China Regulatory Enforcement Quarterly – May 2016
The PRC regulatory landscape remains a hotbed of activity in Q1 2016 with government regulators tackling major scandals in the financial and healthcare sectors. While government regulators and corporations continue to focus on traditional corruption investigations, major cyber/data security breaches and social engineering frauds have also come to focus. These frauds are cross-border in nature, and those facilitating the frauds are spread across many countries around the world, which makes it extremely difficult to recover stolen assets and data. Moving forward into 2016, the following trends will influence the regulatory environment in China and the rest of Asia:
Corporate data increasingly vulnerable to breaches/attacks
Increased corporate connectivity with the shift towards online data storage and cloud-based services has increased the potential points of vulnerability for data theft and breaches. Work-related communications and data transfers involving confidential company and customer information are becoming increasingly vulnerable to attacks. Reliance on smart connected devices is also creating numerous points of vulnerability for intelligence gathering and/or fraudulent activity. Increased connectivity and big data will present a new dimension of risks for multinational companies.
Please see full Publication below for more information.
Legal and Regulatory Updates
Major Enforcement News
Map of Officials Under Investigation
Draft Amendments to the Anti-Unfair
Competition Law Reshape Commercial Bribery
Q1 – 2016 | www.dlapiper.com
The PRC regulatory landscape remains a hotbed of activity in Q1 2016 with government regulators tackling major scandals in
the financial and healthcare sectors. While government regulators and corporations continue to focus on traditional corruption
investigations, major cyber/data security breaches and social engineering frauds have also come to focus. These frauds are
cross-border in nature, and those facilitating the frauds are spread across many countries around the world, which makes
it extremely difficult to recover stolen assets and data. Moving forward into 2016, the following trends will influence the
regulatory environment in China and the rest of Asia:
■ Corporate data increasingly vulnerable to breaches/attacks
Increased corporate connectivity with the shift towards online data storage and cloud-based services has increased the
potential points of vulnerability for data theft and breaches. Work-related communications and data transfers involving
confidential company and customer information are becoming increasingly vulnerable to attacks. Reliance on smart
connected devices is also creating numerous points of vulnerability for intelligence gathering and/or fraudulent activity.
Increased connectivity and big data will present a new dimension of risks for multinational companies.
■ sophisticated international cybercrime attacks
International cybercrime syndicates are conducting increasingly sophisticated attacks against corporations, often forming
cross-border teams, transferring victims’ assets across a chain of bank accounts around the world, using offshore shell
companies to evade detection, and posing as company executives to obtain key information and/or affect transfer of
funds. The attacks are not limited to attempts to steal funds and other assets, such as IP and tangible commercial secrets.
Recent media leaks and attacks against government entities are cases in point.
■ China’s new extraterritorial influence
Recently introduced laws, regulations and initiatives that increase Chinese authorities’ regulatory and supervisory powers
are starting to have an impact in mainland China and abroad. For example, the Enterprise Credibility Information Publicity
Systems (which was reported in our Q1 2015 newsletter) are increasingly being used by the Administration for Industry and
Commerce (“AIC”) to publicly list the AIC’s decisions on administrative commercial bribery cases across China. As these
bribery decisions are made public, it has increased the risk of overseas enforcement claims. Additionally, China’s new
Anti-Terrorism Law coupled with its Sky Net initiative has resulted in the increased repatriation of fugitive Chinese
government officials suspected of serious corruption overseas. By monitoring telecommunications activity, working with
overseas law enforcement, and increasing collaboration, Chinese regulators are able to creatively find ways to exert
influence in connection with enforcement initiatives beyond its mainland borders. For more information about China’s
Anti-Terrorism Law, please see our Q4 2015 newsletter.
02 | China Regulatory Enforcement Quarterly
PRC LEgAL AND REgULAtORy UPDAtES
MAjOR ENfORCEMENt NEwS
1 JIANGSU 2 SHANGHAI
3 INNER MONGOLIA
HEAt MAP Of PRC OffICIALS
DRAft AMENDMENtS tO tHE ANtI-UNfAIR
COMPEtItION LAw RESHAPE COMMERCIAL BRIBERy
This information is intended as a general overview and discussion of the subjects dealt with and is up-to-date as of
March 31, 2016. However, laws and/or updates may have changed since this date. Some information contained in this
report is based on media reports and public announcements, some of which may be considered secondary sources.
