Chen Ruihua on the issue of the sinicization of corporate compliance
Chen Ruihua is a professor at Peking University Law School.
Source: Legal Science (Journal of Northwest University of Political Science and Law), Issue 3, 2020.
Abstract:At present, the mainland government is promoting the construction of enterprise compliance management system in an administrative-led manner. Despite strong external pressures and internal dynamics, mainland companies face many challenges in establishing an effective compliance program. Due to the lack of basic compliance incentive mechanisms in the field of administrative supervision and criminal law, it is difficult for enterprises to receive lenient administrative and criminal treatment even if they establish a compliance plan, so enterprises lack substantial motivation to establish a compliance management system. In the future, how to ensure that enterprises implement an effective compliance mechanism without being subject to severe sanctions, and establish a major incentive mechanism for enterprise compliance in the fields of administrative supervision and criminal law, will be a major strategic issue to be solved by the mainland in promoting the corporate compliance system.
Key words: corporate compliance administrative supervision administrative reconciliation strict liability unit crime
I. Introduction
From the perspective of business operation, compliance is a management mechanism adopted by enterprises to prevent, control and respond to various legal risks. In essence, compliance is a form of corporate governance, which is a risk prevention and control mechanism carried out by enterprises while carrying out business management and financial management in order to maximize their own interests. Avoiding or minimizing compliance risks is the basic goal of corporate compliance management. An effective compliance program consists of at least five essential elements: a code of business conduct that all employees are required to follow; The second is to have an independent and authoritative compliance team; Third, there is a mechanism for preventing compliance risks; Fourth, a set of effective compliance risk identification mechanisms have been established; Fifth, there is a system for responding to compliance crises in a timely manner after the occurrence of violations of laws and regulations.
With the deepening of the mainland's reform and opening up policy, more and more multinational enterprises have entered China, and the corporate compliance system has gradually been established by the Chinese branches of these enterprises. Some law firms are starting to provide compliance services to the Chinese branches of these foreign companies. As Chinese enterprises go to Europe, the United States and even other countries and regions for investment, operation or listing, how to comply with the laws and regulations of the countries and regions where they are located and avoid real legal risks has become an important challenge for Chinese enterprises. It can be said that it is the "one coming" of multinational enterprises and the "one coming" of Chinese enterprises that have gradually contributed to the development of corporate compliance mechanisms in mainland China, and are gradually regarded as an important way of corporate governance.
The mainland government's emphasis on corporate compliance management systems began with financial enterprises and gradually spread to all central state-owned enterprises. Since 2005, China's financial regulators have been aware of the legal risks of financial enterprises and have begun to implement compliance mechanisms among state-owned financial enterprises. In 2006, the China Banking Regulatory Commission (CBRC) issued the Guidelines on Compliance Risk Management for Commercial Banks, based on the Compliance and Internal Compliance Departments adopted by the Basel Committee on Banking Supervision. In 2007, the China Insurance Regulatory Commission (CIRC) promulgated the Measures for the Compliance Management of Insurance Companies, which is consistent with the content. In 2017, the Standardization Administration of China (CADC) released the Chinese version of the Compliance Management System Guidelines, based on the Compliance Management System Guidelines issued by the International Organization for Standardization. In the same year, the China Securities Regulatory Commission (CSRC) promulgated the Measures for the Compliance Management of Securities Companies and Securities Investment Fund Management Companies, implementing a mandatory compliance system for securities companies in the form of administrative regulations. In 2018, the State-owned Assets Supervision and Administration Commission of the State Council issued the Guidelines for Compliance Management of Central Enterprises (for Trial Implementation), which provides comprehensive guidance for central state-owned enterprises to strengthen compliance operations and build compliance systems. It is worth noting that in May 2018, the China Council for the Promotion of International Trade initiated the establishment of the National Corporate Compliance Committee. In December of the same year, the National Development and Reform Commission, together with six other departments, issued the Guidelines for the Compliance Management of Enterprises' Overseas Operations, which established basic standards and systems for the compliance management of Chinese enterprises in their overseas operations.
The mainland government regulators attach great importance to the construction of corporate compliance mechanisms, and strive to promote those export-oriented enterprises to "align with international standards" in compliance management. Many large state-owned enterprises (SOEs) have established compliance teams and initially established compliance management mechanisms. At present, the mainland government regulatory authorities mainly promote the construction of enterprise compliance management systems through an administrative-led mechanism, that is, through a mandatory compliance, compliance reporting, compliance assessment, compliance supervision and other measures to urge enterprises to establish compliance management systems in accordance with the requirements, and those enterprises that fail to establish a compliance management system as required or have violations of laws and regulations in the establishment of a compliance system can take administrative punishment measures. The existence of such an administrative pressure mechanism is undoubtedly beneficial for enterprises to promote the construction of compliance systems.
However, in terms of the implementation of the compliance management system, there is a problem that the mainland has more than enough administrative pressure and insufficient legal incentive mechanism. In the field of administrative supervision, although there has been an embryonic compliance incentive mechanism in mainland China, which allows some non-compliant enterprises to raise compliance defenses in exchange for more lenient administrative treatment, the scope of application of such compliance incentive mechanism is very small, and the incentive effect is still very limited. In the field of criminal justice, the kind of compliance incentives that apply to companies suspected of committing crimes are almost non-existent. Once a company suspected of committing a crime is subject to a criminal investigation, even if it has established a compliance program, it will not be subject to non-prosecution or acquittal, and the company will not be able to raise a plea of innocence on the grounds of establishing a compliance mechanism, and the court will not consider compliance as a mitigating or mitigating circumstance after convicting the company. It can be said that the lack of basic incentive mechanisms for corporate compliance in the field of administrative supervision and criminal prosecution has greatly limited the development of corporate compliance, making the establishment and improvement of compliance management mechanisms a mere formality, or simply regarded as a matter of "fulfilling moral obligations". Obviously, on the issue of corporate compliance, we are faced with the issue of how to study the sinicization and localization of corporate compliance based on the mainland legal system and legal practice. The scientific attitude towards corporate compliance issues should be based on a comprehensive understanding of its basic principles and operation mode, and transplant it into China's legal system, so that it can be sown and take root in China's institutional soil, and gradually become a "living organism" that can effectively play the role of the system.
This article intends to make a preliminary discussion on the issue of the sinicization and localization of corporate compliance. In the author's view, there is currently an administrative-led compliance management system in China, and the author will briefly analyze the dynamic mechanism of promoting the compliance system for enterprises. However, the biggest obstacle to the establishment of an effective compliance mechanism for Chinese companies is that the effectiveness of the compliance program is difficult to ensure and the compliance incentive mechanism is not legally established. This article will reflect on the problem of such obstacles to the effective implementation of compliance programs, and comment on the incentive mechanisms of administrative supervision and criminal law in China. Finally, this paper will make predictions and comments on the direction of corporate compliance in China based on China's institutional environment.
2. The dynamic mechanism for the sinicization of corporate compliance
As a form of corporate governance, corporate compliance is not an endogenous system, but a system transplanted and borrowed from Western countries. So, why is there a trend of establishing compliance systems among Chinese companies? What are the factors driving the implementation of corporate compliance systems in China? In the author's view, the dynamic mechanism of corporate compliance in China mainly includes three aspects: first, Chinese enterprises investing, operating or listing overseas will face increasingly stringent compliance management requirements once they go abroad; Second, the Chinese government has exerted increasing pressure on Chinese companies to establish effective compliance programs through strong administrative legislation and law enforcement. Third, with the introduction of corporate compliance management systems, some corporate governance concepts originating from the West have also been introduced into China and gradually accepted by regulators and enterprises. It is precisely under the effect of these three dynamic mechanisms that the introduction of corporate compliance mechanisms in China has a realistic basis.
(1) Increasingly stringent international compliance management requirements
As more and more Chinese companies go abroad to invest, operate or list in Europe and United States, they must not only strictly abide by the laws and regulations of the host country, but also establish an effective compliance management mechanism in accordance with the legal requirements of the host country. Even those Chinese companies that invest and operate in China, as long as they become agents, distributors, suppliers, etc. of Western enterprises, may be subject to the jurisdiction of European and United States laws as a "third party" and are subject to increasingly strict legal supervision. Especially in many areas such as anti-foreign bribery, money laundering, intellectual property protection, product export control, investment and mergers and acquisitions, and data privacy protection, the legislation of European and United States countries has become more and more developed and complex, and the supervision has also been sharply strengthened. Against this backdrop, Chinese companies are facing increasing legal risks, and there is a strong incentive for them to establish an effective compliance program in order to avoid increasingly severe administrative and criminal penalties.
For example, in the field of anti-foreign bribery, United States the Foreign Corrupt Practices Act passed in 197 United Kingdom 7, the Anti-Bribery Law passed in 2010, and the Sapin II Act passed in 2016 France have established an extremely broad jurisdiction, and Chinese companies engaged in investment, operation and listing activities in these countries, as well as Chinese companies that violate the above laws outside these countries, may be subject to administrative regulatory investigations, criminal investigations, and even criminal liability. In addition to establishing severe penalties and broad jurisdiction over overseas bribery, all three countries have established compliance incentives for commercial bribery. Based on the establishment of a compliance plan, the administrative supervision authority may decide whether to impose an administrative penalty or file a civil lawsuit with the court. Based on the establishment of a compliance program, the procuratorate may decide whether to initiate a public prosecution, whether to reach a deferred prosecution agreement or non-prosecution agreement with the enterprise, or whether to submit a recommendation to the court to reduce the criminal punishment. At present, in the process of FCPA enforcement in the United States, the vast majority of cases are resolved through the way of the enterprise accepting the prosecution settlement agreement, and the company almost always establishes or improves the compliance program in exchange for lenient administrative or criminal treatment. To date, dozens of Chinese companies have been investigated for violating the United States Foreign Corrupt Practices Act, and the vast majority of them have avoided severe penalties by settling with regulators and prosecutors, paying hefty fines, and promising to improve compliance programs. In 2018, the United States government even formulated the "China initiatives" for Chinese companies, which greatly strengthened law enforcement actions against Chinese companies in areas such as anti-foreign bribery, trade secrets, and export controls. As a result, Chinese companies face an increased risk of regulatory and criminal investigations by United States law enforcement agencies.
