《反腐败与合规》（五）(English version)

iii.Bidding and Procurement
Pursuant to the Bidding Law, large infrastructure projects, public utility projects, and other large construction projects funded by state or international organizations shall carry out a transparent bidding process to procure important services, equipment, or materials. State organs, public institutions, and public organizations shall also go through a bidding process according to the Government Procurement Law. These laws are designed to counter the risk of corruption on such projects, whose huge value may entice bidders to make every effort to win the bidding, even resorting to illegal means.
Therefore, Section 5 of the Commercial Bribery Opinions makes clear that where any member of a legally established bid evaluation committee, a negotiating team for the competitive negotiation procurement, or a price inquiry group for the price inquiry procurement (collectively, “workgroups”) in the bid evaluation or procurement activities for a bidding or government procurement, extorts or illegally accepts any property from the bidder, such person shall be criminally liable under Article 163 of the Criminal Law. Members of the workgroups are deemed state staff if they are representatives of a state organ, public institution, or any other state-owned entity.
Unlike rules in the health care industry and education area, the rule in the bidding and procurement area is that members of workgroups are deemed non-state staff, while the exception is that representatives of state organs or other state-owned entities are deemed state staff. This exception occurs because bid evaluation committees, negotiating teams, and price inquiry groups are temporary organizations whose members are elected at random and who are considered to take part in workgroups in their personal capacities, other than for persons who are otherwise already representatives of state organs, public institutions, and stated-owned companies.
“Non-state staff in the workgroups” usually includes professionals in relevant industries, usually technicians and financial experts who are selected at random. “State staff” in this context refers to those who are directly assigned by state organs or other state-owned companies without a random selection process. Thus, these state staff are typically persons with special authorization. They are not selected through a random selection process and they usually are in the management of the units calling for bids.
In People v. Yang Gang, [1]the High Court of Beijing found that Mr. Yang, the former vice-general manager of IT Department of China Merchants Group Co. (CMG), was assigned to be the member of all bid evaluation committees regarding IT procurement for CMG. Accordingly, Mr. Yang was considered to be state staff.
The Yang Gang case illustrates a particular nuance in bidding and procurement law. The time of bribe-accepting does not affect whether the person accepting a bribe is considered to be state staff. As long as the person accepting a bribe was exchanging his authority—present or future—in exchange for a bribe, such person shall be punished for bribe-accepting whether the bribe is accepted before, during, or after such person has the relevant authority, so long as the bribe-accepter attempted to use his influence to obtain benefits for the bribe-giver, even after the bribe-accepter resigned from his position. In Yang Gang, although the briber offered Mr. Yang money after Mr. Yang resigned from the CMG, the High Court of Beijing deemed such money to be a bribe because there was a direct causality between such money and the competitive advantages obtained by Mr. Yang in exercising his influence for the briber. As workgroups are temporary organizations, bribe-offering in bidding and procurement frequently happens after the bidding or procurement process (i.e., after the members of the work groups have been identified). However, this fact does not address whether or not the members of working groups can commit bribery even after the fact of a contract award.
By contrast, under the Criminal Law in general, the bribe-giver will be prosecuted if he actually offered the bribe. It is different than the criminal act of bribe-offering, which can be established so long as the briber promised, directly or indirectly, an undue advantage to state staff according to Article 15(a) of the UNCAC. However, there is a trend in judicial practice whereby China’s status as a signatory to the UNCAC is considered relevant to interpreting the scope of China’s bribe-offering law. As of 2014, some courts would accordingly deem a fixed amount of money or a specific property promised by the briber as a bribe even if the briber has not yet provided it. Moreover, these courts will directly confiscate such bribes, including money or other property that had been merely promised as a bribe.[2]
b.Discounts v. Kickbacks
In general, kickbacks refer to the sum of money that the seller returns to the buyer or its agents from the contract price paid by the buyer, as a quid pro quo for entering into the contract.[3] Providing kickbacks in economic activities in violation of regulations is explicitly proscribed by the Criminal Law.[4] Because the Criminal Law refers to “regulations,” other laws and regulations regarding kickbacks can be resorted to under the Criminal Law, such as the Anti-unfair Competition Law and the Interim Provisions on Prohibition of Commercial Bribery.
The real challenge in judicial practice is to differentiate kickbacks from legal discounts and other preferential arrangements. A key characteristic is that a kickback usually is offered in secret and off the books.[5] “In secret” here means that a kickback would not be reflected in contracts or invoices.[6] The Combating Commercial Bribery Policy provides that in economic communication, it is legal to offer a discount to counterparties if such discount is accurately and truly recorded in an account book, while secretly offering off-book kickbacks is considered bribery.[7] In People v. Ma Chunxi,[8] for example, Mr. Ma, a producer of sanitary fittings, gave kickbacks to the local health office for obtaining supplier contracts in a project and such kickbacks were not recorded in an account book. The District Court of Wuyang deemed such kickbacks to be bribes and thus held Mr. Ma guilty of bribe-offering to a unit.
