese company and in return he helped the company to pass examination by the Ministry of Electricity. He was found guilty of accepting bribery and sentenced to thirteen years of imprisonment and all his personal property was confiscated.
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There are two definitions of commercial bribery. One is contained in the Criminal Law and the other in the Anti-Unfair Competition Law. Both definitions must be considered in order to determine whether an act of commercial bribery constitutes a crime or simply triggers a violation under Anti-Unfair Competition Law.
Article 163 of the Criminal Law addresses those who are offered bribes and article 164 those who offer them. To constitute commercial bribery under these articles, the following elements must be present:
The articles provide that giving “rebates” or “service charges” may also be regarded as acts of bribery.
The term “rebates”, which is not defined by the Criminal Law, is explained by the Interim Provisions on the Prohibition Against Commercial Bribery Acts, promulgated on November 15, 1996 (the Interim Provisions with respect to Commercial Bribery). The Interim Provisions define a rebate as a percentage of the commodity price given in the form of cash, property, or other means without clear record in the business operator’s legally established financial accounts, which includes omitting account entries, shifting payments to other accounts, or forging accounts.
“Service charges” refers to commission fees paid in the name of various fictitious services (promotion, counsel, advertising, research, labour services, etc.). The crucial element in determining whether fees are lawful or not is the reality of the consideration to be performed by the beneficiary. Such fees will not constitute a bribe if they are actual expenses for real activities.
The main difference between commercial bribery and bribery of officials is that the offeree of the bribe is not required to be a “civil servant”.
The Supreme People’s Procuratorate has explained what a “relatively large” amount means. The thresholds to be adopted differ depending on whether the defendants offered or accepted the bribe and on whether the bribe giver is an individual or a unit. Personnel in a company or an enterprise that accepts a bribe exceeding RMB 5,000 may be prosecuted. Individuals offering bribes of more than RMB 10,000 and units offering bribes exceeding RMB 200,000 may also be punished.
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Where the bribe exceeds RMB 5,000 but remains less than RMB 10,000 for an individual or RMB 200,000 for an enterprise, accepting a bribe may be considered as criminal whereas offering may not. However, even if no criminal liability is triggered, the bribe may still violate the Anti-Unfair Competition Law and civil liability may arise to compensate for any loss or damage that may have arisen as a result of the bribe. Article 8 of this Law provides a broader definition of commercial bribery than that under the Criminal law.22 First, there is no minimum value threshold under which level an infraction is not constituted.23 Second, not only are gifts of property including money prohibited, but so are “other means” taken to secure business that do not involve a transfer of property. The Interim Provisions with respect to Commercial Bribery explain that “other means” include “the provision of tours, visits, etc. inside or outside China in the name of travel or study”.
Given this broad definition, potentially any gifts or benefits in a commercial context may fall within the scope of commercial bribery.24 Companies should therefore be very careful when offering benefits, even if they are sure that no criminal prosecution will be triggered.
Finally, it is worth noting that the Anti-Unfair Competition Law applies to “business operators”.25 This term refers to any legal person, economic organization, or individual that sells goods or services for profit, regardless of whether it is a domestic or foreign concern. The legislation therefore includes State-owned companies and their employees to the extent that they run commercial activities. Under certain circumstances, a bribe offered to officials may thus constitute an act of commercial bribery as set forth by the Anti-Unfair Competition law.
For an individual who demands or accepts a bribe, the sanction incurred ranges from short-term criminal detention to fixed-term imprisonment26 of up to 15 years, where the amount of the bribe is regarded as “relatively large” or “enormous”27. The supplementary punishment of confiscation of property may also be imposed.
Bribe givers may be sentenced to short-term criminal detention or, depending on the value of the bribe, to fixed-term imprisonment of up to ten years. They may also be fined.
When legal persons are responsible for bribes, they may be fined. Such is the case if bribes are given by employees to sell or purchase goods or services for their units. Furthermore, the individuals directly in charge and those directly responsible for the crime may be punished. The scope of “persons directly in charge” is the same as that applicable in the bribery of civil servants.
Under article 22 of the Anti-Unfair Competition Law, the fine for commercial bribery ranges from RMB 10,000 to RMB 200,000 depending on the seriousness of the case, and any illegal income generated by the bribery may be confiscated. If a bribe constitutes a crime, penalties both for commercial and criminal bribery would apply cumulatively. Even if a bribe is not serious enough to trigger criminal charges (its value remaining below the threshold adopted by the Supreme People’s Procuratorate for example), it may still be punished under article 22 of the Anti-Unfair Competition Law.
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An act of bribery is also subject to other laws and regulations. For example, if an agreement is concluded as a result of a bribe, it may be invalidated under article 52 of the Contract Law, which provides that a contract is void if:
Furthermore, civil liability is incurred if the bribe causes damage. Pursuant to article 106 of the General Principles of Civil Law, the offeror and the offeree of bribes assume personal civil liability and may be held liable to compensate for any loss or damage. If the bribe is ascribed to a unit, this unit and, under certain circumstances, its legal representative, also assume liability and may be fined under article 49 of the General Principles of Civil Law.28
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This section addresses the main international conventions dealing with bribery and the application of foreign domestic law on bribery committed in the PRC. The application of foreign domestic law, regardless of the transposition of any international convention, is illustrated by two examples: firstly, the United States Foreign Corrupt Practices Act, secondly the French Criminal Code.
The Organization for Economic Cooperation and Development (OECD) Convention on Combating the Bribery of Foreign Public Officials in International Business Transactions, which came into force in 1999, obliges signatory countries (which include all 30 OECD member countries plus a growing number of nonmembers) to make the bribery of a foreign public official a crime under their respective domestic laws.
Bribery is an offence irrespective of the value or the outcome of the bribe, or of the tolerance of bribery by local authorities. The offence of bribery of foreign public officials should be punished by effective, proportionate and dissuasive criminal penalties, comparable to those applicable in cases of corruption of domestic public officials.29
The definition of “foreign public officials” is very broad30 and encompasses Stateowned enterprises and their agents in as much as they perform a public function, defined as any public activity in the public interest, delegated by a State (for example, involvement with government contracts).
Jurisdiction over the offence of bribery of foreign public officials is established when the offence is committed in whole or in part within the prosecuting State’s territory. The territorial basis for jurisdiction should be interpreted broadly so that an extensive physical connection to the bribery is not required. In addition, States that prosecute their nationals for offences committed abroad should do so in respect of the bribery of foreign public officials according to the same principles.
Bribery of a foreign public official is criminalized regardless of whether the home country of that official is a signatory to the OECD Convention. Thus, the fact that China has neither signed nor ratified the Convention at this stage does not prevent the bribery of Chinese public officials from being prosecuted and punished under the Convention.
4.1.1. Bribes offered by a foreign person
Any foreign individuals who pay bribes to Chinese officials on behalf of the Chinese subsidiary of foreign companies are personally liable and may be prosecuted before the courts of their home countries if they have ratified the OECD Convention. The same observation applies to all foreign companies doing business directly in China, such as through a representative office.
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4.1.2. Bribes offered by the Chinese affiliate of a foreign parent company
Bribes offered by a Chinese affiliate to public officials in China may, under certain circumstances, provide grounds for the prosecution of the parent company under its domestic laws. Such may be the case if for example:
In these situations, the parent company would be regarded as an accomplice for inciting, aiding and abetting, or authorizing an act of bribery.31 If the role played by the parent company were significant, it might also be convicted as a joint offender.
