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Amendment to China's Anti-unfair Competition Law Cracks Down on Commercial Bribery

2019-01-16 13:44 Wednesday

On November 4, 2017, the Standing Committee of the National People's Congress adopted the amendment to the PRC Anti-Unfair Competition Law (AUCL), clarifying the scope of commercial bribery in China.

The amendment, which went into effect on Jan. 1, 2018, is the first revision to Anti-Unfair Competition Law since its implementation in 1993. The amendment signals that China's anti-corruption campaign will continue to escalate.

China's Anti-unfair Competition Law

What does the Amendment mean for Multinationals?

The amendment increases the costs of commercial bribery in China, by introducing stiffer penalties for violators. It reflects the Chinese government's understanding of global anti-corruption trends and the nature of commercial bribery.

For multinational companies operating in China, the amendment clarifies the definition of commercial bribery, stipulating that it needs to be aimed at "seeking transaction opportunities or competitive advantages". It is now clear that bribery recipients include third parties employed by counterparties. Many analysts expect that commercial bribery through third parties will be the focus of future investigations and enforcement in China, following the model established in the US, UK and Brazil.

Actions for Businesses to Take

1. Review existing compliance policies and programs, including third-party policies, to ensure that there are no gaps or potential risks under the new system, and conduct face-to-face compliance training for high-risk senior management and employees.

2. Focused review of existing business involving transaction counterparties and third parties (such as agents, distributors or other intermediaries).

3. Conduct compliance due diligence before engaging a third-party vendor that is designed to facilitate transactions with the counterparty.

4. Effective terms and conditions for third parties to comply with, including audit rights, and to audit and train third parties regularly on these requirements.

5. Review internal controls and policies on employee gift giving, payments, property, hospitality and other rewards, taking into account the risk of vicarious liability.

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