Although “off-book” and “in-secret” are typical characteristics of kickbacks under the criminal system, and even are necessary and essential constitutive elements of kickbacks under the administrative system,[9] courts may also examine whether kickbacks, either off-book or on-book, are also creating unfair competition, thus severely damaging the market order.[10] In People v. Henan Rhett Medical Equipment Co (the Rhett),[11] the Rhett unit’s account book recorded all kickbacks, however, such kickbacks were aimed at seducing a hospital to procure its products, thus such kickbacks were deemed a bribe by the Intermediate Court of Xinxiang. Alternatively, reasonable discounts are considered a usual and legal promotional measure. For legitimate discounts, it is assumed that contracts and invoices usually reflect the real price of goods or services from which the discount price has been reduced. However, even when fully documented, if the discount is too large to be reasonable, it might be hard to defend it in a criminal proceeding.
Accordingly, units must accurately reflect any promotional discount or preferential pricing in contracts and account books, and the amount of such discount and preferential pricing must not go beyond reasonableness.
c.Gifts v. Illegal or Non-Compliance Benefits-Providing
In China, it is usual to give gifts to business partners during important festivals, such as the Chinese New Year, the Dragon Boat Festival, and the Mid-Autumn Festival. In addition, gifts are frequently offered at business meetings or during business visits. However, in order to avoid potential legal risks, it is important to note the boundary between gift-giving and bribe-offering under China’s laws.
Distinguishing gift-giving from bribe-offering, pursuant to the Commercial Bribery Opinions, turns on the following factors, analyzed as a whole:
(1) the background of the exchange of property, such as whether there is a relative relationship (and the history and degree of the relationship) between the parties;
(2) the value of the property in the exchange;
(3) the reason, time and method of exchanging of the property, whether there is a business relationship between the giver and the receiver of the property; and
(4) whether the receiver of the property secures a benefit by taking advantage of his or her position.
The value of gifts provided shall not go beyond reasonableness. In People v. Ding,[12] the Intermediate Court of Urumqi found that the briber gave RMB20,000 to the bribed under the name of celebrating the bribe-taker’s son’s receipt of a college admissions offer. The court held that such a large amount of money was presumptively too large to be reasonable and was, accordingly, obviously a bribe made under the guise of being a gift. In People v. Li Decai,[13] the Intermediate Court of Qingzhou similarly held that a gift of RMB29,000 obviously went beyond the reasonable value of gifts between friends.
As of 2014, there is no universal rule for determining what value is reasonable for a gift. However, in respect of state staff and Party members, they need to abide by strict internal standards. For example, Party members and state staff of the State Council are required to register gifts worth more than RMB100 and turn over to the government any gift worth more than RMB200.[14]
The value of gifts is their market value. For instance, suppose that a company procures a large number of premium Parker pens and replaces Parker’s logo with the company’s logo. Then the company provides the pens to meeting attendees purporting them to be small-value brand-reminding gifts. If such company is found to have sought illegitimate benefits from meeting attendees and such premium Parker pens are deemed bribes, the value of such pens will be calculated on the basis of the pens’ real market value, as premium Parker pens, even though the briber declared that they are little brand-reminding gifts and regardless of whether the bribed actually knew that the pens were expensive pens.
In addition, it is highly risky to provide gifts to those who have the authority to obtain competitive advantages or other benefits for the gift-providing company, especially when the gift accepter’s authority has a close relationship with the regular business of the gift-providing company. In People v. Xiong Wenzhong, [15] for example, the High Court of Guizhou Province found that the business operated by the briber had a close relationship to the authority of the bribed and the bribed once used his authority to help the briber to get approval for a project and to win biddings in governmental procurement of equipment and livestock. Under these circumstances, the High Court of Guizhou Province did not accept the argument that the money given by the briber was a gift, rather than bribe. Thus, when providing gifts during commercial communications, the market value of gifts shall be limited to a reasonable amount. As there is a high risk to give gifts for the purpose of obtaining competitive advantages and opportunities to enter into contracts, it is not suggested to request any favors, explicitly or impliedly, at gift-giving occasions, especially giving gifts to those whose authority is closely related to a company’s business.
d.Business Activities v. Activities Related to Bribery
It is a common business practice for enterprises to organize promotional and non-promotional activities in order to achieve commercial benefits in the short or long run. Promotional activities put more emphasis on directly promoting or advertising products or services, which includes roadshows, exhibitions, and promotional meetings. Non-promotional activities focus on achieving public and industrial reputation and public welfare, which includes funding research, making donations to public institutions, and organizing or sponsoring trainings, essay competitions, or academic meetings.
Although such activities are common, without reasonable limitations and controls they might be regarded as measures of offering bribes by providing illegal benefits to state or non-state staff. For instance, in People v. Zheng Guojun,[16] the District Court of Lucheng found that Mr. Zheng, a sales representative of a pharmaceutical company, bribed physicians in the guise of making a donation to a physicians’ conference and did so for the purpose of obtaining from those physicians a certain volume of prescribed medicines.