It is in such circumstances that a judicial investigation was opened in the fall of 2004 in respect of several French companies accused of having paid USD 180,000,000 to their joint affiliate located in Madeira.32
4.1.3. Bribery committed in part abroad
A bribe may also be prosecuted in the country where it is delivered, for example, in the country where the bribe is debited from the payer as well as in the country in which the recipient’s account is credited. Where bribery is committed in part outside China, jurisdiction may thus be established in the country where the physical receipt of the bribe takes place. In fact, this situation occurs quite frequently as Chinese officials seek to keep proceeds of bribery abroad in order to be able to flee with their family if the crime is discovered.33
China signed the United Nations Convention against Corruption in December 2003 and ratified it on October 27, 2005. This Convention, which entered into effect on December 14, 2005, concerns the bribery of public officials as well as private sector bribery and criminal fraud.
The Convention aims at preventing and fighting against international bribery more efficiently, reinforcing international cooperation and facilitating asset recovery.34
It requires that all signatory countries define various acts as crimes under their domestic laws.
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Each party must adopt such legislative and other measures as may be necessary to prosecute and punish:
Consequently, China will have to review its criminal law to comply with the Convention. As mentioned above, attempted bribery does not currently constitute a criminal offence under Chinese criminal law.
The Convention also strengthens international cooperation in preventing, investigating and prosecuting corruption. International cooperation includes mutual legal assistance in gathering and transmitting evidence, transfer of information, joint investigations and extradition.43
Article 51 of the Convention provides that the recovery of unlawfully acquired assets is considered to be a “fundamental principle”. The aim of article 51 is the return of proceeds of bribery or other related offences to their legitimate owners.44 This mechanism allows states or companies to recover the property embezzled or misappropriated by officials or employees. In particular, it is hoped that improved measures to facilitate asset recovery will help prevent corrupt Chinese officials from successfully hiding the proceeds of their crimes abroad.45
The FCPA46 contains both anti-bribery provisions and accounting provisions. In essence, it prohibits “US persons” from offering to make a payment of anything of value directly or indirectly to a foreign official with the purpose of influencing that official to assist in obtaining or retaining business.
4.3.1. Broad applicability
First of all, it should be noted that the term “US person” may be misleading. In fact, with regard to natural persons, the FCPA prohibition applies not only to any individual who is a US citizen, resident, or national, but also to any foreign person acting in the United States. With regard to business entities, the term covers both business entities organized under the laws of the United States and any companies, regardless of national origin, listed on a US stock exchange.
Given the above, it should come as no surprise that many Chinese companies already qualify as “US Persons” simply by virtue of being listed on US stock exchanges; a great number of smaller companies doing business with China will also be considered “US Persons”. In addition, given that employees of State-owned companies may qualify as “foreign officials” under the FCPA, and considering the issues in relation to bribery of “foreign officials” which arise under Chinese law, the Chinese environment poses much greater risks with regard to the FCPA than do many other jurisdictions.
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As with the OECD Convention, the provisions of the FCPA do not explicitly hold a US company liable for payments made by its foreign subsidiary, even where it is the majority owner or controller. However, the US Department of Justice has stated that a US company may be held liable for acts of a foreign subsidiary if it authorizes, directs or controls the act, or knows, or reasonably should have known, that it took place. Thus, given the risks related to bribery in the Chinese context, it is particularly important that a company that may be affected by the FCPA take sufficient measures to ensure that its subsidiaries are FCPA compliant.
4.3.2. Sanctions
For companies, a fine of up to USD 2 million per violation may be imposed.47 Individuals who violate the FCPA may be imprisoned for up to five years in addition to being liable for fines of up to USD 250,000 (which cannot be paid by their employer). What is more, the Alternative Fines Act allows alternative fines of up to twice the benefit the defendant had expected to make by resorting to bribery, or equal to the loss caused to third parties.
Companies and individuals also face a range of civil sanctions, including fines, disqualification from doing business with the US government, and the loss of eligibility to obtain US export licences.
Listed companies may be obliged to disclose breaches of the FCPA, which may be harmful to their corporate image.48
Regardless of international conventions, foreign domestic law may apply to acts committed during the conduct of business in China.
For example, article 113-2 of the French Criminal Code provides that French law applies when one of the elements constituting the offence is committed on its national territory, regardless of the nationality of the offender.
Article 113-6 of the same Code adds that where a French citizen commits a crime that falls within the highest category of French criminal law, French law will apply, even if the act was committed abroad. In addition, misdemeanours by French citizens abroad will be subject to French jurisdiction if the acts are punishable under the law of the country where the offence was committed.
Moreover, if a foreign company takes part in an offence committed in China by another person (affiliate, agent, intermediary), this company may per se have committed other infractions under the law of its home country.
For instance, if a French parent company provides its Chinese affiliate with money or property for a bribe, it may be convicted of misuse of corporate assets in France.49 And if the parent company does not record the bribe in its financial accounts, or if it issues fictitious invoices, it may be prosecuted for forgery under article 444-1 of the French Criminal Code.
Similarly, a French parent company that knowingly benefits from the proceeds of a crime committed in China may be guilty of the receipt of illegal property under article 321-1 of the French Criminal Code.
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The offence of money laundering was introduced into Chinese law with the adoption of the new Criminal Law in 1997. This crime applies to the fruits of tax evasion, which causes a huge shortfall in earnings for the Chinese State.50 The fight against money laundering is part of a larger battle to combat the crimes from which the funds are derived. It is for this reason that over the past several years the Chinese government has placed so much importance on promulgating and implementing anti-money laundering legislation. Finally, under most foreign domestic laws, the offshore laundering of proceeds generated by crimes committed in China may be prosecuted.
“Whoever commits acts in order to cover up or conceal the source or the nature of funds or property that he/she knows are proceeds illegally obtained from drugrelated crimes, terrorism, smuggling or organized crime, crimes of disrupting the order of financial administration, crimes of financial fraud, embezzlement and bribery shall be found guilty of money laundering.”51
The acts expressly listed are:
This list of particular acts is not intended to be exhaustive. The fact that money laundering legislation encompasses any action aimed at hiding the illegality of funds is clear in so far as the law refers to “any other means”. The offence of “money” laundering may involve valuables other than funds and it is not required that the offender knows precisely the nature of the crime from which the money or property derives. The crime is constituted as soon as the offender is fully aware of the illegality of the money or property.
Currently, the originating crimes from which the crime of money laundering may flow are limited to the following:
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Because this list is exhaustive, it is impossible to prosecute an individual for money laundering if he/she is suspected of having committed a crime that does not fit into the eight categories above.
However, Chinese legislators do add new crimes to the list from time to time. For example, the Criminal Law was amended after the September 11, 2001 terrorist attacks, so that the use of money that originates from terrorist crimes may also be prosecuted under money laundering legislation. Similarly, crimes of disrupting the order of financial administration, crimes of financial fraud and crimes of embezzlement or bribery were added on June 29, 2006.53
It is hoped that the recent addition of crimes involving bribery will be an effective way to fight corruption, which represents one of the most common bases of money laundering.54 Moreover, this addition allows China to comply with the requirements of the United Nations Convention against Corruption, requiring, among other items, that countries classify the concealment and laundering of the proceeds of bribery as a crime.55
It should also be noted that the People’s Bank of China (PBOC) has gone further in its own regulations by taking the view that “other crimes” may also be taken into account when determining the origin of the money.56 However, the PBOC regulation cannot change the terms of the Criminal Law promulgated by the NPC by adding new basic crimes to those listed in article 191. Hence, where the money has originated from “other crimes”, the laundering of such money may only trigger civil or administrative sanctions, but it cannot lead to criminal charges.