For another example, on May 25, 2018, the European Union officially implemented the General Data Protection Regulation (GDPR), making it an important law affecting the protection of personal data around the world. Fines imposed by regulators on companies that violate the law can be capped at €20 million or 4% of the company's global revenue in the previous financial year. In determining penalties, regulators should consider not only the severity of the data breach and the number of data subjects affected, but also the derogatory actions of the data breacher, whether there were prior violations of the law, the degree of cooperation with the regulator, and so on. In addition to businesses established in EU countries that are subject to the law, businesses established outside the EU are also subject to the Act as long as they provide goods or services to EU data subjects or monitor the actions of EU data subjects in the EU. In other words, even businesses established in China may be subject to the GDPR as long as they meet the above conditions.
Another example is in the field of anti-money laundering, more and more Chinese financial institutions engaged in overseas business activities are subject to more and more frequent regulatory investigations, and even direct administrative penalties or criminal prosecutions because they are suspected of committing money laundering and violating the laws of the countries where they are located. From 2014 to 2016, branches of China's four major commercial banks (Industrial and Commercial Bank of China, China Construction Bank, Bank of China, and Agricultural Bank of China) were investigated by local regulators in Madrid, Spain, Milan, Italy, and New York, United States, respectively, and eventually paid huge fines ranging from hundreds of millions of dollars. Although the case was settled through settlement, the banks had to accept the extremely stringent compliance requirements imposed by the regulators.
Even international organizations such as the World Bank have joined the ranks of sanctions against Chinese companies that violate laws and regulations. According to statistics, as of May 2019, a total of 114 Chinese enterprises and individuals have been sanctioned by the World Bank, of which 21 Chinese companies were sanctioned in 2017, 44 in 2018, and 23 in the first five months of 2019. Many Chinese companies are subject to sanctions for more than a year and will face joint sanctions from multilateral financial institutions such as the World Bank, the Asian Development Bank, the African Development Bank, the European Bank for Reconstruction and the Inter-American Development Bank, which are not only barred from participating in their own construction projects, but also suffer huge economic and reputational damage. The main reasons for the sanctions imposed on these Chinese companies are misrepresentation or other fraud in the bidding process, as well as corruption, collusion, coercion, obstruction of investigation and other violations of laws and regulations. Of course, if the companies involved in the case establish and operate a compliance system in accordance with the requirements of the World Bank's Integrity and Compliance Guidelines, they may be subject to leniency such as lifting or waiving sanctions, and will be reinstated to participate in World Bank projects.
It can be said that the strict regulatory system, severe punishment mechanism and increasingly perfect compliance management requirements from the international community have forced Chinese enterprises engaged in foreign-related business to establish and improve compliance programs as the primary way to survive. The increasingly sophisticated laws and regulations in these countries force Chinese companies to develop compliance plans to effectively prevent possible compliance risks. These countries impose severe penalties on companies that violate laws and regulations, forcing Chinese companies to guard against legal risks. The compliance incentives applied to non-compliant companies in these countries have also attracted Chinese companies to seek to improve their compliance programs in exchange for leniency to minimize losses. It is the strong pressure from Western countries and international organizations that has forced Chinese enterprises to accept the concept of compliance management, adopt compliance management mechanisms in all aspects, and ensure the effective operation of compliance mechanisms.
(2) The pressure mechanism of China's administrative regulators
In the process of introducing a corporate compliance management mechanism, the mainland has established a relatively unique "administrative pressure mechanism" through the strong promotion of the administrative supervision department, which compels enterprises to establish a compliance management mechanism through administrative legislation and law enforcement, and conducts administrative management through assessment, reporting, evaluation, etc., and also punishes those enterprises that do not establish a compliance mechanism in accordance with the law and their responsible senior management personnel through punishment and punishment. Under China's unique national conditions, the existence of such an administrative pressure mechanism constitutes an effective driving mechanism for enterprises to establish a compliance management system.
In 2017, the China Securities Regulatory Commission (CSRC) promulgated the Measures for the Compliance Management of Securities Companies and Securities Investment Fund Management Companies, which set forth legal requirements for the implementation of compliance management by various types of securities operating enterprises in the form of administrative regulations. The Measures stipulate that the China Securities Regulatory Commission and its dispatched agencies shall supervise and administer securities enterprises, and the Securities Association of China and the Asset Management Association of China shall exercise self-discipline management over the compliance management of securities and fund operating enterprises. The Measures establish a mandatory compliance regime and require securities companies in China to fully establish a compliance management system. The Measures establish an annual compliance reporting system, requiring securities companies to submit annual compliance reports to the dispatched agencies of the China Securities Regulatory Commission. The Measures establish a compliance assessment system, requiring securities enterprises to organize relevant institutions and departments, or entrust external professional institutions to evaluate the effectiveness of compliance management of securities companies, and solve problems in compliance management in a timely manner. For securities enterprises that violate the provisions of these Measures in the establishment of a compliance management system, the China Securities Regulatory Commission may take administrative supervision measures such as issuing warning letters, ordering regular reports, ordering corrections, and regulatory talks, and take corresponding administrative supervision measures against the relevant responsible personnel of the enterprise; If a securities enterprise violates the relevant compliance management provisions of these Measures, or fails to report major violations of laws and regulations in a timely manner, the China Securities Regulatory Commission or its dispatched agency may impose a warning or a fine of less than 30,000 yuan on the securities enterprise and its directly responsible personnel.
In 2018, the State-owned Assets Supervision and Administration Commission of the State Council issued the Guidelines for the Compliance Management of Central Enterprises (for Trial Implementation), as an important normative document for the mainland to promote the compliance management mechanism of central enterprises. The former refers to the inclusion of compliance operations in the annual assessment of the heads of all departments and affiliated enterprises of the enterprise, and the evaluation of the compliance performance of the subordinate units and employees, and as an important basis for evaluation, appointment and evaluation. The latter means that after the occurrence of a major compliance risk event, the compliance management department shall report to the person in charge of compliance management and the leader in charge in a timely manner, and the major compliance risk event shall be reported to the SASAC and relevant departments. Through the implementation of these two systems, the SASAC, as the regulator of state-owned enterprises, can use assessment and evaluation methods to strongly supervise the progress of the establishment of compliance mechanisms by central enterprises in promoting the construction of enterprise compliance management systems, and require the person in charge of the enterprise to promote the construction of the system in this regard through the appointment and promotion mechanism. At the same time, the SASAC listens to the reports of enterprises on compliance risk incidents and provides timely guidance on their response to and handling violations of laws and regulations, so as to effectively improve the compliance system.
In 2017, the General Administration of Quality Supervision, Inspection and Quarantine of the People's Republic of China and the Standardization Administration of the People's Republic of China jointly issued the Guidelines for Compliance Management Systems, which established national standards for various enterprises to establish, strengthen and improve compliance management systems. Although this guide is not mandatory and binding on the compliance management of enterprises, and only provides guidance and suggestions for the establishment of a compliance management system, the introduction of this national standard for compliance management system is of guiding significance for the construction of compliance management systems of state-owned enterprises, private enterprises and other enterprises. In particular, it has laid a good institutional foundation for the administrative supervision department to implement the certification mechanism for the enterprise compliance management system.
Under China's unique national conditions, through the application of the above-mentioned compliance assessment, assessment, certification, reporting and administrative punishment mechanisms, the administrative supervision department has constituted a powerful pressure mechanism for enterprises to promote the construction of compliance management systems. The administrative regulators in mainland China can not only impose regulatory investigations and administrative penalties on enterprises for violations of laws and regulations, but also impose administrative supervision measures or directly impose administrative penalties on enterprises that fail to establish a compliance management system in accordance with regulations or mishandle compliance reporting, risk assessment and monitoring. This kind of pressure mechanism implemented on enterprises through administrative means is undoubtedly of positive significance for enterprises to quickly and effectively promote the construction of compliance management systems. In particular, it is worth pointing out that under the circumstance that the relevant departments have issued national standards for compliance management systems, if the regulatory authorities promote the compliance certification system of enterprises on this basis, and take compliance certification as a qualification access requirement for investment, mergers and acquisitions, listing and other business activities, then this pressure mechanism from the administrative supervision department will be strengthened to a greater extent.
(3) The introduction of Western corporate governance concepts
In the process of promoting the establishment of compliance management systems for enterprises, the administrative supervision departments in mainland China have not only established compliance mechanisms in accordance with international standards, but also introduced some corporate governance concepts derived from the West. Although the acceptance of these concepts will still take a slow process, the regulatory authorities have urged companies to accept these concepts through the implementation of compliance guidelines or compliance national standards. In fact, the acceptance of these Western-derived concepts of compliance governance by Chinese enterprises has become an important driving force for corporate compliance to take root in China. So, what exactly are these compliance governance concepts? It is generally believed that there are at least three aspects of corporate governance concepts that have been accepted by mainland regulatory authorities: first, the concept of prevention and control of legal risks; the second is the concept of sustainable development; The third is the concept of corporate social responsibility. When introducing a compliance management system, the mainland regulators regard the prevention and control of "compliance risks" as the primary goal of establishing a compliance system. The China Banking Regulatory Commission (CBRC) defines "compliance risk" as the risk that a commercial bank may suffer legal sanctions, regulatory penalties, significant financial losses and reputational losses due to its failure to comply with laws, rules and guidelines. The SASAC's Guidelines for the Compliance Management of Central Enterprises (for Trial Implementation) also have a very similar definition of compliance risk. In the past, mainland enterprises paid more attention to various business risks, and many enterprises even established "risk control departments". However, this kind of risk control is generally aimed at the company's credit risk, market risk, operational risk and other operational risks, which focus on the relationship between investment and return, and can almost be classified into the category of "operational risk". Since the introduction of the compliance management system, a kind of "compliance risk", which is different from "operational risk", has gradually received great attention and is regarded as the premise and foundation for the establishment of a compliance system. The so-called "compliance risk" is not equivalent to "legal risk" in a general sense, but the risk that an enterprise will be subject to administrative penalties by the regulatory authorities or criminal penalties by the judicial authorities due to violations of laws and regulations in the course of operation. In the process of operation, enterprises should not only pursue maximum profits and prevent various business risks in order to achieve maximum development and growth, but also pay attention to the prevention and control of compliance risks, avoid violations of laws and regulations, and prevent legal sanctions or regulatory penalties. This kind of compliance system, which is based on the consideration of compliance risk prevention and control, has become a major issue that the regulatory authorities pay attention to in promoting the construction of the compliance system. This clearly represents a significant change in the perception of corporate governance.
