Amendment (12) to the Criminal Law provides enlightenment and reference for the anti-fraud compliance governance of private enterprises

Amendment (12) to the Criminal Law provides enlightenment and reference for the anti-fraud compliance governance of private enterprises

【Zhuhai lawyer, Zhuhai legal consultation, Zhuhai law firm, Jingshi law firm, Jingshi Zhuhai law firm】

►Author: Hu Chenyang, Li Ju

In recent years, the problem of internal personnel corruption in private enterprises has been frequent and prone to occur, which is mainly manifested in embezzlement, misappropriation, bribery and breach of trust. On December 29, 2023, the seventh meeting of the Standing Committee of the 14th National People's Congress deliberated and passed the Amendment (12) to the Criminal Law, which actually amended a total of seven articles, of which four involve the punishment of bribery and three involve the regulation of corruption crimes within private enterprises. This article will interpret the key amendments and changes of the Criminal Law Amendment (12), and try to further explore the impact and enlightenment of the amendment on the anti-fraud compliance of private enterprises.

1. Criminal Amendment 12 has intensified the crackdown on fraud committed by internal personnel of private enterprises, and improved equal protection for state-owned enterprises and private enterprises

1. Revise the comparison table

2. Revised interpretation

On July 14, 2023, the Central Committee of the Communist Party of China and the State Council issued the Opinions on Promoting the Development and Growth of the Private Economy, the Supreme People's Court issued the Guiding Opinions of the Supreme People's Court on Optimizing the Legal Environment and Promoting the Development and Growth of the Private Economy, and the Supreme People's Procuratorate issued the Opinions on Punishing and Preventing Crimes of Insiders of Private Enterprises Infringing on the Legitimate Rights and Interests of Private Enterprises in accordance with the Law, and Creating a Good Legal Environment for the Development of the Private Economy The above-mentioned three documents emphasize the punishment and prevention of crimes committed by internal personnel of private enterprises in accordance with the law, and increase the punishment of corrupt behaviors such as embezzlement, misappropriation of funds, bribery, and breach of trust by the staff of private enterprises.

The provisions involved in the amendment (12) to the Criminal Law to improve the crimes related to fraud by internal personnel of private enterprises include Article 165 (the crime of illegally operating the same type of business), Article 166 (the crime of illegally making profits for relatives and friends), and Article 169 (the crime of favoritism and malpractice, the crime of discounting shares at a low price, and selling state-owned assets). The amendment stipulates as crimes three types of behaviors that occur in practice, such as illegally operating the same type of business, illegally making profits for relatives and friends, and engaging in favoritism and irregularities, such as discounting shares at low prices, and selling assets.

At the same time, the author notes that the three newly added articles all specify "violation of laws and administrative regulations" as a pre-requisite and necessary condition, which indicates that the provisions of the Criminal Law Amendment (12) have been appropriately restricted, that is, similar business and related party transactions that comply with laws and administrative regulations do not constitute crimes, which also involves the connection with the newly revised Company Law. According to Article 182 of the new Company Law, close relatives of directors, supervisors and senior executives, persons with related relationships and enterprises directly or indirectly controlled by them enter into contracts or conduct transactions with the company, and Article 183 stipulates that directors, supervisors and senior executives shall not use their positions to seek business opportunities belonging to the company for themselves or others, according to Article 184,

2. Criminal Revision 12 has increased the punishment for bribery cases, reversing the situation of heavy bribery and light bribery

1. Revise the comparison table

2. Revised interpretation

Although the crime of offering bribes and the crime of accepting bribes are committed in opposite directions, and the legal interests infringed by the two are the same, the statutory penalties for the crime of offering bribes in the criminal laws of various countries are often lower than those for the corresponding crime of accepting bribes. This is mainly because the subject of the crime of accepting bribes is a state functionary, and the bribery behavior of public employees taking advantage of their positions plays a greater role in infringing on the integrity and non-bribery of their official acts.

In terms of the content of the amendment, the Criminal Law Amendment (12) mainly reflects three aspects:

Specifically, it includes seven situations: Offering bribes multiple times or to multiple people; offering bribes to state functionaries; offering bribes in key state projects or major projects; offering bribes for the purpose of seeking promotions or readjustments in positions; offering bribes to supervision, administrative law enforcement, and judicial personnel; offering bribes in the fields of ecology and environment, finance, production safety, food and drugs, disaster prevention and relief, social security, education, and medical care, and carrying out illegal and criminal activities; and using illegal gains for bribery.

According to article 393 of the current Criminal Code, if a unit offers bribes to a State functionary, the person in charge who is directly responsible and other persons who are directly responsible shall be sentenced to up to five years' imprisonment. However, according to article 164 of the Criminal Code, if a unit offers bribes to a non-State functionary, the person in charge and other persons directly responsible shall be sentenced to up to 10 years' imprisonment. The Amendment (12) to the Criminal Law amends the statutory penalty for the crime of offering bribes by a unit from the original maximum sentence of 5 years imprisonment to two levels of statutory penalties: "fixed-term imprisonment of not more than three years or short-term detention and a concurrent fine" and "fixed-term imprisonment of not less than three years but not more than 10 years and a concurrent fine", thus avoiding the unfair punishment phenomenon formed by Article 164 of the Criminal Law to a certain extent. In addition, in practice, some bribe-givers offer bribes in the name of the unit to avoid punishment, resulting in an unbalanced handling of the case, and increasing the penalty for the crime of offering bribes by the unit is conducive to preventing the bribe giver from committing the crime of offering bribes for personal interests under the guise of the unit.