Acts of money laundering committed on PRC territory may be prosecuted under Chinese law without regard to the place where the underlying crime occurred.57
In order to prevent criminals from utilizing financial institutions to engage in money laundering, the PBOC issued three administrative regulations that have been effective since March 2003: the Financial Institutions Anti-money Laundering Provisions mentioned above, the Management Measures on Reporting Large-Amount and Suspicious RMB Transactions, and the Management Measures on Reporting Large- Amount and Suspicious Foreign Currency Transactions in Financial Instructions. In addition, the Anti-money Laundering Law,58 effective as of January 1, 2007, sets forth anti-money laundering duties for Chinese financial institutions.59
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These regulations require that Chinese financial institutions implement internal control systems to combat money laundering and, in particular, to monitor the source of the funds. If financial institutions fail to comply with the legal requirements, the anti-money laundering department of the State Council or its local counterparts may impose fines ranging from RMB 200,000 – 500,000.60 Chinese financial institutions are notably required:
As a consequence, the practice of opening bank accounts anonymously or using a pseudonym, which have posed a large obstacle to the effective tackling of money laundering in the past, is now clearly prohibited.61 Nevertheless, because a substantial part of China’s informal economy is cash based, it can be quite difficult to monitor transactions.
Any person found guilty of having committed acts of money laundering may be sentenced to a term of imprisonment of no more than five years or criminal detention, and/or be ordered to pay a fine ranging from 5% to 20% of the amount of money laundered.62
If the circumstances are serious, the individual may be sentenced to imprisonment of not less than five but no more than ten years, and fined 5% to 20% of the amount of money laundered. As a supplementary punishment, the alleged gains or proceeds may also be confiscated.63
If a unit commits such a crime, it may be fined.64 The persons who are directly in charge and the other persons who are directly responsible for the crime will face sentences under the criteria for individuals.65
This crime is committed for example when a criminal organization uses money earned through illegal means to establish companies in the PRC.66
In 2001, Hong Kong authorities discovered a money laundering organization, which smuggled over RMB 50,000,000,000 from mainland China, then exchanged the renminbi into Hong Kong dollars and deposited the money into local and foreign banks.
This offence is also committed where “illegal” money is used to carry out lawful transactions. Typically, a domestic company purchases overpriced products from an overseas seller who issues invoices. The outflow of cash above the normal price of the goods represents the illegal proceeds derived from tax evasion and that sum is then laundered when re-injected into legal channels.
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Money laundering often involves cross-border transfers of money or property. For this reason, numerous foreign domestic laws punish money laundering, regardless of the place where the original crime occurred.67
In this regard, the OECD Convention on Combating the Bribery of Foreign Public Officials in International Business Transactions provides explicitly that “each Party which has made bribery of its own public officials an offence for the purposes of the application of its money laundering legislation shall do so on the same terms for the bribery of a foreign official, without regard to the place where the bribery occurred.” If the proceeds of bribery committed in China are transferred to another country to be laundered, the crime might therefore be prosecuted in that country under its money-laundering laws.
Furthermore, under some national laws, money laundering constitutes a criminal offence regardless of the nature of the original crime.68 In those countries, the laundering of money generated by bribery committed in China might be prosecuted, even if such crime is not yet an original offence for money laundering purposes under Chinese law.
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The aim of this section is to briefly present and analyze the main types of criminal fraud committed internally within enterprises. Such criminal fraud appears to be widespread in China.
Foreign Investment Enterprises (FIEs) are particularly vulnerable to corporate malfeasance.
In many cases, representatives from companies’ headquarters fail to visit and exercise regular control over their Chinese affiliates, which are often run freely by local managers with very little supervision or intervention. This situation, which often arises as a result of distance and language barriers, turns the traditional employer-employee relationship into a kind of partnership in which the local management often considers the local company to be its own business.69 Naturally, this greatly increases the potential for management fraud. In addition, many companies do not set up appropriate corporate governance rules, setting out clear definitions of the powers of the corporate organs and the roles of the managers.
The Criminal Law specifies different offences depending on the moment in the company’s life when the fraud occurs: at incorporation, during the conduct of its business, or at liquidation.
6.1.1. Definitions
Articles 158 and 159 of the Criminal Law deal with offences committed when the company is being incorporated.
Article 158 states that anyone who facilitates a company’s registration by deceiving the registration authority may be prosecuted if the amount of the falsely registered capital is very large and the consequences are serious, or if there are other serious circumstances.
Article 159 sets out that any sponsor or shareholder who makes a false capital contribution by failing to pay the promised cash or assets in-kind or who fails to transfer property rights, or withdraws the contributed capital after the incorporation of the company, may be prosecuted if the amount involved is very large and the consequences are serious, or if there are other serious circumstances.
6.1.2. Prosecution
The Supreme People’s Procuratorate has clarified the circumstances under which a false report of registered capital or a false contribution may be prosecuted.
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For the purposes of article 158, several criteria are taken into account to determine whether the falsely registered capital should be considered very large. One such factor is whether the registered capital actually paid is above or below the legal minimum. A further factor is the amount of the falsely registered capital, and another is whether the victim of the fraud is a limited liability entity or a company limited by shares.70 As regards the “serious circumstances” to which the article refers, they may consist of administrative sanctions having previously been imposed on the company due to false declaration of capital, bribes being offered to the personnel in charge of company registration, or illegal activities undertaken after registration.
As for false contributions or withdrawals of contributed capital, the Supreme People’s Procuratorate regulations provide that the offender may be prosecuted if the direct economic loss caused to companies, shareholders or creditors amounts to at least RMB 5,000 and does not exceed RMB 100,000.71 This wide range allows the Legislative Committees at the level of the provinces, autonomous regions and cities under direct central administration to choose their own thresholds to prosecute in accordance with their level of economic development.
Even if the wrongdoing in question does not meet the above financial thresholds, a criminal prosecution may still be launched when:
6.1.3. Sanctions
An individual guilty of falsely declaring the capital to be registered may be fined 1% to 5% of the capital falsely declared and/or sentenced to fixedterm imprisonment of up to three years or to criminal detention. If the offence is committed by a unit, the unit may be ordered to pay fines at the above levels. In addition, the persons who are directly in charge and the other persons who are directly responsible for the offence may be imprisoned.
In cases of false capital contributions or unauthorized withdrawals of contributed capital, the offender may be fined between 2% and 10% of the false capital contribution or of the amount of the capital contribution withdrawn and/or be sentenced to fixed-term imprisonment of up to five years or to criminal detention72. If the offence is committed by a unit, the same fines may be imposed on the unit, and the people who are directly in charge, as well as the other persons who are directly responsible for the offence, may be sentenced to prison terms.
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6.1.4. Main issues
The most common cases of false contributions involve transfers of rights to land or buildings. Joint ventures are frequently exposed to such fraud, as the foreign investor often contributes cash while the Chinese partner contributes real estate rights.