While establishing the concept of preventing "compliance risks", the mainland regulators have also introduced the corporate governance concept of "sustainable development". The Compliance System Guide, which is the national standard for China's compliance system, clearly states that "compliance is the cornerstone of an organization's sustainable development" and the guarantee for the realization of the "principles of good governance". On the surface, the establishment and improvement of the compliance management system will have some negative impact on the pursuit of high profits and high returns. However, in the long run, a legally compliant enterprise can successfully avoid various legal risks, avoid legal sanctions and regulatory penalties caused by violations of laws and regulations, and avoid major property losses and reputational losses. To a certain extent, compliance itself does not create economic value, but it allows enterprises to avoid various economic and reputational losses caused by legal sanctions, and ultimately avoid the reduction or loss of corporate revenue. This is the sustainable effect of compliance.
While ensuring the sustainable development of enterprises, compliance has gradually become a moral and social responsibility of enterprises. Originally, companies in Western countries always associated "compliance" with "ethics" when forming compliance departments, and some companies even referred to the compliance department as "ethics and compliance departments". Mainland regulators have largely embraced this philosophy, both as a management system and governance as well as a "compliance culture". The so-called "compliance culture" is a set of values and ethical norms that embody corporate social responsibility and moral responsibility. According to the Compliance System Guidelines released by Continental, "a compliance culture is the presence of values, ethical principles, and beliefs throughout the organization and interact with the organization's structure and control systems to produce a code of conduct that leads to compliance results." "The so-called moral responsibility or social responsibility of the company mainly refers to the establishment of a compliance system, emphasizing legal and compliant operations, establishing the principle of compliance for all employees, injecting compliance into all aspects of corporate decision-making, investment, operation, management and monitoring, and focusing on the prevention and identification of compliance risks and appropriate response to violations of laws and regulations, so that the compliance system has been continuously improved and perfected. As a result, the company not only achieves compliance management, while chasing profits, it also takes into account many social values such as official integrity, environmental protection, labor interests, intellectual property protection, and personal privacy maintenance, but also maintains a fair and competitive market environment, promotes the realization of the rule of law, and ensures a fair, open and transparent business order.
3. Challenges in implementing an effective compliance program
Experience has shown that simply establishing a compliance team and having a written compliance management mechanism is not enough for the effective operation of a compliance program. An effective compliance program at least means that all employees abide by the code of business conduct, the compliance team independently and efficiently monitors the compliance risks of the enterprise, the compliance risks are prevented in a targeted manner, the internal violations of laws and regulations within the enterprise can be timely and effectively warned and identified, the enterprise can establish rules and regulations in a timely manner and plug the loopholes in the system, the responsible natural persons can be discovered and punished in a timely manner, and those whistleblowers who have contributed to the discovery of violations can not only not be retaliated against, but can be appropriately protected and rewarded. If measured by this standard, the road to compliance governance for mainland enterprises is very long, and further efforts are needed.
From the perspective of formal requirements, the mainland government regulators have indeed completely introduced the corporate compliance systems established by Western countries and international organizations. Some state-owned enterprises (SOEs) have also established compliance programs that are very similar to those of Western multinationals. For example, according to the Guidelines for Operational Risk Management of Commercial Banks issued by the China Banking Regulatory Commission, commercial banks should establish a compliance risk management system that is appropriate to their business scope, organizational structure and business scale. A complete compliance risk management system should include at least the following basic elements: first, compliance policies; second, the organizational structure and resources of the compliance management department; the third is the compliance risk management plan; fourth, the process of identifying and managing compliance risks; Fifth, compliance training and education system.
The Guidelines for Compliance Management of Central Enterprises issued by the State-owned Assets Supervision and Administration Commission of the State Council define the concepts of "compliance", "compliance risk" and "compliance management", modeled on the general practice of international compliance conventions. The document establishes seven levels of compliance management organization, including the Board of Directors, the Board of Supervisors, the managerial level, the Compliance Committee, the compliance management officer, the compliance management leader, and the business unit. The key areas of compliance risk are defined as market transactions, safety and environmental protection, product quality, labor and employment, finance and taxation, intellectual property and business partners. The compliance management mechanism is divided into a compliance management operation mechanism and a compliance management guarantee mechanism. The former may include mechanisms such as compliance management, compliance risk identification, compliance risk response, compliance review, accountability for violations, and compliance management evaluation, while the latter includes compliance assessment and evaluation, compliance management informatization, compliance training, compliance culture, and compliance reporting.
On the face of it, these compliance management systems are directly imported from Western laws and compliance documents of international organizations, and there are no substantial differences in the terminology used and the wording of compliance programs. Even in some respects, the mainland government regulators have a certain "late-mover advantage" in the construction of the compliance system, bypassing the detours taken by many countries in the construction of the compliance system, and directly absorbing the most mature and complete compliance programs. However, the establishment of the compliance management system of mainland enterprises has an obvious utilitarian tendency, and its main purpose is to deal with the increasingly strict corporate supervision of European and United States countries, especially in order to avoid the investigation and punishment of anti-corruption, anti-monopoly, anti-money laundering, anti-financial fraud, data privacy protection and other fields against Chinese enterprises, and adopt a posture of "passively pandering" to the regulatory mechanisms of Western countries. However, in China, the phenomenon of illegal operation of enterprises has not been effectively curbed, especially in the fields of commercial bribery, unfair competition, intellectual property rights, environmental protection, finance, taxation, etc., and the illegal operation of enterprises and even constitutes a crime has reached an alarming level. However, in addition to adopting severe and severe sanctions, the mainland legislature has not incorporated corporate compliance into the framework of corporate governance through legislation, let alone established a corresponding incentive and punishment mechanism for enterprises to establish a compliance plan in law. To a certain extent, the establishment of corporate compliance mechanisms is still in an embarrassing situation in the mainland.
For compliance programs, Western countries not only pay attention to the establishment of corporate compliance mechanisms, but also pay more attention to the effective operation of compliance mechanisms. In fact, whether it was Germany's Siemens or the recent Chinese ZTE, before being investigated by administrative supervision or criminal charges, they had established compliance teams and issued written compliance rules and regulations, and there was a formal "decent" compliance plan. However, this kind of compliance program has no effect at all in the operation of the company, and even does not play a role, and the management of compliance risks and the correction of violations have almost no effect. The United States government regulators and prosecutors have reached deferred prosecution agreements with these companies, which require the establishment of an "effective compliance mechanism" and make it a precondition for the withdrawal of prosecution against the companies involved. Under such intense pressure, these companies have been forced to make efforts to rebuild their compliance systems.
So, how far is the compliance mechanism of mainland enterprises from an "effective compliance plan"?
It should be said that in the governance of state-owned enterprises, the mainland's administrative supervision departments are making every effort to implement the compliance management mechanism originating from the West. Some large enterprises with overseas investment, operation and listing business have also begun to build compliance management mechanisms. However, a compliance program on the books does not equate to the effective operation of the compliance management mechanism. In the following discussion, the author intends to take the construction of a compliance management system in state-owned enterprises as an example to analyze the factors that currently plague the establishment of effective compliance programs by Chinese enterprises.
(1) Functional positioning of compliance
Mainland state-owned enterprises have extremely complicated management systems. In addition to the general board of directors, management, and board of supervisors, there are also multiple departments responsible for supervision, such as risk control, auditing, legal affairs, and discipline inspection and supervision. To date, despite the SASAC and NDRC's strong push to build a compliance management system in central state-owned enterprises, the role of the compliance department is still ambiguous. Almost all central SOEs do not have a dedicated compliance committee on their boards, and the chief compliance officer is often held by the head of the company's legal affairs department. Due to the lack of an accurate positioning of compliance management, the compliance departments of most SOEs are not set up independently, and are either set up under the Commission for Discipline Inspection, co-located with the audit department, or set up under the "risk control department". As a result, it is difficult to ensure the independence and authority of the compliance department, which can neither incorporate the prevention of compliance risks into the vision of the top management, nor report compliance management issues to the board of directors in a timely manner. In the bureaucracy within SOEs, the compliance department is often seen as having overlapping functions with the "audit department", which neither creates economic value nor often hinders the smooth running of the company's for-profit activities. Many enterprises do not have a direct reporting channel for the compliance department to report directly to the board of directors, while the management and sales departments have great decision-making power, and it is easy to break through the control of the compliance department, and it is difficult for compliance risks to be communicated to the highest decision-making level of the company, resulting in a virtual compliance management.