The Criminal Law of the Mainland provides for a relatively large number of crimes according to the different subjects, targets, and conduct of bribery crimes, and after making adjustments to the crimes of offering bribes and the crime of offering bribes by units, in order to implement the spirit of severe punishment, the statutory penalties for other bribery crimes are adjusted accordingly, so as to do a good job of cohesion and balance.

III. Enlightenment and reference of Criminal Amendment 12 for the compliance governance of private enterprises

Amendment (12) protects the rights and interests of private enterprises by cracking down on the corruption of employees of private enterprises, which is an important highlight of the amendment, especially for the breach of trust committed by directors, supervisors and senior executives of private enterprises who take advantage of their positions to facilitate the implementation of breach of trust, and brings benefits to the criminal prosecution and punishment of enterprises. For the anti-fraud compliance governance of private enterprises, the author suggests that enterprises should pay attention to the following points when carrying out anti-fraud work:

First, from the perspective of judicial application, if the criminal liability of the internal fraud personnel of non-state-owned enterprises is to be investigated, the more common crimes are generally the crime of embezzlement or the crime of bribery by non-public officials, etc., and the Criminal Punishment Amendment (12) expands the applicable subjects of the crimes related to corruption governance in private enterprises, and extends the current crimes applicable to "state-owned companies, enterprises" and other relevant personnel to private enterprises, targeting personnel in key positions within the enterprise who infringe on the enterprise due to corruption. The rights and interests of entrepreneurs will further strengthen the equal protection of private enterprises. For example, in the case of the crime of illegally making profits for relatives and friends, the mode of expression or means of committing the crime may overlap with the part of embezzlement and possession of duties. However, if the crime of illegally making profits for relatives and friends does not require the perpetrator to actually make a profit, but only requires that the interests of the company or enterprise be harmed, it constitutes a crime. Compared with the crime of embezzlement, which generally requires the perpetrator to seek illegal benefits, it is obvious that it is much less difficult for the company as the accuser to collect fixed evidence, and the burden of proof is obviously lower than that of embezzlement or bribery. Another example is the crime of illegally operating the same type of business, in the future, if the directors and managers of various enterprises engage in intra-industry competition, the legal risks they face are no longer limited to violating the company, but may be suspected of criminal offenses. However, there is room for uncertainty and interpretation of the definition of "similar business" in judicial practice. For enterprises, Criminal Law Amendment 12 further emphasizes the duty of loyalty of senior executives within private enterprises, and for senior executives, senior executives of private enterprises should take the interests of the enterprise as the starting point, exercise their powers loyally, and strictly abide by the red line of compliance.

Second, the promulgation of the 12th Amendment to the Criminal Law is a major legal amendment, and it is also an opportunity for enterprises to initiate self-examination and internal audit. Enterprises should strengthen the management and internal audit of key departments, key positions and key personnel. Enterprises should establish a compliance management system based on factors such as their own size, and clearly stipulate their specific responsibilities and relevant authority in writing, especially for key departments, key positions, and key personnel, so as to prevent concentration of power and abuse of duties. At the same time, the new provisions of the criminal law are taken as the core requirements of internal audit, and an audit plan is formulated to conduct a comprehensive review and risk investigation of highly suspected non-compliant behaviors and non-compliant processes. Conduct internal and external risks related to suspected commercial bribery, embezzlement, and similar business, and analyze and rank them according to the probability of risk occurrence and the degree of impact, and determine the risk objects that focus on and prioritize control.

Third, during the transition period from the promulgation of the 12th Amendment to the Criminal Law to its implementation, enterprises should strengthen employee education and training, conduct training on the new law for business departments, core personnel, and compliance departments, and convey to employees the policies, regulations, and requirements of corporate compliance, as well as the definitions, types, and penalties for the newly added criminal acts related to corruption crimes by corporate personnel after the amendment, and emphasize the specific operation of corporate compliance policies and procedures, and the use of reporting channels. Through employee training, the ability to identify and prevent fraud can be enhanced, compliance awareness can be enhanced, and the overall effect of corporate compliance can be improved.

IV. Conclusion

The promulgation of the Amendment (12) to the Criminal Law is undoubtedly a major boon to increase the punishment of fraud crimes for private enterprises, and it is also consistent with the internal drive of private enterprises to pursue self-purification, self-compliance and self-integrity. Of course, the implementation of the amendment still needs to be further discussed in terms of judicial interpretation and application of the law, and attention should be paid to legal issues such as the boundary between crimes and the intersection of civil and criminal law. From the perspective of enterprises, at a time when the country is vigorously cracking down on corruption, private enterprises should adhere to the bottom line of the law, strengthen the construction of the compliance system, and achieve the benign goal of compliance governance and healthy development.

About the Author

Hu Chenyang

Founder of Beijing Jingshi (Shanghai) Law Firm, director of the National Enterprise Internal Control and Anti-Fraud Research Center of Jingshi, deputy director of the National Criminal Committee of Jingshi, adjunct professor of Shanghai University Law School, and practical tutor of LLM students at the University of International Business and Economics, he has more than 10 years of experience in criminal investigation and more than 20 years of experience as a practicing lawyer in criminal cases.

Practice Areas: Corporate Compliance & Anti-Fraud Investigations, Criminal Defense

Li Ju

He holds a master's degree in economic law from China University of Political Science and Law, and is the deputy secretary-general of the Corporate Internal Control and Anti-Fraud Research Center of Jingshi Shanghai Law Firm.

Practice Areas: Corporate Commercial Dispute Resolution, Corporate Compliance