In practice, such rights are sometimes inferior to those which the investor was led to believe he would receive.73 For example, the term of land-use rights may be shorter than had been agreed or the building may be burdened with encumbrances.
Sometimes, there is no transfer of rights at all because the contributor is neither the actual owner of buildings nor the holder of the land use rights. In other cases, a transfer of rights has occurred, but not in favour of the company to be established. Instead, the rights are transferred to another enterprise in which the so-called contributor has personal interests. Investors are therefore strongly advised to undertake a systematic check following the transfer of rights to verify that the certificates are in the name of the newly established company, that the rights are not burdened, and that the rights granted are those the investor expected to obtain.
6.2. Misappropriation of corporate assets
The misuse of corporate assets and the misappropriation of corporate funds by employees, addressed by articles 271 and 272 of the Criminal Law, are quite common in China, as managers are often unable to distinguish between corporate assets and their personal assets.74
6.2.1. Definitions
Article 271 of the Criminal Code prohibits employees from unlawfully using their positions to appropriate property belonging to their units for personal use.
Under article 272 of the Criminal Law, employees may not take advantage of their positions to divert company funds for their personal use or lend such funds to others.
Both the misappropriation of corporate funds and the misuse of corporate assets may be offences in which the misuse of money is involved. The difference between these offences lies in the intent of the offender. Under article 272, the criminal intends to give the funds back to the company, whereas under article 271, the offender intends to keep the money for himself on a permanent basis.
6.2.2. Prosecution and sanctions
Where the misuse of corporate assets involves a “relatively large” value or amount, employees may be sentenced to fixed-term imprisonment of not more than five years or to criminal detention. If the amount is very large, they may be sentenced to fixed-term imprisonment of not less than five years and their property may also be confiscated.
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The Supreme People’s Procuratorate gave legislative committees at the provincial level, or at the level of an autonomous region or a municipality under direct central administration, a range within which they may determine what is a “relatively large” amount. To incur prosecution, the value of property or the amount of money involved must be within a range of RMB 5,000 to RMB 10,000. However, no indication is given as to what is a very large amount; consequently, the definition of what is enormous is left to the judges’ discretion.
If the misappropriation of funds is “relatively large”, the employee may be sentenced to a fixed term of imprisonment of not more than three years or to criminal detention (i) if the funds are not repaid at the expiration of a three month period or (ii) if the funds are repaid before this period but were used for profit-making activities or for illegal activities. If the amount involved is enormous, or if it is relatively large but is not returned, the employee may be sentenced to fixed-term imprisonment of between three and ten years.
Here again, the Supreme People’s Procuratorate has provided a range within which legislative committees at the provincial level may determine what they consider to be a “relatively large” amount.75 If the misappropriated funds are used to carry out illegal activities, the prosecution threshold lies between RMB 5,000 and RMB 20,000. In the other situations addressed in article 272 of the Criminal Law, the prosecution threshold set by the provinces must be between RMB 10,000 and RMB 30,000. However, “very large” for the purposes of article 272 is not clarified. Hence, this threshold is decided by the courts on a case-by-case basis.
In addition to criminal punishment, wrongdoers may face civil liability. In particular, the General Principles of Civil Law provide that wrongfully converted property must be returned or, if that is not possible, compensation in an equal amount must be paid.76 Wrongdoers who are directors, supervisors or senior executives may be liable under article 148 of the new Company Law,77 which provides that no director, supervisor or senior manager may take advantage of their powers to obtain any illegal gain, or encroach on the property of the company. Furthermore, article 149 of the same Law prohibits directors and senior managers from:
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6.2.3. Prohibited conduct
The most frequently observed internal frauds within companies are:
Despite widespread fraud, indictments are rare.78 Upon discovering that fraud has been committed by one of its employees, a company may prefer not to take legal action in order to avoid harmful publicity.
Instead, the employee may be dismissed and the company may begin an internal audit and investigation to discover how the fraud occurred. The company may also attempt to reduce future risks by taking preventive measures.79
Article 162 of the Criminal Law contemplates frauds committed during the process of a company’s liquidation: concealment of assets, recording of false information in balance sheets or asset inventories, or distribution of a company’s assets prior to full payment of its debts, thereby causing serious harm to the interests of creditors or others.
The Supreme People’s Procuratorate has specified that the offender may be prosecuted if the direct economic loss suffered by the creditors or other persons is equal to or above RMB 100,000.
The first amendment to the Criminal Law80 added two paragraphs to article 162 to prohibit the concealment or destruction of accounting vouchers or financial reports so as to evade legal investigation.
Breach of article 162 may result in criminal detention or fixed-term imprisonment of not more than five years and/or a fine ranging from RMB 20,000 to RMB 200,000.
The Courts apply these provisions not only in cases of liquidation, but also in cases of corporate transformations, which involves a mandatory procedure for asset valuation.81 This broad interpretation of the Criminal Law allows for the prosecution of fraud committed in a context not expressly provided for by the law.
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The first criminal procedure law since the birth of the PRC in 1949 was adopted by the NPC on July 1, 1979. Its main goal was to create a framework for the punishment of criminal offences. For this reason the rights granted to the defence were very limited and the powers of public organs in charge of prosecution were broad. For example, there were no time limits set for the compulsory measures imposed on the accused82 and there was no procedure for them to secure counsel for their defence.
Partially in response to such shortcomings, the Standing Committee of the NPC from time to time released regulations and decisions amending or supplementing the 1979 Criminal Procedure Law with respect to issues such as the organization of trials, the review of death sentences and the time limits for handling criminal cases.83
A more important change occurred on March 17, 1996, when the NPC adopted a major revision of the Criminal Procedure Law. The revised law, which came into effect on January 1, 1997, consists of four parts, made up of 17 chapters and 225 articles. While the 1997 Criminal Procedure Law itself has not been amended since its release, it has been interpreted in many official documents.84
A particularly important document is the Interpretation on Several Issues Regarding Implementation of PRC Criminal Procedure Law (the 1998 Interpretation), released on January 19, 1998, by the Supreme People’s Court and five other national authorities. The 1997 Criminal Procedure Law, together with the relevant interpretations, constitute the current body of criminal procedure law.
The 1997 Criminal Procedure Law amended the 1979 Criminal Procedure Law with respect to many fundamental issues. Among these, the new law has greatly strengthened the rights of the defence.
7.2.1. Presumption of Innocence
Under article 12 of the Criminal Procedure Law, no one shall be found guilty without being judged as such according to law by a people’s court. Accordingly, under article 162 of the 1997 Criminal Procedure Law, if the evidence against a defendant is insufficient, such defendant should be found not guilty. Similarly, article 140 of the 1997 Criminal Procedure Law stipulates that if, after a supplementary investigation, the people’s procuratorate believes that the evidence is insufficient, and the case does not meet the conditions for initiating of prosecution, the people’s procuratorate should not initiate a prosecution.
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7.2.2. Right to counsel
The Criminal Procedural Law also clearly gives the accused the right to counsel. According to its article 33, a criminal suspect in a public prosecution case has the right to defence counsel from the date on which the case is transferred by the public security organs to the people’s procuratorate for examination. Moreover, in the case of a private prosecution,85 a defendant has the right to instruct defence counsel at any time.