Of course, there are also state-owned enterprises that have rarely been sanctioned by the United States or international organizations, and in order to meet the requirements of the regulator for establishing an effective compliance system, they have to overcome many obstacles in accordance with international standards and make a new positioning of the compliance management system with the support of the highest level. For example, the Hunan Construction Engineering Group was sanctioned by the World Bank for providing false performance materials during the bidding process. Under the supervision and monitoring of the World Bank, the company has carried out a comprehensive work to establish a compliance program in order to lift the sanctions. The company has set up an integrity and compliance committee in the board of directors, the general counsel of the company concurrently serves as the chief compliance officer, the company has established a compliance department, transferred the compliance function to the original legal affairs department, and changed the name of the department to the legal compliance department. The Legal & Compliance Department has set up a Compliance Department, which is specifically responsible for the integrity and compliance of the Group. As a result, the company's business management, financial management, and compliance management are completely separated, and the effectiveness of the compliance management system is ensured. Eventually, due to the company's success in rebuilding its compliance program, the World Bank lifted sanctions against the company and reinstated its eligibility to participate in bidding and apply for loans.
However, there are still few state-owned enterprises in China that have rebuilt their compliance systems to lift sanctions. The vast majority of state-owned enterprises (SOEs) are still arguing over the positioning of their compliance functions, and it is difficult to have a unified institutional arrangement. However, in any case, the institutional arrangement that confuses compliance management with business management and financial management will lead to the erosion of the independence and authority of the compliance department, and it will be difficult to ensure the effectiveness of the compliance program.
(2) Compliance prevention mechanisms
An effective compliance system requires effective prevention of compliance risks. At a minimum, the compliance prevention system should include compliance risk assessment, regular updates on compliance risks, compliance due diligence and compliance training systems. However, in terms of establishing a compliance prevention system, mainland state-owned enterprises have obvious shortcomings.
Mainland enterprises have not established a mechanism to assess unique compliance risks, and there is neither the concept of "key compliance risk areas" nor the understanding of "risk points". In the process of establishing a compliance management system, SOEs usually only formulate a relatively vague compliance management norm or employee code of conduct, but do not establish a targeted compliance prevention system based on the nature of the enterprise, the key areas of compliance risk and key risk points. In the course of domestic operations, there is no special compliance risk prevention mechanism for enterprises in high-risk areas such as commercial bribery, unfair competition, product quality, taxation, intellectual property rights, and environmental protection. However, in the course of overseas operations, mainland enterprises do not have an effective compliance risk assessment mechanism for key areas of overseas compliance law enforcement, such as anti-corruption, anti-monopoly, anti-money laundering, data protection, export control, and other areas where compliance risks are frequent. In the process of enterprise operation, many state-owned enterprises and private enterprises still have a mentality of quick success, evading laws and regulations and escaping supervision as a means to obtain high profits, and often turn a blind eye to the widespread structural compliance risks, and do not take any effective governance measures.
In the process of developing partners such as suppliers, agents, distributors, and distributors, SOEs rarely conduct serious third-party compliance due diligence, or when they do, they are only hastily carried out by internal legal affairs departments, and rarely engage external independent lawyers to conduct such investigations. As a result, violations of laws and regulations by third parties are often transformed into compliance risks for the enterprise itself. However, in carrying out business activities such as investment and mergers and acquisitions, there are also obvious deficiencies in the compliance due diligence of state-owned enterprises. As a result, those who are invested in or M&A often transfer to SOEs once compliance risks arise.
Moreover, at present, state-owned enterprises rarely conduct regular and targeted compliance training on compliance risks. On the one hand, the compliance norms and employee handbooks that serve as training materials are either not published in a timely manner or lack the necessary pertinence. On the other hand, even if training is carried out, it cannot be persistent, let alone form an institutionalized and normalized training mechanism. As a result, regular training for all employees cannot be guaranteed, targeted training for employees working in high-risk fields is difficult to be sustained, and training for third parties and investees or mergers and acquisitions is highly arbitrary. Obviously, such a training mechanism cannot meet the needs of effectively preventing compliance risks.
(3) Mechanisms for identifying violations
An effective compliance program requires the company's compliance mechanism to have the effect of early warning throughout the whole process of operation, to identify and report violations of the enterprise or any employee in a timely manner, and to encourage employees or any party to report, so as to ensure that the compliance department and even the top level detect violations in a timely manner.
Mainland enterprises lack a mechanism to effectively identify compliance risks. In addition to the inability of the compliance department to report to the highest decision-making level in a timely manner, the corporate department also did not have an effective non-compliance reporting system. The unique corporate culture of mainland China determines that the system of employees of enterprises originating from the West to report compliance risks and incidents of non-compliance to the compliance department or top management has little room for existence within mainland enterprises. Once an employee reports a violation, there is no effective protection mechanism and incentive mechanism within the company, and it is difficult to stop the violator from retaliating against the whistleblower. Experience shows that if an enterprise does not establish an integrated compliance risk identification mechanism to enable compliance risks and violations to be discovered and disclosed in a timely manner, then the enterprise will not be able to respond quickly and effectively, and it will be impossible to avoid compliance risks and improve the compliance mechanism.
(4) Response mechanisms for compliance crises
An effective compliance program requires that after a breach occurs, or after a crisis caused by a breach, the company is able to conduct an internal compliance investigation in a timely manner, disclosing the breach in a timely manner on the one hand, and taking timely disciplinary action against those responsible for the breach on the other. At the same time, the loopholes and deficiencies in the compliance management system of the enterprise should be made up in a timely manner and necessary rectification work should be carried out.
Mainland enterprises lack an effective response mechanism to compliance crises. After the occurrence of violations and the intervention of regulatory authorities, the company does not take timely and effective remedial measures, and often evades supervision, falsifies evidence or responds to supervision in a deceptive manner, and even continues to take some violations of laws and regulations in the process of responding to such investigations. As a result, once compliance risks and non-compliance events occur, companies often miss the best opportunity to improve their compliance mechanisms, leading to more serious consequences. Moreover, ZTE's lessons show that after the occurrence of corporate violations of laws and regulations, mainland enterprises usually adopt the practice of shielding and protecting those executives and employees who are directly responsible, and do not take compliance measures such as anti-fraud investigations against them, nor hand over those natural persons who bear legal responsibilities to judicial disposal. This approach to dealing with natural persons directly engaged in violations of laws and regulations makes it difficult for company executives and employees to learn lessons and effectively curb violations of laws and regulations, which ultimately makes the compliance management mechanism of enterprises useless and difficult to play an active role in the prevention and deterrence of violations of laws and regulations.
Fourth, the emergence and limitations of administrative supervision incentive mechanisms
In Western countries, corporate compliance is not only a form of corporate governance, but also a form of self-improvement that can be incentivized by law. The so-called compliance incentive mechanism means that after the occurrence of violations of laws and regulations, enterprises can establish or improve compliance programs in exchange for leniency from government departments. According to this lenient approach, compliance incentives can be divided into two categories: administrative regulatory incentives and criminal law incentives, the former refers to the fact that the administrative regulatory authority can impose relatively lenient administrative penalties on enterprises that have established a compliance mechanism, such as imposing fines to exempt more severe administrative penalties. Enterprises can also reach a settlement agreement with the regulator, promising to pay a high penalty during the probationary period, establish an effective compliance program, or even agree to appoint a compliance officer with the regulatory authority, who can waive or reduce the administrative penalty after the probationary period ends. The so-called criminal law incentive refers to the fact that the criminal prosecution agency may make a decision not to prosecute those enterprises suspected of committing illegal and criminal acts on the basis of their compliance plan, or apply to the court to reduce the criminal punishment. The procuratorate may also reach a deferred prosecution agreement or non-prosecution agreement with the enterprise, order it to pay a high fine, improve the compliance plan during the probationary period, and appoint a compliance supervision officer, who may withdraw the prosecution after the probationary period is over. It can be said that the existence of the compliance incentive mechanism is one of the key reasons why the corporate compliance system has been highly valued by enterprises and quickly implemented to the world. It is only after being subject to administrative investigations by regulators and criminal investigations by prosecutors and reaching settlements with these agencies that many companies realize that establishing a compliance program can avoid greater losses, and that improving a compliance program can bring real and significant benefits to the enterprise. Without compliance incentives, companies do not have a strong incentive to establish compliance mechanisms.
In mainland China, there are also two systems of investigation and punishment for violations of laws and regulations by enterprises: administrative supervision and criminal prosecution. In many cases, the operation of the two systems can be either a succession or a parallel operation. Of course, not all corporate wrongdoing in violation of administrative supervision laws is recognized as a criminal offense. For violations of laws and regulations of enterprises, administrative investigations and administrative penalties by administrative regulators are normalized, and only a few cases are eventually transformed into criminal cases.
So far, almost all administrative organs in the mainland have the power of administrative supervision, and also enjoy the power of administrative punishment in their respective regulatory fields. For enterprises that commit administrative violations, the main administrative penalties include fines, confiscation of illegal gains or illegal property, orders to suspend production and business, suspension or revocation of permits and licenses, and so on. According to China's Administrative Punishment Law, the administrative regulatory authority may impose a lighter or mitigated administrative penalty on an enterprise under the following circumstances: (1) it takes the initiative to eliminate or mitigate the harmful consequences of the illegal act; second, being coerced by others to commit illegal acts; The third is to cooperate with the administrative organs in investigating and dealing with illegal acts, and have made meritorious contributions, and so on.