To mitigate the risks of being involved in a bribery crime under Chinese law as a result of organizing promotional activities, a unit should evaluate and manage risks from the following perspectives: (1) whether such activity involves the offering of benefits; (2) whether such benefits are legitimate, reasonable and bona fide; (3) whether there are internal compliance systems and procedures to prevent illegal executions from happening in practice; and (4) whether the amount and name of benefits-offering is easy to draw the attention of supervising institutions. In general, where promotional activities are directly involved in obtaining trading opportunities, there is a higher possibility that benefits provided in promotional activities could be regarded as bribes.
For organizing promotional activities, unreasonable benefits must not be provided to those who have authority to grant unfair competitive advantages. In People v. Zhou Xiaomian,[17] the Intermediate Court of Guangzhou did not accept the asserted defense that the RMB70,000 offered by a marketing company to Mr. Zhou, who was in charge of procurement of a public hospital, could be viewed as a speaking fee, rather than a bribe.
Regarding non-promotional activities, it is hard to defend benefits-offering that violates regulations in criminal procedure. For instance, internal functional departments or individuals of the medical care and health institutions are prohibited from accepting any donation or financial aid.[18] If an internal functional department of a hospital accepts a donation from a pharmaceutical company and only prescribes medicine made by such producer to treat a certain disease, although other equivalent or even better choices are available, there is a high possibility that such a donation would be regarded as a bribe.
In addition, several standards must be followed by any private or public institution that organizes or sponsors academic meetings. The academic meetings’ purpose and major activities generally must provide the latest scientific and clinical information, rather than promote certain products or services. In this regard, holding an academic meeting in a luxurious and extravagant hotel or a tourist area may be regarded as unreasonable benefit-offering, particularly if organizers or sponsors promote their products or service and, explicitly or implicitly, require favors.
Accordingly, it is suggested to examine the legitimacy of planned benefits-offering before any business activities. And any benefit must be limited to a reasonable amount and be provided with a bona fide purpose.
(to be continued)
1.(2012) Gao Xing Zhongzi No.281. [(2012)高刑终字第281号], awarded on November 12, 2012.
2.See Articles 64 of the Criminal Law.
3.ZHANG, Mingkai (2009), Commercial Bribery, Kickbacks and the Nature of Relevant Provisions of Law. Journal of Law Application 9, 5.
4.See Articles 163, 387 & 389 of the Criminal Law.
5.See Article 387 of the Criminal Law and Article 8 of the Anti-unfair Competition Law.
6.WANG, Shengming (1993), Several Issues in Drafting the Anti-unfair Competition Law. China Legal Science 6, 78.
7.Section 6.1 of the Combating Commercial Bribery Policy.
8.Awarded by District Court of Wuyang on July 11, 2014, (2012) Wu Xing Chuzi No.215 [(2012)舞刑初字第215号].
9.Reply of the State Administration for Industry and Commerce to Instruction Request of Su Gong Shang (2000) No. 88, Gong Shang Gong Zi[2000] No.246 [工商公字[2000]第246号], promulgated by the State Administration for Industry and Commerce on October 18, 2000.
10.ZHANG, supra note 43, at 8; See Section 3 of the Combating Commercial Bribery Policy.
11.(2014) Xin Zhong Xinger Zhongzi No.178 [(2014)新中刑二终字第178号], awarded on December 16, 2014.
12.(2011) Wuzhong Xinger Chuzi No.46 [(2011)乌中刑二初字第46号], awarded on May 16, 2012.
13.(2013) Qing Xinger Zhongzi No.6 [(2013)钦刑二终字第6号], awarded on January 18, 2013.
14.Article 3 of the Measures on Registration and Handling of Gifts Received by Officials of the Central Institutions of the CPC and the State Council during Domestic Social Activities, promulgated by the Administrative Bureau of Institutions directly under the Central Committee of CPC and the Administrative Bureau of Institutional Affairs of the State Council (Guo Guan Cai Zi No.1995-158) provides that: “In terms of gifts that cannot be turned down for various reasons and that are received by state staff of the central institutions in domestic social activities (except for social activities between friends and relatives), gifts with a total market value of more than RMB100 (including RMB100) must be registered; while gifts with a total market value of more than RMB200 (including RMB200) must be registered and turned over.”
15.(2011) Qian Gao Xinger Zhongzi No.23 [(2011)黔高刑二终字第23号], awarded on March 25, 2011.
16.(2013) Wen Lu Xing Chuzi No.1005. [(2013)温鹿刑初字第1005号], awarded on August 23, 2013.
17.(2013) Hui Zhongfa Xinger Zhong Zi No.59 [(2013)穗中法刑二终字第59号], awarded on September 2, 2013.
18.Only medical care and health institutions could accept social donations and financial aid while such social donations and financial aid shall be managed and used by the internal financial departments. See Article 4 of the Interim Measures for the Administration of the Acceptance of Social Donations and Financial Aids by Medical Care and Health Institutions, promulgated by the Ministry of Health and the State Administration of Traditional Chinese Medicine on April 6, 2007, No. 117 [2007] of the Ministry of Health.