This information is not legal advice, and should not be used as a substitute for taking legal advice in any specific situation.
DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this information.
www.dlapiper.com | 03
PRC LEGAL ANd REGULATORY UPdATEs
Whistle-blower protections for reporting crimes
committed by Chinese government officials
Jan 11 – The Central Leading Group for Comprehensively
Deepening Reforms passed the Regulations on Protecting
and Rewarding Whistle-blowers for Official Crimes
(“Whistle-blower Regulations”) to further strengthen
whistle-blower protections and encourage people to speak
up against corrupt government officials. The People’s
Procuratorate, which is the investigative body responsible
for investigating crimes committed by government officials,
is charged with protecting the personal safety and property
of whistle-blowers and their close relatives. Under the
Whistle-blower Regulations, whistle-blowers may also
receive monetary rewards for providing leads that result in
the investigation of official crimes.
G20 discussions outline Anti-Corruption
Action Plan to further strengthen cross-border
cooperation on fugitive repatriation
Jan 26 – The first G20 Anti-Corruption Working Group
meeting of the year was held in China, and it focused on
international cooperation in high-risk sectors prone to
bribery, such as the mining, customs, fisheries, forestry, and
The G20 is a meeting of finance ministers and central bank
governors from 19 industrialized and emerging economy
nations, including China. The Anti-Corruption Working
Group began drafting a two-year action plan for 2017-18
which includes several commitments by member countries to
combat corruption in public and high-risk sectors.
Enforcement of health food regulations
strengthened and registration process streamlined
Feb 26 – The Administrative Measures on the Registration and
Record Filing of Health Foods (“Health Food Measures”)
issued by the China Food and Drug Administration
(“CFdA”) will come into effect on July 1, 2016. This updates
the existing registration model, which has been in place since
2005. The main changes introduced by the Health Food
■ Registration of health foods is limited to health food
which is not listed in the Catalog of Raw Materials for
Health Food published by the CFDA and nutritional health
food which is imported into China for the first time.
Some health food, which was previously required to be
registered, now only requires record filing under the
Health Food Measures.
■ Applicants who obtain administrative licenses through
fraud, bribery or other improper means could be barred
from registration for up to three years and subject to
criminal liability if such misconduct constitutes a crime.
Applicants would also be subject to a fine ranging from
CNY 10,000 to 30,000 (approx. USD 1,500 to 4,500).
■ The health food registration process is further streamlined
to reduce the time for granting production licenses.
China’s anti-graft campaign focuses on misuse of
poverty relief funds
Mar 16 – CAO Jianmin, procurator-general of the
Supreme People’s Procuratorate of China, declared that
China’s anti-corruption campaign will focus on the misuse
and embezzlement of poverty relief funds. The central
government anticipates investing an additional CNY 20.1 billion
(approx. USD 300 million) in poverty relief funds for 2016
compared with 2015 to support poverty reduction efforts in
04 | China Regulatory Enforcement Quarterly
Former CCTv executive sentenced to 15 years for
accepting bribes from advertising agencies
Jan 12 – Former Deputy Minister of Public Security,
LI Dongsheng, was found guilty of receiving CNY 21.98 million
(approx. USD 3.3 million) in bribes while he served as
the vice head of China Central Television (“CCTv”), the
largest TV broadcast network in China. LI took bribes from
advertising agencies and individuals based in Beijing in exchange
for securing agency contracts on behalf of CCTV. The bribes
include sums which were given both to LI personally as well
to his close relatives. LI was sentenced to 15 years in prison
and CNY 1 million (approx. USD 150,000) confiscated as
Former vice-president of major state-owned iron
and steel company accused of bribery
Jan 19 – The former vice-president of a major state-owned
iron and steel company was charged by the Shanghai People’s
Procuratorate for receiving CNY 3.95 million (approx.
USD 600,000) in bribes. According to media reports, most
of the bribes were given to him by “old friends” who were in
business with one of the company’s subsidiaries.
Five pharmaceutical companies fined for entering
into anti-competitive agreements related to the
sale of arthritis drugs in China
Jan 28 – Five domestic Chinese pharmaceutical companies
were fined CNY 3.99 million (approx. USD 600,000) by the
National Development and Reform Committee (“NdRC”)
for anticompetitive agreements involving price-fixing and
market collusion. According to the NDRC, the companies
agreed to market the drugs at a price almost two times
higher than the regular price.
