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on 29 December 2023, the National People's Congress made significant amendments to the criminal law. This change in the law, which has meanwhile come into force, is in line with the central government's promise to sharpen the focus on lawful conduct by private companies in China and to fight corruption with all severity. In this context, in 2024 it is already apparent in many regions that local authorities are massively expanding their investigative activities with regard to corporate legal violations. The focus here is particularly on manufacturing units. In this issue of our international Newsletter on the topic:
Tightening of Chinese corporate criminal law
What risks arise for foreign companies and their managing directors in China?
which we have compiled for you together with the partner law firms of the Schindhelm Alliance, we analyse the criminal/sanction liability risk for foreign-invested enterprises and their managing directors in China. Enjoy reading. Kind regards Lozano SCHINDHELM
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Our newsletter is also available as PDF.
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What criminal liability risks arise for managing directors in China in connection with corruption cases?
Previously, Chinese criminal law (in Articles 165, 166 and 169) only provided for criminal offences in corruption cases for directors, managers and legal representatives of state-owned or state-invested companies. The personal scope of application of these offences has now been extended to include private companies and their directors, managers, legal representatives and senior employees. The following acts are included in particular. The core problem for managing directors of foreign-invested companies is not necessarily that they themselves commit these offences, but that they can incur joint liability if they fail to adequately prevent such offences by senior managers and implement preventive measures. 1. Obtaining illegal advantages by using business opportunities of the company for private purposes or for the purposes of third parties. 2. Exploiting a position in the company to grant advantages to third parties (relatives, friends, etc.) in the following cases:
a. buying goods or services from third parties at prices that are obviously above the market price;
b. selling goods or services to third parties at prices that are obviously below the market price;
c. buying obviously inferior / defective goods or services from third parties at market prices (for defect-free goods).
3. Sale of the company's assets (or sale of the entire company) at a price that is obviously below the market price.
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What penalties do managing directors face in corruption cases?
If the benefits obtained are a ‘large amount’, the penalty can be a fine or imprisonment for up to three years (combined with a fine).
If the benefits obtained are of a ‘particularly large amount’, the penalty can be imprisonment between three and seven years (combined with a fine).
The terms ‘large amount’ and ‘particularly large amount’ are not sufficiently defined by law and are therefore largely subject to the discretion of the judge in charge, as is common in China.
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What increased liability risks under criminal law arise for companies in China?
In connection with the amendment of the criminal law at the end of 2023, the central government in Beijing has also issued directives to the local regulatory authorities to intensify their scrutiny of the legality of business activities.
The current focus is particularly on manufacturing units. These companies are subject to increased scrutiny of the validity and conformity of production permits with regard to production safety, environmental compatibility, and working conditions.
In these areas, there have been a large number of legislative changes and tightening of requirements / conditions in recent years. In our advisory practice, we regularly experience that in particular manufacturing units of our clients that were established before 2020 have not correctly implemented these legislative changes (apparently because at that time the local authorities did not pay much attention to these areas).
Companies that seriously violate these regulations face the threat of shutdown of production, administrative fines and registration of the violations in the ‘Social Credit Point System’. In the case of particularly serious violations, the management may also face personal criminal liability.
In this respect, we strongly recommend that manufacturing units have their licensing status checked for up-to-dateness and compliance.
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If you have any questions or need legal support, please consult our experienced experts of the Schindhelm Alliance.
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Immanuel Gerstner
attorney at law, partner
T +43 1 9050100-250
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Marcel Brinkmann
attorney at law, partner
T +86 21 289866 60
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Monika Wetzlerova
attorney at law, partner
T +420 377 330 163
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Maurice Hartmann
attorney at law
T +33 155 3537 12
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Bernhard Heringhaus
attorney at law, partner
T +49 541 3245-119
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Beatrix Fakó
attorney at law, partner
+36 1 270 9242
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Florian Bünger
attorney at law, partner
T +39 051 0331955
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Agnieszka Łuszpak-Zając
attorney at law, partner
T +48 71 3265140
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Rares-Marin Bogdan
attorney at law
T +40 21 31311-69
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Fernando Lozano
attorney at law, partner
T +34 963 28 77 93
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Gürkan Erdebil
attorney at law, partner
T +90 212 274 20 20
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LOZANO SCHINDHELM, S.L.P.
BILBAO - [email protected]
Barroeta Aldamar 7 - 48001 Bilbao - T +34 944 25 66 98
Marqués de Campo 27 - 03700 Alicante, Denia - T +34 965 78 27 54
MADRID - [email protected]
Velázquez 126 - 28006 Madrid - T +34 915 47 51 25PALMA DE MALLORCA - [email protected]
Sindicat 67 - 07002 Palma de Mallorca - T +34 971 21 32 54VALENCIA - [email protected]
Conde de Salvatierra 21 - 46004 Valencia - T +34 963 28 77 93
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Lozano Schindhelm, S.L.P. is a member of Saxinger Schindhelm Services SE, an alliance of European business law firms.
The Information on the processing of your personal data is available here.
Despite careful processing, all information in this newsletter is provided without guarantee and cannot replace individual advice in individual cases. The liability of the authors or the publisher is excluded.
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