It is becoming increasingly clear that Chinese regulators are imposing more and more severe administrative penalties on non-compliant companies in some sectors, especially the amount of fines imposed by the authorities is getting higher and higher, some of which have reached sky-high levels. For example, in the field of anti-monopoly, government regulators often impose fines of hundreds of millions of yuan on companies that violate the rules. In August 2014, China's antitrust authorities imposed a total fine of 1.2 billion yuan on more than a dozen Japanese auto parts and bearing manufacturers who had conspired to charge exorbitant fees to vehicle assembly plants. In September of the same year, Chinese antitrust authorities imposed fines of up to 280 million yuan on Volkswagen of Germany and Chrysler of United States for violating antitrust regulations. In 2018, among the top ten typical cases of anti-monopoly law enforcement announced by the State Administration for Market Regulation, there were four cases involving fines imposed on enterprises, of which three enterprises that implemented monopolistic behaviors of glacial acetic acid raw materials were fined and confiscated a total of 12.83 million yuan of illegal gains; imposed a fine of 6% of the annual sales of the two Daqing natural gas companies, totaling 84.06 million yuan; fined a number of yards in the port area of Tianjin with a total fine of more than 45.1 million yuan; A total of more than 12.34 million yuan of fines and confiscation of property were imposed on an enterprise that implemented the monopoly of chlorpheniramine APIs.
In another example, China's securities regulatory authorities have imposed unprecedented penalties on financial institutions and other enterprises for violations. In 2018, the China Securities Regulatory Commission imposed a fine of 2.7 million yuan on Lixin Accounting Firm, the largest audit institution in China, and confiscated 900,000 yuan of business income because the firm failed to exercise due diligence in the audit of a company's 2014 financial statements and issued an audit report with false records. In the same year, the China Securities Regulatory Commission also imposed a fine and confiscation of 6 million yuan in business income on another auditing firm, Dahua Accounting Firm.
In the process of conducting regulatory investigations and administrative penalties for violations of laws and regulations by enterprises, mainland regulators are basically still at the stage of "deterring potential violators through punishment". Behind the increasing fines and penalties, there is an institutional paradox: are the fines and confiscations imposed by the regulatory authorities used to punish violators, or are they used as a special means of "revenue". Those enterprises that are found to have committed administrative illegal acts, after receiving huge fines, if they do nothing in establishing rules and regulations and preventing violations, or even pay fines as the necessary price to pay for violations, so that in pursuit of extremely high illegal profits, they continue to take risks and break through the bottom line of administrative supervision laws and regulations, then the effect of such administrative penalties will not be greatly reduced? Isn't the so-called administrative supervision a fictitious reality?
The relevant decision-making departments on the mainland have obviously had a preliminary understanding of this point and are trying to make appropriate reforms in the way of administrative supervision. In particular, in the fields of securities and anti-monopoly, there have been reform pilots to comprehensively explore administrative reconciliation, and a strict liability system for companies has been introduced. Whether it is an administrative settlement or a company's strict liability, it contains the factor that the establishment of a compliance plan by the enterprise is an incentive mechanism for administrative supervision. Even in the field of securities supervision, the administrative regulatory authorities have introduced certain compliance incentive mechanisms on the premise of establishing a mandatory compliance system. This is briefly analyzed and commented on below.
Continental law established a system of administrative reconciliation as early as the end of the 20th century. However, this kind of administrative settlement is mainly applicable to administrative reconsideration and administrative litigation procedures, and is used to resolve administrative disputes between administrative organs and counterparties. In the process of administrative supervision and investigation, there has been no administrative settlement between the administrative organ and the counterpart. But since 2015, the situation has changed significantly. In the same year, the China Securities Regulatory Commission (CSRC) issued the Measures for the Implementation of the Pilot Administrative Settlement Program to pilot the administrative reconciliation system in the field of securities and futures supervision. According to this system, if the administrative counterpart is suspected of violating securities and futures laws, administrative regulations and relevant regulatory provisions, the CSRC may, in the course of investigation and law enforcement, negotiate with the administrative counterpart on correcting the suspected illegal acts, eliminating the adverse consequences of the illegal acts, paying administrative settlement funds, compensating investors for losses, etc., and terminate the investigation and law enforcement procedures. It is said that the adoption of this administrative conciliation method against the administrative counterpart is conducive to achieving regulatory purposes, reducing disputes, stabilizing and clarifying market expectations, restoring market order, and protecting the legitimate rights and interests of investors.
It is worth noting that when an administrative counterpart submits an application for administrative settlement, it shall indicate in its application that it "proposes a plan to correct, mitigate or eliminate the harmful consequences of its suspected illegal acts"; The China Securities Regulatory Commission (CSRC) may fully communicate and negotiate with the administrative counterpart on matters such as correcting the suspected illegal acts and actively eliminating or mitigating the harmful consequences of the suspected illegal acts; After an administrative settlement agreement is reached, the administrative settlement agreement shall not only specify the amount and method of payment of the administrative settlement fee by the administrative counterpart, but also specify "other specific measures for the administrative counterpart to rectify the suspected illegal conduct and eliminate or mitigate the harmful consequences caused by the suspected illegal conduct". In addition, after the administrative settlement agreement is reached, the China Securities Regulatory Commission supervises the administrative counterpart to perform the obligations stipulated in the agreement within the time specified in the agreement, and after it has fulfilled all its obligations, it will issue a notice of administrative settlement and closure to terminate the investigation and trial procedures of the case.
In April 2019, the China Securities Regulatory Commission (CSRC) reached an administrative settlement with nine applicants, including Goldman Sachs (Asia) Co., Ltd. and Beijing Gao Hua Securities Co., Ltd., who paid an administrative settlement of 150 million yuan to the CSRC and promised to take necessary measures to strengthen the company's internal management. The CSRC shall terminate the investigation and trial procedures of the applicant in accordance with the regulations. This administrative settlement case is the first administrative settlement case since the administrative reconciliation pilot in 2015.
It should be said that the government regulatory authorities have carried out the pilot work of administrative reconciliation in the field of securities supervision, and have taken the plan of correcting the illegal acts and eliminating or mitigating the consequences of the illegal acts proposed by the enterprises suspected of administrative violations as a prerequisite for reaching an administrative settlement with them, which has indeed introduced the compliance of enterprises into the process of administrative reconciliation. However, the enterprises involved in the case must not only promise to strengthen internal management, but also take concrete measures for internal rectification, so as to obtain the termination of the administrative investigation procedure by the regulatory authorities and avoid more severe administrative penalties. This clearly shows that, at least in the field of administrative supervision, corporate compliance is already playing the role of an incentive mechanism for administrative supervision.
(2) Establishment of the company's strict liability
The Anti-Unfair Competition Law, passed by the Standing Committee of the National People's Congress in 2017, sets out some new norms for commercial bribery in the course of business operations. It is worth noting that for the first time, the law introduces a strict liability system, which presumes bribery of employees as "business operators". At the same time, the law provides an opportunity for enterprises to defend against liability, and the operator (i.e., the enterprise) can not be held legally liable if "there is evidence to prove that the employee's conduct is not related to seeking trading opportunities or competitive advantages for the operator".
According to the basic jurisprudence of strict liability, in the case of bribery by an employee, the company has to bear the burden of proof to prove that the employee's behavior is purely personal and has nothing to do with "seeking trading opportunities or competitive advantages" for the company. But how do you prove it? In a situation where the company's behavior is inseparable from the employee's behavior, it is very difficult for the company to prove that an employee's conduct of commercial bribery has nothing to do with the company. In many cases, an employee's bribery may be subjectively for his own interests, such as improving business performance, improving relationships with customers, opening sales channels, etc., but objectively it is still conducive to realizing the overall interests of the company. If the administrative regulatory authorities give too strict an explanation on this, it will be difficult for the company to escape the consequences of being held administratively responsible, and it will also lack the enthusiasm to establish a corporate compliance mechanism. Therefore, whether from the perspective of administrative law enforcement practice or the authoritative interpretation of the regulatory authorities, an enterprise can be deemed to have borne the above-mentioned burden of proof as long as it proves that it has taken active efforts and effective measures in anti-commercial bribery.
In this regard, a senior official of the former State Administration for Industry and Commerce has clearly explained: "'There is evidence to prove that the behavior of the staff has nothing to do with seeking trading opportunities or competitive advantages for the operator' means that the operator has formulated legal, compliant and reasonable measures and taken effective measures to supervise it, and should not indulge or disguise the bribery of the staff." ”
In other words, in the case of commercial bribery by an employee of an enterprise, the enterprise bears the burden of proving that the employee's behavior is not to seek transaction opportunities or competitive advantages for the enterprise, otherwise, it will bear legal liability. To prove this, enterprises need to prove that they have established an effective anti-commercial bribery compliance program, that is, they have formulated legal, compliant and reasonable measures to prevent commercial bribery, and have taken effective supervision, management, identification and reporting measures in anti-commercial bribery to show that the enterprise has not indulged in commercial bribery among employees. As a result, corporate compliance has been introduced into the field of anti-unfair competition, and has the effect of a no-liability defense.
(3) Implementation of the mandatory compliance system
In 2017, the China Securities Regulatory Commission (CSRC) promulgated the Measures for the Compliance Management of Securities Companies and Securities Investment Fund Management Companies, requiring all securities companies and securities investment fund management companies established in China to implement compliance management and establish compliance institutions in accordance with the law. Specifically, all securities companies should follow the concepts of "full compliance", "compliance starts from the management", "compliance creates value" and "compliance is the foundation of the company's survival", and cover compliance management to all businesses, so that all departments, branches, subsidiaries at all levels and all staff must establish an effective compliance mechanism in all aspects of decision-making, implementation, supervision and feedback. If a securities fund operating institution fails to comply with these Measures for compliance management, the China Securities Regulatory Commission may take administrative regulatory measures such as issuing a warning letter, ordering regular reports, ordering corrections, and conducting regulatory talks. If a securities fund operating institution violates these Measures and causes an unsound corporate governance structure or imperfect internal control, it may take other administrative supervision measures against it in accordance with the law. Where a securities fund operating institution violates the provisions of these Measures by not operating in accordance with regulations in all aspects of compliance management safeguards, such as the compliance officer does not possess professional knowledge and skills, hires or dismisses the compliance officer and fails to submit relevant materials in accordance with regulations, does not establish a compliance department in accordance with regulations, does not appoint compliance management personnel in accordance with regulations, does not ensure the independence of the compliance officer and compliance management personnel, does not conduct compliance assessment in accordance with regulations, and cannot guarantee the remuneration of the compliance officer and compliance management personnel, The China Securities Regulatory Commission (CSRC) may issue a warning or fine to the operating institution, and may also impose a warning or fine on the person directly responsible.