7.2.3. Detention
The time limit and conditions for each compulsory measure that may be imposed on the defence have been specifically prescribed under Part One, Chapter 6 of the Criminal Procedure Law. These due process provisions have greatly decreased the potential for abuse of their investigative powers by the public security organs.
7.2.4. Right to appeal
According to article 18 of the Criminal Procedure Law, in trying cases, the people’s court applies the system whereby the “proceeding of second instance is final”. This principle means that the accused has the right to appeal and to see his or her case retried, even if no new facts or evidence have come to light since the conclusion of the proceeding of first instance. What is more, an appeal will suspend the execution of a sentence.
However, one must be careful to distinguish an appeal from the separate right to file a retrial petition, which begins after the proceeding of second instance and which gives no assurance that the case will be retried. A party or his legal representative or his near relatives may present a petition against the sentence issued on appeal. But, in contrast to the appeal system, only a few petitions will lead to the retrial of a case by another people’s court. Moreover, filing a petition does not, in the meantime, suspend the execution of the judgment or order.
Article 190 of the Criminal Procedure Law states that in the trial of a case appealed by a defendant or by his legal representative, defender or near relative, the people’s court of second instance may not increase the defendant’s sentence. However, this restriction does not apply to cases protested by the people’s procuratorate or to cases appealed by private prosecutors. This article is strictly implemented by the people’s courts at every level.
7.2.5. Trial procedures
Under article 160 of the Criminal Procedure Law, with the permission of the presiding judge, the public prosecutor, parties and defenders may state their views on the evidence of the case, and they may engage in debate.
Unless otherwise provided by the law, cases in the people’s courts are heard in public.86 In any case, judgments are rendered in public.
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The people’s court may apply a summary procedure in minor criminal cases according to Part Three, Chapter 2, Section 3 of the Criminal Procedure Law. Where the facts are clear and the evidence is sufficient, recourse may be had to summary proceedings with the approval of the people’s procuratorate. A single judge then presides over summary proceedings. Defendants in such proceedings may be sentenced to fixedterm imprisonment of not more than three years or to criminal detention.87
7.2.6. Incidental civil actions
According to article 77 of the Criminal Procedure Law, if a victim has suffered losses as a result of the defendant’s criminal act, he shall have the right to file an incidental civil action during the course of the criminal proceedings. Under article 78 of the Criminal Procedure Law, an incidental civil action may be heard together with the criminal case.88 It should be noted that contrary to the provisions of certain Western legal regimes, under Chinese law, the victim is not entitled to seize the people’s procuratorate of a principal civil action.
However, in certain circumstances, a private prosecution89 may be brought. This means that the victim may initiate his case by bringing it directly before the people’s court. This is the case in particular where the victim provides proof of a minor offence or shows that a suspect should be investigated for criminal responsibility.
If victims fail to file an incidental civil action during the course of the criminal proceedings, they may file a civil action separately in the people’s court.
7.2.7. Denials of justice
Article 150 of the Criminal Procedure Law requires people’s courts to try a case if the bill of prosecution contains clear facts about the crime together with a list of evidence and witnesses. This standard prevents the people’s court from arbitrarily refusing to try cases.
7.3.1. Public security organs
Under article 3 of the Criminal Procedure Law, public security organs are responsible for conducting investigations and preliminary inquiries,90 for detaining suspects and for executing arrests. Part Two, Chapter 2 of the Criminal Procedure Law prescribes the rights and duties of the public security organs, including instructions on how to collect evidence legally, in order to prove or disprove the criminal suspect’s guilt.
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7.3.2. People’s procuratorates
The people’s procuratorates decide whether to prosecute a suspect.91 They are responsible for authorizing detentions, conducting investigations and initiating public prosecutions. They also oversee criminal proceedings and ensure their conformity with the law.
The people’s procuratorates exercise their powers independently in accordance with the law and they are free from interference by any administrative organ, public organization or individual.92
7.3.3. The people’s courts
Under article 5 of the Criminal Procedure Law, the people’s courts exercise judicial power independently in accordance with law. That means that the people’s courts are free from interference by any administrative organ, public organization or individual.
7.4.1. Investigation
If a suspect is arrested and detained, public security organs must interrogate him within 24 hours of his arrest.93 If a suspect is summoned, he is interrogated within 12 hours of arrival.94
The maximum duration for which a criminal suspect or defendant may be ordered to obtain a guarantor while awaiting trial is twelve months.95
The maximum duration for which surveillance of a criminal suspect’s home may be undertaken is six months.96
7.4.2. Authorizations for arrest
Public security organs may make an initial decision to place a suspect in custody under any of the following circumstances:
repeatedly or in a gang.
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Within 24 hours of a person being detained, his family or his employer must be notified of the reasons for detention and the place of custody.97
If a public security organ deems it necessary to keep a person in pre-trial detention, it submits a request to a people’s procuratorate for approval within three days of the arrest. Under special circumstances, the time limit for submitting a request for approval may be extended by one to four days. In the case of the arrest of a major suspect involved in crimes committed in several places, repeatedly or in a gang, the time limit for submitting a request for approval may be extended to thirty days.98
The people’s procuratorate decides either to approve or disapprove the detention within seven days from the date of receiving the written request for approval submitted by a public security organ.99 If the people’s procuratorate disapproves, the public security organ releases the detainee and informs the people’s procuratorate without delay.
7.4.3. Detention on suspicion
If the suspect is not detained, there is no time limit for carrying out the investigation. In cases where the suspect is detained, the time limit that will apply varies depending on the circumstances of the case. Because detention and investigation are linked, these time limits also have the effect of determining the time within which the investigative phase must be completed and within which the trial must begin.
A person may be kept in pre-trial detention provided the following conditions are met:100
In general, the maximum duration for holding a criminal suspect in jail during an investigation is two months.101 However, if the case is complex and cannot be concluded within two months, an extension of one month may be sanctioned by the next level of people’s procuratorate.102 If the investigation cannot be concluded within those three months, the time limit for detention may be extended for an additional two months by the people’s procuratorate of a province, autonomous region or municipality directly under the central government. However, this only applies to the following four types of cases specified in article 126 of the Criminal Procedure Law:
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This duration of five months (two months plus one month of extension plus two months of extension in grave cases) may be extended once more depending on the punishment that may be incurred by the suspect. If the punishment for the alleged crime consists of fixed-term imprisonment of at least ten years and if the investigation cannot be concluded within five months, another extension of two months may be granted by the people’s procuratorate of a province, autonomous region or municipality directly under the central government.103
In cases where supplementary investigation is still required, the people’s procuratorate may extend the term by one more month. The people’s procuratorate is allowed to do so only twice. Once the supplementary investigation has been conducted, if the people’s procuratorate still believes that the evidence is insufficient to try the case, it must not prosecute the case.104
Finally, if, due to special circumstances, it is not appropriate to submit a particularly grave and complex case for trial, even within a relatively long period of time, the Supreme People’s Procuratorate must submit a report to the Standing Committee for approval of the postponement of the trial.105 Unfortunately, no guidance has yet been given as to what is considered “a relatively long period of time”. However, to the extent that the investigation should not last more than seven months if the suspect is detained, such approval should be requested as soon as the investigation has taken more than seven months.
