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Bribery in Sales Channels

2018-09-27 17:36 Thursday


Sales channels are a core component of the FMCG (fast-moving commercial goods) industry, especially with respect to food products. In order to increase sales, many enterprises provide dealers or end sellers with incentives, such as cash rewards or sales dividends. Therefore, a crucial issue is whether such sales incentives constitute commercial bribes.

  Bribery

According to legal experts, the crucial distinction between sales incentives and commercial bribes is present in the contents agreed to in advance by both parties. If both parties agree that the dealer or end seller will be rewarded upon completing the sales target, this can be regarded as a normal business activity. The behavior may constitute unfair competition if the agreement contains an element of exclusivity, such as prohibiting the sale of competing products, or maliciously undermining their product placement.

While the law is clear on the definition of commercial bribery, legal analysts contend that the form of agreement is important for proving the presence of commercial bribery. When both parties make a verbal agreement on the basis of unfair competition and do not disclose the content of the agreement,  the lack of documentation can make commercial bribery difficult to prove.

A key to making a determination of commercial bribery  is to investigate how the expenses are accounted for. There are many ways for companies to reward distributors legally, such as cash discounts and freebies. The fees generated by these incentives should then be deducted from the operating income. Whereas, in the case of commercial bribery, the cost is included in  financial statements as a fictitious service, such as advertising and publicity, and does not affect the company's revenue.

Article 8 of "Anti-Unfair Competition Law" prohibits any business operator from engaging in bribery through money or other means for selling or purchasing commodities. When the purpose of the activity is to win the transaction or prevent competitors from doing so, this constitutes the crime of commercial bribery, regardless of how the cost is accounted for.

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