On the premise of establishing a mandatory compliance system, the CSRC may, in the course of discovering and investigating cases of violations by relevant securities enterprises, take measures to mitigate or mitigate penalties according to the establishment of compliance management systems by these enterprises, and may even waive administrative liability. As a result, in the field of securities regulation, compliance has been formally established as an incentive mechanism for administrative supervision. Specifically, if a securities fund operating institution has violated the rules in terms of compliance management and guarantees, the CSRC and its directly affiliated agencies may be dealt with lightly or mitigated in accordance with the law if they find that they have the following behaviors to improve the compliance mechanism: "actively discover violations of laws and regulations or hidden compliance risks", "actively and properly deal with them", "implement accountability", "improve the internal control system and business processes", and "report to the CSRC or its dispatched agencies in a timely manner". If the violation of the securities enterprise is minor and corrects the violation of laws and regulations in a timely manner or avoids compliance risks, and does not cause harmful consequences, it may also not be pursued for legal responsibility.
Although the mandatory compliance system and compliance incentive mechanism established by the China Securities Regulatory Commission are only applicable to the field of compliance management by securities enterprises, the targets mainly refer to enterprises that have violated laws and regulations in compliance management, but this is the first time that the mainland administrative regulatory authorities have implemented a compliance management system in the whole industry, and have established legal liability for securities enterprises that do not establish a compliance management guarantee mechanism in accordance with laws and regulations. At the same time, this is also the first time that the mainland administrative regulatory authorities will apply the compliance incentive mechanism to the field of compliance management, for those securities companies that actively improve the compliance mechanism, take incentives to mitigate and reduce penalties, and even give "rewards" for not pursuing legal liability, which will play a positive role in promoting the securities enterprises to actively improve the compliance plan, establish and improve the compliance team, and effectively maintain the operation of the compliance management mechanism.
(4) Limitations of compliance incentive mechanisms in the field of administrative supervision
In the field of securities regulation, the trial implementation of an administrative reconciliation system, the establishment of a mandatory compliance system, and the adoption of a perfect compliance plan in exchange for lenient administrative treatment for securities enterprises that have violated laws and regulations in compliance management will have a certain incentive effect on the improvement of the compliance management mechanism of the enterprises involved in the case. In the field of anti-unfair competition, with the implementation of the strict liability system, enterprises use the improvement of compliance programs to prove that employees' bribery behaviors are personal acts, so as to pursue the result of exempting enterprises from legal liability, which shows that the establishment and improvement of compliance programs can also become a defense of non-liability, and also has a certain incentive effect for enterprises to establish and improve compliance programs. However, at present, the introduction of compliance incentive mechanism in the field of administrative supervision in mainland China is only applicable to a small scope, and has obvious locality, experimentation and exploratory nature, and is far from developing into a generalized administrative supervision incentive mechanism. In the practice of administrative supervision in mainland China, in the face of more common administrative violations such as commercial bribery, money laundering, unfair competition, environmental pollution, infringement of intellectual property rights, infringement of personal data privacy, and financial fraud, the administrative regulatory authorities can neither use the establishment of a compliance plan as the basis for mitigating or mitigating the punishment, nor can they reach an administrative settlement agreement with the enterprise involved in the case with the improvement of the compliance plan as the core. In a word, in the field of administrative supervision, the establishment of a compliance incentive mechanism to attract and urge enterprises to establish or improve compliance programs is still a reform of administrative supervision methods that has just begun.
Even in the initial compliance incentive mechanism that has been established, it is doubtful to what extent the administrative regulatory authorities can encourage enterprises to exchange compliance for lenient administrative treatment. For example, in the field of administrative conciliation, the administrative regulatory authorities have neither set a probation period for enterprises, nor have they put forward specific requirements for enterprises to improve their compliance programs, nor have they appointed authoritative compliance supervisors to urge enterprises to improve their compliance programs. In such a situation, it is questionable to what extent a company can improve its compliance program once a settlement agreement is reached with the regulator. For another example, in the establishment of a compliance management mechanism for securities enterprises, the reliability of such a commitment by the administrative regulatory authorities can be mitigated or mitigated simply because these enterprises promise to improve the compliance management mechanism, and there is no probationary period and no compliance supervision system at all, and the reliability of such a commitment is also questionable. For example, in the field of anti-unfair competition law, the relevant regulations only require enterprises to provide evidence to prove that employee bribery is neither "seeking transaction opportunities" nor "competitive advantages" for enterprises, but do not regard the establishment of an anti-commercial bribery compliance mechanism as a clear defense of non-liability. It is doubtful to what extent the interpretation of individual administrative officials who have given interviews to the media to make the improvement of the compliance mechanism a defence of non-liability have any legal effect. Obviously, even in the above-mentioned areas that are considered to have established compliance incentive mechanisms, mainland laws and regulations do not explicitly provide compliance in exchange for lenient administrative treatment, which may be a very negative factor in attracting or urging enterprises to establish compliance mechanisms.
5. Criminal law incentive mechanism for corporate compliance
The experience of the development of compliance systems in Western countries shows that without criminal law incentives for compliance, there will be no strong impetus for enterprises to accept and implement compliance programs. Once the procuratorate prosecutes the enterprise and successfully convinces the court to make a guilty verdict, the losses and costs incurred by the enterprise will be extremely heavy. Criminal enterprises are not only subject to huge fines and penalties, but also suffer serious reputational losses due to convictions, loss of business transactions with government departments, loss of opportunities to list on the local securities market, sharp reduction in business, and even the consequences of bankruptcy. It is precisely because the failure to establish an effective compliance program will cause the enterprise to bear extremely serious costs and losses, which makes the enterprise involved in the case rush to compliance as an important strategic option to reduce losses.
In the mainland criminal legal system, there is no compliance mechanism as a defense of innocence. Under the criminal law of the mainland, the unit crime system established by the criminal law of the mainland may make the unit the subject of the crime under the express authorization of the law, and adopt the method of "one criminal subject, double punishment target" to pursue responsibility. For units that constitute a crime, the criminal responsibility of the unit is generally pursued, and the criminal responsibility of the unit is generally investigated and convicted and fines or property confiscated, and the criminal responsibility of the person in charge and the person directly responsible must also be investigated. In the theory of criminal law, as long as the internal personnel of the unit realize the interests of the unit and embody the overall will of the unit in the name of the unit, the criminal acts committed are regarded as the acts of the unit, and the unit bears criminal responsibility. It can be said that the criminal law of the mainland has adopted the measure of "strict legal net" against crimes committed by units in terms of criminalization and criminal punishment. However, the criminal law has not established a corresponding incentive mechanism in terms of exoneration, active defense, and reduction of criminal punishment. In terms of criminal procedures, the procuratorial organs may either make a decision to initiate a public prosecution for units suspected of committing crimes, or may adopt a "relative non-prosecution" or "discretionary non-prosecution" approach for those cases where the circumstances of the crime are obviously minor. As a result, once a large number of enterprises that have committed crimes are put on the track of filing and investigation, it will be very difficult for them to escape the fate of being prosecuted, convicted, or even severely punished.
However, until now, the development and improvement of compliance programs have been regarded as an important form of corporate governance in mainland China, or by companies that "go global" to invest or list overseas, as a practical means to deal with European and American government supervision and criminal investigations. In China's domestic law, compliance as a form of corporate governance has not yet established an institutional link with criminal law, let alone transformed into an incentive mechanism in criminal law. At present, more and more criminal law scholars are calling for large-scale revision of the criminal law, the construction of a "criminal compliance mechanism", the establishment of criminal compliance as a criminal exculpatory function, and the establishment of an effective plan for enterprises as both a basis for not pursuing criminal liability and an important mitigating circumstance. It was prescient. However, as an imported product from the West, in order for the compliance system to be effectively transplanted into China's criminal law and transformed into an incentive mechanism in the criminal law, it must not only be established in the book law, but also need to become a "living organism", "take root" in the soil of China's unique legal culture, carry out effective "grafting", overcome various cultural conflicts, exclusions and shocks, and truly exert its positive effects, so as to gradually grow into a "towering tree" in the legal field. To this end, we should pay special attention to the inherent factors of the criminal law and criminal procedure law of the mainland, which hinder the introduction of the compliance system and plague the effective operation of the compliance system in the future.
(1) The conflict of the mainland criminal law with the strict liability system
At present, the strict liability system has been established in the civil tort law of the mainland and has been introduced in the field of administrative supervision, but it is difficult to find a trace in the criminal law. The main reason for this lies in the fact that, according to the principle of unity of subjectivity and objectivity in criminal law, in order for an actor to constitute a crime, he must have both objective acts that endanger society and subjective fault or crime. There is no subjective fault or guilt, but only the occurrence of acts that are harmful to society, and cannot be found guilty. Since 1988, the mainland legislature, out of consideration for severely punishing corruption crimes, has established a "crime of unknown origin of huge amounts of property", which was originally a "presumptive crime" introduced from Britain, the United States and France, with the attribute of strict liability, but it has been forcibly incorporated into the adjustment framework of the principle of unity of subjectivity and objectivity. Subsequently, in order to effectively punish those crimes involving the manufacture, smuggling, and trafficking of contraband, and also to tighten the legal net, the mainland legislature established some "possession crimes," such as the crime of illegal possession of drugs. Originally, this kind of "illegal possession crime" also has the nature of strict liability, and does not emphasize the subjective fault of the perpetrator, but only convicts him on the basis of his objective behavior, and the punishment is relatively light. However, in judicial practice, this kind of possession crime is still interpreted as a crime of "unity of subjectivity and objectivity", and the public prosecution is required to bear the burden of proving that the perpetrator is subjectively at fault. This has greatly reduced the intensity of punishment for such crimes, and has failed to bring into play the effect of tightening the legal net.