7.4.4. Appointment of defence counsel
A criminal suspect may defend himself or entrust one or two persons as his defenders. The following persons may be entrusted as defenders:106
After the criminal suspect is interrogated by an investigation organ for the first time, or from the day on which compulsory measures are adopted against him, he may exclusively appoint a lawyer to provide him with legal advice and to file petitions and complaints on his behalf.107
Also, in the case of a public prosecution, a criminal suspect has the right to entrust persons as his defenders (either a lawyer or any other eligible defender) from the date on which the case is transferred to the people’s procuratorate for examination before prosecution.108 In addition, within three days of receiving the file record of a case transferred for examination before prosecution, the people’s procuratorate must inform the criminal suspect that he has the right to appoint a defence.109
In private prosecutions, defendants may appoint defenders at any time.110 Similarly, within three days from the date of accepting a private prosecution, the people’s court must inform defendants that they have the right to appoint defenders.111
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Defence lawyers may consult and duplicate judicial documents and the technical verification reports pertaining to a case from the day the people’s procuratorate begins to examine a case for prosecution. Defence lawyers may also meet the criminal suspect in jail as of the same date. Other defenders may do so with the authorization of the people’s procuratorate. Defence lawyers also have access to evidence from the date on which the people’s court accepts a case. Other defenders may have such access subject to the permission of the people’s court.112
7.4.5. Examination for prosecution
Within one month of receiving a case with a recommendation from a public security organ that a prosecution should be initiated, a people’s procuratorate must make the decision whether or not to prosecute. However, an extension of a further half-month may be granted for a decision to be made in major or complex cases.113
There are two circumstances that entail the recalculation of these time limits. First, if jurisdiction over a case to be examined and prosecuted by a people’s procuratorate has changed, the time limit for examination and prosecution is calculated from the date on which the newly appointed people’s procuratorate receives the case.114 Second, when a supplementary investigation has been completed and the case is transferred to the people’s procuratorate, the time limit for making a decision with regards to prosecution is also recalculated as of the date of the completion of the supplementary investigation.115
7.4.6. First instance
To determine time limits during first instance proceedings, a distinction is drawn between public prosecutions, which form the majority of criminal cases, and private prosecutions.
7.4.6.1. Public prosecutions
A people’s court must render its judgment on a case of public prosecution within one month, or one and a half months at the latest, of accepting it.116
If the case is considered to be grave and complex within the meaning of article 126 of the Criminal Procedure Law, this period may be extended by one month by the Higher People’s Court of a province, autonomous region or municipality directly under the Central Government. If jurisdiction over a case changes, the time limit for handling the case is calculated from the date on which the newly appointed people’s court receives the case after the change of jurisdiction.
When a people’s court has to conduct a supplementary investigation, it recalculates the time limit for handling the case accordingly.
If a case is tried in summary proceedings, the people’s court must conclude the case within twenty days of accepting it.117
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7.4.6.2. Private prosecutions
To determine time limits for trying private prosecutions, a distinction is made depending on whether the suspect is detained.118
If the defendant is in custody, the judgment must be rendered within one and a half months of the people’s court accepting the case. If the case is grave and complex, the period may be extended by one month by the Higher People’s Court of a province, autonomous region or municipality directly under the central government.
If the defendant is not in custody, the judgment must be pronounced within six months of the court’s acceptance of the case. Under exceptional circumstances, an extension of three months may be granted by the president of the people’s court seized of the case.
In summary proceedings, the judgment must be pronounced within twenty days of the case’s acceptance.
7.4.7. Filing appeals
If the defendant, the victim, or the legal representative of either refuses to accept a judgment or order of first instance, they have the right to appeal in writing or orally to the people’s court at the next level. However, a party to an incidental civil action or his legal representative may only file an appeal against that part of a judgment or order of first instance that deals with the incidental civil action.
The time limit within which to appeal against a judgment is ten days, and the time limit for appeal against an order is five days.119 These time limits are counted from the day after the written judgment or order is received.
7.4.8. Hearing appeals
The time limits for the second instance hearing are the same as those for first instance.120 The people’s court of second instance must conclude the case within one month, or one and a half months at the most. If the case is grave and complex, the period may be extended for one month by the Higher People’s Court of a province, autonomous region or municipality directly under the central government.
7.4.9. Retrials
Under special circumstances, such as where there is new evidence to prove that the facts stated in the original judgment or order appear to be wrong, the people’s court will retry the case.121 The people’s court must conclude the trial within three months from the day on which the decision to retry the case was taken. This period of time may be extended if necessary, but in no event may it be extended beyond six months.
1 For example, article 117 stipulates penalties for “whoever, in violation of the administrative regulations concerning finance, foreign exchange or industry or commerce, engages in speculation, if the circumstances are serious”. However, since the crime of “speculation” was not defined, it was interpreted very broadly and many different kinds of acts were punished in accordance with this article.
2 However, the approval of the Supreme People’s Court had to be obtained.
3 Regulations concerning criminal punishment prescribed in the civil law, economic law, administrative law, etc. would thus be integrated into the criminal law. Moreover, some interpretations and amendments made by the Standing Committee of People’s Congress would be integrated into the criminal code. Also, acts which were classified as crimes for the first time were added to the criminal code.
4 For instance, every criminal act provided for under Chapter III’s new section on crimes of disrupting the order of administration of companies and enterprises was new.
5 The amendment was adopted at the 25th Session of the Standing Committee of the Ninth NPC on December 29, 2001. This amendment mainly revised crimes related to terrorism. For example, under article 191, the crime of providing funds to terrorist organizations is added and the holding of funds that derive from crimes of terrorism is prohibited.
6 The amendment was adopted at the 13th Session of the Standing Committee of the Ninth NPC on December 25, 1999. This amendment mainly revised crimes regarding securities, in accordance with the PRC Securities Law, which came into effect that same year.
7 The amendment was adopted at the 14th Session of the Standing Committee of the Ninth NPC on February 28, 2005. This amendment mainly revised the crime of credit card fraud.
8 The amendment was adopted at the 14th Session of the Standing Committee of the Ninth NPC on February 28, 2005, and mainly revised the crime of credit card fraud. Another amendment was adopted at the 22nd Session of the Standing Committee of the Tenth NPC on June 29, 2006, that reformed bank related offences. This amendment also modified commercial bribery and money laundering crimes.
9 Article 389 of the Criminal Law.
10 Article 391 of the Criminal Law.
11 See Section 2, below.
12 Article 389 of the Criminal Law.
13 Articles 42 and 43 of the Criminal Law define criminal detention as corresponding to an imprisonment of not less than a month and not more than six months.
14 Articles 390 and 391 of the Criminal Law.
15 Articles 391 and 393 of the Criminal Law
16 For more details, see Rules of the Supreme People’s Procuratorate on Case-filing Standard, promulgated and effective as of September 16, 1999.
17 The qualification depends on whether the offeree is regarded as a civil servant or not.
18 Article 15 of the Anti-Unfair Competition Law, article 53 of the Law with respect to tenders.
19 Articles 390 and 391 of the Criminal Law.
20 The bid may also be invalidated under article 27 of the Anti-Unfair Competition Law.
21 See the Bulletin of the Supreme People’s Procuratorate, released on June 1, 2002.
22 According to article 8 of the Anti-Unfair Competition Law, “Business operators shall not resort to bribery with money, materials or by other means in buying or selling commodities. Uncovered rebates to units or individuals that have not been entered into accounts shall be treated as bribes, and the acceptance by any unit or individual of such rebates shall be treated as the acceptance of a bribe”.
