China expands legislation for private sector corruption

The Standing Committee of the National People’s Congress, China’s legislative body, passed the 12th amendment (“Amendment No. 12”) to the Chinese criminal code on 29 December 2023, with an aim to strengthen anti-corruption legislation in relation to employees of private companies. This aim aligns with that of the ongoing anti-corruption movement in China, which is expected to increasingly target sectors such as finance, pharmaceuticals and infrastructure.

Expanded scope of bribery offences

A key aspect of Amendment No. 12 is an expansion of the scope of the bribery offences under articles 165, 166 and 169 to private companies. These articles apply to bribery by senior personnel that causes significant harm to the company and prohibit the following offences:

• Abuse of function by a director or manager operating a competing business to the one in which he is employed for personal gain (conflicts of interest) (Article 165).­
• Abuse of function by any employee taking advantage of their office for the benefit of relatives or friends (Article 166).
• Malpractice by a senior manager selling discounted company assets for personal gain (Article 169).

Previously, only employees in state-owned enterprises were referenced under these articles. Amendment No. 12 thus represents a shift towards more robust anti-bribery regulations in the private sector.
Amendment No. 12 aims to address some new ­situations and problems which have recently arisen in practice with regard to corruption crimes within private companies in China. Notably, there has been a rise in instances of bribery within private companies, which led legislators to consider that further strengthening of the criminal code was necessary.

Tougher penalties for serious offences

Penalties for offences in respect of giving and receiving bribes have been revised with a general increase in penalties and minimum sentences for serious cases. Amendment No. 12 applies to the following articles of the criminal code:

• Article 387 on state agencies or state-owned enterprises receiving bribes.
• Article 390 on offering bribes.
• Article 391 on bribing state agencies or state-owned enterprises for illegitimate benefits.
• Article 393 on giving illegal rebates to state functionaries for illegitimate benefits.

In general, the maximum sentences have been amended to imprisonment for up to three years for most cases, and between a minimum of three years’, up to a maximum of ten years’ imprisonment in more serious cases. The maximum sentence for offering bribes under article 390 is still life imprisonment if the circumstances are especially egregious, and the possibility of criminal detention and fines in relation to certain offences are retained.

In addition to the amendments relating to sentencing, article 390 (related to offering bribes) has also been amended to clarify which aggravating factors merit increased punishment. These factors include repeat offences, bribing state functionaries, law enforcement or judicial officers, bribery in the commission of another offence, bribery in key national projects or to secure positions or promotions or change of positions, and use of illegal gains. Offering bribes in areas such as ecology and environment, financial and fiscal affairs, work safety, food and drugs, disaster prevention and relief, social security, education and healthcare shall also be subject to more stringent penalties. This list reveals the heightened importance placed on these areas by the Chinese government.

China’s anti-corruption campaign

Amendment No. 12 should be seen as part of the larger anti-corruption movement in China that has seen more than three million public officials punished for corruption since President Xi came to power. Recently, the government has declared an intention to target not only high-profile cases, but also to root out smaller-scale corruption among the so-called “ants and flies”: the lower ranking officials and more minor players.

China’s anti-corruption campaign is considered popular domestically, and China has seen significant improvements over this period, climbing six points on Transparency International’s Corruption Perceptions Index to a current score of 42 out of 100, although the country still scores below the current global average of 43 and the regional average of 45.

We expect anti-corruption to remain a top priority for China with heightened enforcement and further expansion of the legal framework already in place. As an example, on 24 October 2023, the Supreme People’s Court published a verdict issued by Guangzhou Intermediate People’s Court in Guangdong Province involving three bribes, amounting to 220,000 Singapore dollars, paid in the period from 2017 to 2019 by two employees working for the international business department of China Railway Tunnel Bureau Group Co., Ltd. to public officials in Singapore. This is the first reported case of its kind and signals an increased willingness to enforce anti-corruption legislation beyond the domestic cases typically seen to date.

International companies

The upcoming changes highlight the need for good corporate governance in the private sector also for international companies. In this respect China aligns with international trends, including those in areas other than corruption, as heralded by the Norwegian Transparency Act and the upcoming EU regulations on supply chain due diligence. International companies can therefore expect their China operations to come under increased scrutiny, not only from authorities at home, but also from Chinese officials.