Because the strict liability system is not recognized, it is difficult for mainland criminal law to establish a crime similar to the "crime of preventing corruption and dereliction of duty by business organizations" in the United Kingdom, and it is impossible to establish no-fault liability for enterprises. In judicial practice, it is difficult for the procuratorate to infer that an enterprise has committed a crime based on the illegal conduct of its employees, nor can it give an enterprise the opportunity to actively defend itself under an effective compliance plan. You know, strict liability and the plea of innocence are twins. The establishment of the strict liability system not only provides a "strict legal net" against corporate crimes, but also gives enterprises the right to actively defend themselves through the establishment of compliance programs, thus giving enterprises a strong incentive to establish and improve compliance programs. In China's criminal law, which often emphasizes the "unity of subjectivity and objectivity", there is no room for strict liability, and even if a company follows the example of its Western counterparts and establishes a compliance program, it is difficult to become a plea of innocence, let alone exempt from criminal liability. In this context, what is the motivation for companies to establish a compliance program?
The Anti-Unfair Competition Law of 2017 preliminarily establishes the strict liability of enterprises, making them presumed to bear corresponding administrative liability for commercial bribery by employees, and giving enterprises the legal grounds for establishing a compliance management mechanism as a legal defense of non-liability. So, can this kind of strict liability in administrative law be transformed into strict liability in criminal law? Can we establish an exception on the premise of adhering to the somewhat rigid "principle of unity of subjectivity and objectivity"? What's more, once an enterprise's commercial bribery constitutes an administrative offense, it can easily constitute a criminal act of commercial bribery. Since commercial bribery, which is an administrative offence, can be determined in accordance with strict liability, the so-called "principle of unity of subjectivity and objectivity" must still be adhered to when bribery is a crime, does this not lead to the separation of administrative law and criminal law and undermine the unity of legal order?
(2) The inherent defects of the unit's criminal responsibility
The Criminal Law of the People's Republic of China implements a "double punishment system" for crimes committed by units, and after the court finds that the unit has committed a crime, it imposes a fine on the unit and imposes separate criminal penalties on the person in charge and other persons directly responsible. In practice, after imposing a fine on the unit, the court may also recover the criminal proceeds and their fruits, criminal tools, and related contraband, and return the property involved in the case to the victim or the victim's unit, and then confiscate the remaining part and return it to the state treasury. However, both the imposition of fines and the recovery of property involved in the case generally fall within the scope of "fines and confiscations", and there is no other legal responsibility for the criminal enterprise, so that the actual punishment imposed on the criminal enterprise is far less severe than that of some administrative punishments. For example, the Administrative Punishment Law of the People's Republic of China establishes extremely severe administrative penalties such as "ordering the suspension of business for rectification" and "revoking the business license or permit" for enterprises that commit administrative illegal acts. However, the mainland criminal law only imposes fines or recovers the property involved in the case on enterprises that commit crimes. Once a court convicts a company, it will generally not be subject to administrative penalties. Moreover, after imposing criminal penalties on criminal enterprises, mainland courts do not take any measures similar to United States' "Protection Watch", cannot urge them to disclose the facts of the crime, the causes of the crime, and formulate a plan to make up for the loopholes in the system, and cannot effectively eliminate the possibility of recidivism of the enterprise, so that the criminal enterprise is "let go" after paying the fine.
The way in which the criminal law of the mainland pursues the responsibility of unit crimes violates the basic principle of proportionality between criminal responsibility and punishment, resulting in the strange phenomenon of "illegal enterprises being severely punished and criminal enterprises being dealt with lightly". Objectively, the cost of committing a crime is not high, and the criminal punishment is too lenient, making it difficult for the enterprise to have a sense of urgency and practical pressure to formulate a compliance plan and exchange compliance for lenient criminal treatment. It is conceivable that since enterprises only pay some fines or have their assets recovered after being convicted by the court, and will not be subject to more severe punishments, why should enterprises bother to establish or improve compliance management mechanisms in exchange for lenient criminal treatment? The current criminal punishment is "lenient" enough, how much more "leniency" can the judicial organs go?
On the other hand, the crimes committed by units established by the criminal law of the mainland are usually committed through the active acts of the directly responsible persons. Since the conduct and guilt of a unit are mainly inferred from the conduct and guilt of the directly responsible personnel, it is difficult for the mainland judicial organs to independently determine the criminal intent of a unit from the aspects of the unit's own policies, rules, systems, and behavioral norms. As a result, those illegal acts committed by the top management of the enterprise by secret ballot, as well as the illegal acts that are difficult to determine by the persons directly responsible, cannot be recognized as criminal acts of the unit. At the same time, for enterprises established by natural persons to carry out illegal and criminal activities, or for the main activity of committing crimes after the establishment of units, the judicial interpretation requires that all enterprises shall not be punished as crimes committed by units, but only the criminal responsibility of natural persons shall be investigated. This obviously denies that the entity has independent criminal intent and confuses the responsibility of a natural person with the responsibility of the entity.
Moreover, the existing principle of attributable responsibility of the entity makes it difficult for the corporate compliance system to be the direct basis for determining the subjective guilt of the entity. Since the existing principle of attribution of responsibility to a natural person is premised on the existence of criminal acts and criminal intent of natural persons, and almost no recognition of the independent behavior and independent will of the entity, even if an enterprise has established an effective compliance system, it is generally difficult for the judicial authorities to regard it as a remedial measure for the unit in preventing, governing and responding to crimes committed by natural persons, let alone as an expression of the subjective will of the entity. As a result, the judiciary will hardly use the establishment of an effective compliance program as a basis for incentives for the companies involved. In this context, even if the administrative regulatory authorities vigorously promote the construction of the compliance system, how much incentive do enterprises have to implement compliance plans?
(3) Compliance has not yet become a legally-prescribed sentencing circumstance
In order for compliance to become an effective incentive mechanism for criminal law, it is necessary to make compliance a statutory sentencing circumstance for corporate crimes, which can be the basis for the judicial authorities to lenien, mitigate or even waive the criminal punishment. In particular, once it is used as a mitigating or exempting circumstance, compliance may become a strong pursuit of many enterprises suspected of committing crimes, thus creating a greater incentive for enterprises to establish compliance programs. However, the mainland criminal law has not yet regarded corporate compliance as a statutory sentencing circumstance, let alone transformed it into a mitigating or exempting circumstance. The principle of legality of crimes and the principle of proportionality of punishment established by the Criminal Law of the Mainland have imposed excessively strict restrictions on the application of mitigating and exempting circumstances, so that the sentencing incentives that can be exerted by criminal compliance in the future are very limited.
So, how likely is compliance as a statutory mitigating circumstance? At present, some situations related to compliance plans have indeed been of value in judicial practice as discretionary sentencing circumstances. For example, if an enterprise suspected of committing a crime actively cooperates with the investigation, actively pays fines, actively returns stolen money and goods, and actively compensates the victim or the victim, the judicial organ may use it as a discretionary circumstance to give a lenient sentence. On the contrary, if the enterprise involved in the case acts in the opposite direction, the judicial organ may also impose a heavier punishment at its discretion. However, the core of the compliance program lies in the sound compliance organization, the effective prevention of corporate violations, the identification and monitoring of corporate violations, and the active and effective response to corporate violations and regulations. If an enterprise establishes such a compliance program and can effectively prevent the occurrence of future crimes, will the mainland judicial authorities make a decision to impose a lighter punishment as a result? The answer may be yes, but it is not acceptable to legislators and judicial officials. Using compliance as a sentencing incentive mechanism means that the judicial authorities do not pay too much attention to "past factors" such as the harmful consequences of the social harm of crimes, but adopt a "forward-looking" attitude, and carefully assess the positive efforts of enterprises to prevent crimes and the possibility of enterprises committing new crimes, and use them as an important basis for imposing criminal punishments. In this regard, the juvenile justice system on the mainland is far ahead, but the judicial procedure for crimes committed by units seems to be far from being reflected.
(4) Compliance cannot be the basis for a procuratorate's non-prosecution
In order to prevent the abuse of discretionary power by the prosecuting authorities, the mainland criminal procedure law imposes restrictions on their relative non-prosecution decisions. In cases where an offence has already been committed under criminal law, a discretionary decision not to prosecute may be made only if the circumstances are significantly minor. On the platform of the discretionary non-prosecution system, the mainland once cultivated a system of "settlement and non-prosecution", but the legislature also strictly limited it to minor criminal cases.
However, once an enterprise is suspected of bribery, money laundering, fraud and other commercial crimes, it generally has a relatively high amount of money involved, which is obviously not a "minor criminal case". According to the Criminal Procedure Law of the People's Republic of China, these cases usually meet the conditions for initiating a public prosecution. However, if the enterprise involved in the case applies to the procuratorate for a decision not to prosecute on the basis of the establishment of an effective compliance plan as a defence, how much institutional space does the mainland procuratorate have in making the decision not to prosecute? At best, the compliance program established by a company involved in a case means that the company has reduced the likelihood of committing new crimes by establishing rules and regulations, but can the procuratorate not prosecute it on this ground? In the eyes of many people, this is not the same as a person who commits a felony but promises not to kill again, how can the procuratorate use this as an excuse to drop the prosecution?