23 Advertisement gifts of small value given in accordance with commercial practices are, however, allowed.
24 There are also two exceptions to the recognition of an act of commercial bribery under the Anti-Unfair Competition Law. Businesses are allowed to give discounts or commission to intermediaries if such discounts or commissions are recorded in both sets of financial accounts (of both the donor and the recipient). Discounts, which refer to a preferential price granted to a party in selling or buying goods, can take the shape of (i) an on-the-spot deduction in fixed proportion to the total price or (ii) a reimbursement in a fixed proportion after payment of the total price.
25 Article 2 of the Anti-Unfair Competition Law defines business operators as all “legal persons and other economic organizations and individuals who engage in commercial operations or in the provision of services for profit”.
26 Articles 45 and 46 of the Criminal Law provide that fixed-term imprisonment is not less than six months and not more than 15 years. Anyone who is able to must take part in labour, receive education, and undergo reform.
27 For an example of punishment, see the “Yang Zhihua” case, reported on www.chinacourt.org, the official website of the Supreme People’s Court. Yang Zhihua was the person in charge of the establishment of Qingyuan Hotel, an enterprise owned by Qingyuan Village. Taking advantage of his position, Yang Zhihua illegally accepted RMB 265,000 from different construction companies. In return, Yan Zhihua helped these enterprises to conclude contracts for the building of the hotel. The People’s Court of Rudong County, Jiangsu Province, held that Yang Zhihua had violated article 163 of PRC Criminal Law and sentenced him to a fixed-term imprisonment of three years and confiscated his property. Please note that Yang Zhihua had already returned all the illegal benefits. In the absence of such mitigating facts, the sentence would probably have been harsher.
28 See also articles 148, 150 and 152 of the new Company Law, promulgated on October 27, 2005, and which came into effect as of January 1, 2006, prohibit directors, supervisors and senior executives from accepting bribes and hold them liable to repair the harm caused.
29 Article 3 of the OECD Convention.
30 According to article 1§4 of the OECD Convention, “foreign public official” means any person holding a legislative, administrative or judicial office of a foreign country, whether appointed or elected, any person exercising a public function for a foreign country, including for a public agency or public enterprise and any official or agent of a public international organization.
31 Article 2 § 2 of the OECD Convention provides that “each party shall take any measures necessary to establish that complicity in, including incitement, aiding and abetting, or authorization of an act of bribery of a foreign official shall be criminal offences to the same extent as attempt and conspiracy to bribe a public official of that Party”.
32 The indictment was based on article 435-3 of the French Criminal Code, adopted to comply with the OECD Convention.
33 On October 28, 2005, Xinhua Chinese News Agency reported that according to police authorities, in 2005 more than 500 Chinese suspects of economic crimes had fled to foreign countries, taking with them at least RMB 70,000,000,000. Only a few of these individuals have been extradited back to China.
34 For the measures for prevention, which are not commented on herein, see articles 5 to 14 of the United Nations Convention against Corruption.
35 Articles 15 and 16 of the United Nations Convention against Corruption.
36 Article 17 of the United Nations Convention against Corruption.
37 Article 18 of the United Nations Convention against Corruption.
38 Article 19 of the United Nations Convention against Corruption.
39 Article 21 of the United Nations Convention against Corruption.
40 Article 22 of the United Nations Convention against Corruption.
41 Article 23 of the United Nations Convention against Corruption.
42 Articles 15, 18, 21 and 27 of the United Nations Convention against Corruption.
43 Articles 44, 45, 46, 47, 48 and 49 of the United Nations Convention against Corruption.
44 Articles 51 to 59 of the United Nations Convention against Corruption.
45 On November 5, 2005, Prime Minister Mr Wen Jiabao stated that the ratification of the Convention “is conductive to the repatriation of corrupt criminals who flee the country and the recovery of Chinese assets illegally transferred to foreign lands.”
46 The United States Foreign Corrupt Practices Act (FCPA) enacted in 1977 and enforced jointly by the Securities Exchange Commission and the US Department of Justice.
47 For an example of punishment, see the “DPC” case: according to the official release from the Department of Justice of the United States, published on May 20, 2005, the Federal prosecutors in Los Angeles charged Diagnostic Products Corporation (DPC) Tianjin Co., Ltd, the Chinese subsidiary of Los Angeles-based DPC, of paying USD 1.6 million in bribes in the form of illegal “commissions” to physicians and laboratory personnel at government-owned hospitals in the PRC in order to secure business at the hospitals. This practice was authorized by DPC Tianjin’s general manager, and DPC Tianjin recorded the payments in its books as “selling expenses”. The company agreed to plead guilty of violating the FCPA and paid a USD 2 million criminal fine.
48 See “The Foreign Corrupt Practices Act: A Minefield for US Companies in China”, by Patrick M. Morton, O’Melveny & Myers, Topics in Chinese Law, December 2004, also underlying the risks of shareholder lawsuits or even of legal actions taken by interested parties under the Racketeer Influenced and Corrupt Organizations Act (RICO) or under other US federal and State laws.
49 Article 242-6 of the French Commercial Code.
50 The International Monetary Fund estimates that money laundering in China may amount to USD 24 billion a year.
51 Article 191 of the Criminal Law, revised by the amendment to the Criminal Law adopted at the 25th Meeting of the Ninth NPC on December 29, 2001, and by the amendment to the Criminal Law adopted at the 22nd Meeting of the Tenth NPC on June 29, 2006.
52 Crimes of disrupting the order of financial administration refer to offences provided under Section Four, Chapter 3 of Part 2 of the Criminal Law. This section includes banking-related offences and currency counterfeiting.
53 The amendment was adopted at the 22nd Meeting of the Standing Committee of the Tenth NPC on June 29, 2006.
54 According to the International Narcotics Control Strategy Report for 2003, released by the Bureau for International Narcotics and Law Enforcement Affairs from the United States Department of State, most money laundering cases now under investigation involve funds obtained from bribery.
55 Article 23 of the United Nations Convention against Corruption.
56 Financial Institutions Anti-money Laundering Provisions, promulgated by the PBOC on January 3, 2003, and effective as of March 1, 2003.
57 Article 6 of the Criminal Law, dealing with territorial jurisdiction.
58 The Anti-money Laundering Law was adopted at the 24th meeting of the Standing Committee of the Tenth NPC and promulgated on October 31, 2006.
59 Financial institutions include policy banks (i.e. China Development Bank, Export-import Bank of China, Agricultural Development Bank of China), commercial banks, credit cooperatives, postal savings and remittance institutions, financial companies, trust and investment companies, financial lease companies and foreign-invested financial institutions.
60 Article 32 of the Anti-money Laundering Law.
61 Nonetheless, the use of counterfeit identity documents often allows offenders to get around this new rule.
62 Article 191 of the Criminal Law.
63 Article 191 of the Criminal Law.
64 Article 191 of the Criminal Law.
65 Article 191 of the Criminal Law.
66 See the “Wang Zhao” case, reported in the Anti-money Laundering Report released by the PBOC on July 12, 2005. In 2002, Mr. Wang Zhao helped two other persons to buy a 60% share of a company, representing HKD 5.2 million. The money used for payment mainly came from drug-related crimes, which Wang Zhao knew about. He assisted the two other people in transfering the money into Mainland China. He was then appointed Director of the company, receiving a salary of more than RMB 5,000 per month without performing any work. He was also given an expensive car. In 2003, Wang Zhao was arrested and convicted of money laundering. He was sentenced to one-and-a-half years’ imprisonment, and a fine of RMB 275,000. His car was confiscated by the State.
67 Such is the case in French law.
68 See article 324-1 of the French Criminal Code.
69 Mark Schraub, China Legal Watch, September 2004, p. 12.
70 For more details, see article 2 of the Supreme People’s Procuratorate and the Ministry of Public Security on the Standard of Prosecution of Case of Economic Crime, issued and effective as of April 30, 2004.
71 Article 3 of the Regulations of the Supreme People’s Procuratorate and the Ministry of Public Security on the Standard of Prosecution of Case of Economic Crime, issued and effective as of April 30, 2004.
72 For an example of punishment, see the Yuan Mou case, reported on www.chinacourt.org. In April 2003, Yuan Mou wanted to establish a company, but he had no funds. In order to show that the company, which was still in the process of being established, had the funds required to be fully established, he borrowed RMB 500,000 from a local bank and transferred the loan from the bank to the account of the company. Yuan Mou thereby obtained the registration of the company with the Administration for Industry and Commerce. On 13 May 2003, Yuan Mou withdrew all of the registered capital from the company account and repaid the bank loan with it. The People’s Court of Donggang District, Rizhao Municipality, held that Yuan Mou had violated article 159 of PRC Criminal Law by withdrawing a capital contribution. Yuan Mou was sentenced to a fixed-term imprisonment of one-and-a-half years and was also fined RMB 20,000.
73 Mark Schraub, China Legal Watch, September 2004, p. 17.
74 According to Patrick M. Norton & Lane Huang (O’Melveny & Myers LLP, Shanghai, “Management Fraud in China”, China Business Review, March-April 2001), this situation can be explained by the tradition of family-owned businesses and, after 1949, State-owned enterprises, which were based on central planning without managers being accountable to shareholders.
75 Article 76 of the Regulations of the Supreme People’s Procuratorate and the Ministry of Public Security on the Standard of Prosecution of Case of Economic Crime, issued and effective as of April 30, 2004.
76 Article 117 of the General Principles of Civil Law.
77 The new Company Law, promulgated on October 27, 2005, will come into effect as of January 1, 2006.
78 For an example of misappropriation of corporate funds, see the Lei Mou case, reported on www.chinacourt.org. Lei Mou was the general manager of a construction company in Poyang County, Jiangxi Province. In March 2003, the company borrowed RMB 678,000 from the local bank in order to rebuild its office building. However, the office-rebuilding project was not approved by the relevant authority, so the loan was not used by the company for the project. As the loan was not recorded in the company’s accounts, Lei Mou used the loan to buy a car and pay off his personal debts, and did not report this to the company. Before he was investigated for this act of misappropriation, Lei Mou had returned all of the funds he had used. However, the time period over which he had misappropriated the funds had exceeded three months. The People’s Court of Poyang County held that Lei Mou had violated article 272 of PRC Criminal Law by taking advantage of his position, misappropriating the company’s funds for personal use and not returning the funds within three months. Lei Mou was sentenced to a fixed-term imprisonment of three years which was suspended for a period of four years.
79 Peter Humphrey, EuroBiz, July 2004, p. 49.
80 Adopted at the 13th Meeting of the Standing Committee of the Ninth NPC on December 25, 1999.
81 See the Li Jin’an case, reported on www.chinacourt.org. From August 2002 to November 2003, Yuxi Automotive Transportation Company (“Yuxi”), a State-owned enterprise, was in the process of transforming into a limited liability company. During the transformation into a limited liability company, which involved the liquidation of the State-owned enterprise, Yuxi had entrusted an evaluation agency to evaluate all of its assets and liabilities. Li Jin’an, the president of the transformation committee, knew that several funds had not been recorded in Yuxi’s books, but failed to report this to the evaluation agency. The amounts of these funds were as follows: RMB 740,699, RMB 13,331,676 and RMB 2,064,348. Due to Li Jin’an’s failure to disclose their existence, the funds were not audited and were not included in Yuxi’s assets. The Intermediate People’s Court of Yuxi Municipality, Yunan Province, held that although the funds did not appear on its books, they were still assets belonging to Yuxi. The Court considered that Li Jin’an had violated article 162 of the Criminal Law by concealing funds that did not appear in the accounting books.
82 For instance, house arrets or warrants compelling the appearance of the accused.
83 For instance, a Supplementary Regulation on Time Limits for Handling Criminal Cases was released by the Standing Committee on July 7, 1984.
84 In total, more than 100 judicial interpretations of the 1997 Procedure Law have been released by the Supreme People’s Court and the Supreme People’s Procuratorate.
85 Private prosecution refers to cases where the victim is entitled to initiate the penal action as well as the civil action.
86 Article 11 of the Criminal Procedure Law.
87 Article 174 of the Criminal Procedure Law.
88 Only for the purpose of preventing excessive delay in a trial of the criminal case may the same judicial organization, after completing the trial of the criminal case, continue to hear the incidental civil action.
89 According to article 170 of the Criminal Procedure Law, private prosecution is possible where the case requires the victim’s complaint, where there is evidence of a minor crime, or in a case of inaction on the part of the people’s procuratorate, or when there is evidence of infringement of the victim’s rights.
90 Carried out after an initial investigation, a preliminary inquiry involves the interrogation of the suspect, who is informed of the nature of the crime he/she is accused of.
91 Article 3 of the Criminal Procedure Law.
92 Article 5 of the Criminal Procedure Law.
93 Article 65 of the Criminal Procedure Law.
94 Article 92 of the Criminal Procedure Law.
95 Article 58 of the Criminal Procedure Law.
96 Article 58 of the Criminal Procedure Law.
97 However, Article 64 of the Criminal Procedure Law provides that there is no notification in circumstances where it would hinder the investigation or where there is no way of undertaking the notification.
98 Article 69 of the Criminal Procedure Law.
99 Article 69 of the Criminal Procedure Law.
100 Article 60 of the Criminal Procedure Law.
101 Article 124 of the Criminal Procedure Law.
102 Article 124 of the Criminal Procedure Law.
103 Article 127 of the Criminal Procedure Law.
104 Article 140 of the Criminal Procedure Law.
105 Article 125 of the Criminal Procedure Law.
106 Article 32 of the Criminal Procedure Law.
107 Article 96 of the Criminal Procedure Law.
108 Article 33 of the Criminal Procedure Law.
109 Article 33 of the Criminal Procedure Law.
110 Article 33 of the Criminal Procedure Law.
111 Article 33 of the Criminal Procedure Law.
112 Article 36 of the Criminal Procedure Law. Non-lawyer defenders must have the permission of the people’s procuratorate.
113 Article 138 of the Criminal Procedure Law.
114 Article 138 of the Criminal Procedure Law.
115 Article 140 of the Criminal Procedure Law.
116 Article 168 of the Criminal Procedure Law.
117 Article 178 of the Criminal Procedure Law.
118 Article 109 of the 1998 Interpretation.
119 Article 183 of the Criminal Procedure Law.
120 Article 196 of the Criminal Procedure Law.
121 Article 207 of the Criminal Procedure Law.