In ordinary France countries such as the United States and the United Kingdom, when procuratorial organs review and prosecute companies suspected of crimes, they must not only conduct "evidence review", but also consider from the perspective of public interest. Where initiating a public prosecution would seriously violate the public interest, the procuratorate may waive initiating a public prosecution. For an enterprise that has established an effective compliance program, in addition to the nature and severity of the crime, the procuratorate will also consider the possibility of the enterprise committing a new crime, the damage caused to innocent third parties such as employees, investors, shareholders, consumers, distributors, agents, etc., and the negative impact of the prosecution on the local economy. On the mainland, however, the procuratorial organs attach great importance to factors such as the evidence of the case, the nature and harmful consequences of the crime, and the expected sentencing outcome, but obviously do not pay enough attention to the consideration of the public interest. In this case, even if the enterprise has established an effective compliance mechanism, even if the prosecution will have a negative impact on many employees, shareholders, investors, agents and even the public, the mainland procuratorate will usually initiate a public prosecution. It can be said that under the circumstance that the discretionary power is very limited, it is difficult for the procuratorial organs to seriously consider the social effects of prosecution, and they are doomed to apply the law mechanically and act in accordance with the rules.
(5) The system of deferred prosecution agreements has not yet been introduced in criminal proceedings
Among the various criminal law incentive mechanisms established by European and United States countries for compliance, the system of deferred prosecution agreements can be described as extremely creative and instructive. Like the plea bargain system, it is a negotiated settlement agreement between the prosecution and the alleged offender. In the author's view, such an agreement is not based on the principle of "judicial justice", but is signed on the basis of the utilitarian consideration of "mutual benefit". Experience shows that the operation of this system will bring more desirable results to the implementation of corporate compliance programs, but it may not be in line with China's current judicial system and judicial philosophy.
So far, the Criminal Procedure Law of the Mainland has only established a conditional non-prosecution system in juvenile cases, and the scope of cases applicable to it is very limited. In cases where enterprises are suspected of committing crimes, the procuratorial organs will encounter the following obstacles in applying the deferred prosecution system to them on the basis of establishing an effective compliance plan: First, according to the organizational form of political power in the mainland, the procuratorial organs are not part of the administrative organs, but judicial organs that exercise their powers independently. While a moratorium on prosecution of an enterprise that has established a compliance program may bring obvious benefits to the enterprise, employees, investors, the public, and even the government's economic development, it is questionable whether the procuratorate has sufficient incentive to reach such a deferred prosecution agreement with the enterprise involved under the existing system. Second, according to the usual practice in Western countries, the condition for the procuratorial organs to reach an agreement with enterprises to suspend prosecution is that the enterprises pay a high fine, which is difficult to work on the mainland. Fines in mainland China are usually collected by administrative authorities in the name of administrative penalties. What is the legal basis for the procuratorate to suspend prosecution and order the company involved in the case to pay a high fine? And if the company does not pay the high fine, what incentive does the procuratorate have to sign a deferred prosecution agreement with it? Third, the formulation and improvement of the corporate compliance plan depends on the supervision of the procuratorate. The supervision method of the procuratorate is mainly to listen to the compliance report of the enterprise involved in the case, and dispatch a compliance supervision officer to evaluate the effectiveness of the enterprise's compliance plan. According to the mainland's procuratorial system, the procuratorial organs are mainly engaged in the examination of arrests and public prosecutions, and have a strong motivation for criminal prosecution. It is clear that the monitoring of the progress of corporate compliance programs is not necessarily related to the inherent mission of the procuratorate to prosecute crimes. At present, the progress of procuratorial organs in initiating administrative public interest lawsuits against environmental pollution, food and drug safety, and the loss of state-owned assets and resources is not satisfactory, and a unified understanding and concept has not yet been formed in safeguarding the public interest. If the United States-style compliance supervision system is introduced to the mainland, it is doubtful whether the mainland procuratorial organs can be competent for this kind of compliance supervision work with a stronger public interest.
VI. Basic Issues of the Sinicization of Corporate Compliance (Conclusion)
From the perspective of adapting to the policy of further opening up to the outside world and helping Chinese enterprises cope with overseas supervision, the mainland government regulatory authorities attach great importance to the construction of corporate compliance management systems, and have issued corporate compliance management guidelines or guidelines in various fields, and even implemented a mandatory compliance system for enterprises in the form of administrative regulations. From a formal point of view, the mainland administrative regulatory authorities have established Chinese standards for corporate compliance, and some large foreign-related enterprises have also begun to try to establish compliance programs. However, in order for these compliance management systems to take root in China and play an effective role in preventing and controlling legal risks, it is necessary to take seriously the issue of the localization of corporate compliance.
At present, the administrative regulatory authorities in mainland China have adopted an administrative-led approach to compliance promotion, requiring enterprises to establish compliance mechanisms in the form of administrative guidelines, guidelines or administrative rules, and in the process, adopting corporate governance concepts originating from the West. This way of promoting the construction of the compliance management system will be very effective in a short period of time, and will also play a positive role in the rapid popularization of the compliance mechanism. However, in the long run, the administrative-led compliance promotion mechanism has some insurmountable shortcomings, and how to truly transform the pressure of the administrative regulatory department into the internal motivation of enterprises to establish compliance plans is still an urgent problem to be solved. After all, the administrative supervision department has to carry out general compliance assessment, assessment, certification and even regulatory investigation and administrative punishment on enterprises that fail to establish a compliance mechanism, and this administrative cost is undoubtedly unbearable for the current administrative supervision system. Taking a step back, even if an enterprise establishes a compliance program on books in accordance with the requirements of the administrative supervision department, how to ensure the effective implementation of the compliance program will be a very difficult problem.
Whether it is a state-owned enterprise, a private enterprise, or even any other enterprise, it is not very difficult to establish a compliance management mechanism in the books. Even building a top-down compliance team across the company is not a difficult task. However, it is one thing for a company to have a formal compliance mechanism, but it is another thing to actually establish an effective compliance mechanism. How to activate the compliance plan on books and how to ensure that the corporate compliance management system effectively plays the role of preventing and controlling legal risks is another research topic that needs to be seriously faced. In this regard, although there are already many compliance guidelines or compliance guidelines in mainland China, there are few companies that have successfully established an effective compliance system and have been internationally assessed as qualified. Perhaps the best time to establish an effective compliance program is after a company has been subjected to regulatory investigations and severe penalties. For a Chinese company like ZTE, which has been subjected to many regulatory investigations by United States regulators and severe penalties by prosecutors, learning from Siemens' experience and taking the opportunity to comprehensively transform its corporate governance structure and establish an effective compliance program that has been evaluated and recognized by United States regulators may set a rare example for other Chinese companies.
The establishment of an incentive mechanism for enterprise compliance in the field of administrative supervision is an important institutional arrangement to stimulate the internal motivation of enterprises to establish a compliance mechanism. The mainland has already had the germination and experimentation of the compliance incentive mechanism in the field of administrative supervision, and we can continue to observe the pilot effect of this compliance incentive mechanism, and after scientific evaluation, summarize the experience and lessons, and make the necessary preparations for the full implementation of the compliance incentive mechanism in the field of administrative supervision. In the author's view, the full implementation of the compliance incentive mechanism by the administrative regulatory authorities is the trend of the times, and it is also the only way for China to fully implement the corporate compliance management system. In the future, the administrative supervision department will adopt an approach of "severely punishing the person directly responsible and lenient treatment unit", reaching an administrative settlement agreement with the enterprise involved in the case, urging it to pay the settlement fee, establishing and improving the compliance mechanism, and even appointing compliance supervision officials to urge the enterprise to improve the compliance plan. This will be an irreplaceable way for enterprises to plug the loopholes in the system and avoid the recurrence of administrative illegal acts. How the administrative supervision department can change the way of corporate governance and enterprise supervision, use compliance as a means of administrative supervision, and make up for the lack of administrative punishment with risk prevention and control will be a reform topic that cannot be bypassed.
The introduction of compliance incentive mechanisms in the field of criminal law and criminal procedure law is the biggest problem faced by enterprises in the Chinese compliance process. In the field of criminal law, the main challenge we face is how to overcome the seemingly rigorous but in fact rigid and conservative conceptual barriers of criminal law, introduce the theory of organizational responsibility into the crime of the unit, and recognize that the unit can bear criminal responsibility independently of its internal employees, and can also pursue its criminal liability for its inaction in preventing the illegal behavior of employees. Therefore, the strict liability system is introduced to establish a more severe criminal punishment for the criminal entity than the administrative punishment, and on this basis, the compliance of the enterprise is established as the cause of the enterprise's innocence defense and the statutory mitigating circumstances, so as to activate the compliance incentive mechanism in the conviction and sentencing process.
In the field of criminal procedure law, on the basis of the sentencing negotiation mechanism that has been introduced in those plea cases, a system of deferred prosecution agreements has been introduced for units suspected of committing crimes, allowing the investigating and procuratorial organs to reach such agreements with enterprises suspected of committing crimes, setting up a probationary period, ordering the enterprises to pay settlement funds during the probationary period, promising to establish or improve a compliance management system, and appointing compliance supervision officials to station in the enterprises to urge them to fulfill their obligations to establish and improve compliance plans as agreed in the agreement. At the end of the probationary period, if the investigating authority or the procuratorate evaluates and accepts that the enterprise suspected of committing a crime has established an effective compliance plan, it may no longer be prosecuted. If this system of deferred prosecution agreement is finally established, then this will be the third consultative criminal justice system established by the mainland criminal procedure law after the establishment of the criminal reconciliation system and the sentencing consultation mechanism.
Of course, there is no one-size-fits-all "international standard" for the construction of corporate compliance systems. The process of introducing a compliance management system originating from the West in mainland China will inevitably be accompanied by the reshaping and localization of the compliance management system, and the final compliance management system will definitely be different from the compliance programs of Western countries. However, in any case, ensuring that the compliance program plays its role in preventing and controlling legal risks, promoting the sustainable development of Chinese enterprises, enabling them to truly assume corporate social responsibility, maintaining a level playing field and promoting the development of the rule of law in China is the ultimate goal of the corporate compliance system. This should also be the ultimate goal of corporate compliance in China.
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