China’s biggest Ponzi scheme: online financing
platform bilked Usd 7.6 billion
Feb 1 – Chinese authorities accused an online financing
platform operator, which runs one of the most popular
peer-to-peer platforms in China, of illegally soliciting funds
from the public and fraud. Twenty-one suspects connected
to the company were arrested by the police, including the
chairman of its parent company. According to the police, the
company fraudulently obtained more than CNY 50 billion
(approx. USD 7.6 billion) from more than 900,000 investors.
This online financing platform was launched in 2014 and
lured investors with promises of high-interest pay-outs
invested into various projects. However, 95% of its advertised
investment projects were falsified. The collapse of the
company is likely to result in one of the largest investment
frauds in China in recent years.
Chinese subsidiaries of major multinational food
processor fined for food safety violations
Feb 1 – The Shanghai Jiading People’s Court has issued its
judgment in relation to a two-year investigation of a major
food safety scandal first exposed by the media in July 2014.
Two Chinese subsidiaries of a major multinational food
processor were fined a total of CNY 2.4 million (approx.
USD 363,600) for selling expired beef and chicken to several
major fast food restaurant chains in China. Ten employees of
these two subsidiaries were held responsible and sentenced
to prison for up to three years.
Third Round of Central Inspection identified
banking executives misusing public funds for
personal entertainment expenses
Feb 4 – The Central Inspection Team of the Chinese
Communist Party’s Central Commission for Disciplinary
Inspection (“CCdI”) completed the third round of inspections
for 2015. The inspection targeted 31 entities including
MAjOR ENFORCEMENT NEWs
www.dlapiper.com | 05
administrations and commissions directly supervised by the
central government and state-owned enterprises, including key
players in the banking and financial sectors. The CCDI identified
misconduct involving the misuse of public funds, conflicts of
interests, incompetent leadership, and violations of the
“Eight Rules”. Officials of several major financial institutions
allegedly misused public funds for personal entertainment
purposes, including playing golf, personal travel, lavish meals and
other entertainment activities.
The Political Bureau of the Central Committee of the
Communist Party of China (“CPC”) adopted the “Eight Rules”
in 2012. These rules require CPC officials to: (1) keep close
relationships with the people; (2) strictly regulate the
organization of meetings and events; (3) reduce the unnecessary
issuance of official documents; (4) regulate arrangements of
official visits; (5) improve arrangements for security guards;
(6) improve media reporting; (7) restrict publication of personal
writing; and (8) uphold integrity and thrift.
China FdA commands investigations into vaccine
scandal that affected 24 provinces in China
Mar 20 – The CFDA issued two notices on the same day
demanding local food and drug supervisory departments
and business operators to investigate and trace the origin
and distribution of CNY 570 million (approx. USD 88 million)
worth of improperly stored vaccines. These vaccines could
potentially have lost their effectiveness as they were not
properly refrigerated in storage and during transportation.
Two individuals from the Shandong province had allegedly
been illegally bulk-selling these vaccines to 24 provinces across
China since 2010. It is reported that at least 300 people were
involved in the illegal sale and distribution of the vaccines.
The scandal has gathered widespread public attention and
reignited drug-safety concerns in China.
“sky Net” campaign continues to repatriate top
wanted fugitives from abroad
March 27 – According to media reports, 25 fugitives from
China’s 100 most wanted list were successfully repatriated
through operation “Sky Net”. On March 27, ZHANG Liping,
the former chairman and general manager of a footwear
company based in Shanghai, who was accused of falsifying
value-added tax invoices, voluntarily returned to China from
Peru. ZHANG was ranked No. 63 on China’s 100 most
“Sky Net” is a multi-agency operation involving the
collaboration of four Chinese government agencies/organs:
Organization Department of the Communist Party of China’s
Central Committee, Supreme People’s Procuratorate,
Ministry of Public Security, and the People’s Bank of China.
U.s. software company settled with dOj and sEC for FCPA offenses in connection with its China operations
Feb 16 – A U.S.-based technology company and its
two Chinese subsidiaries agreed to pay more than
USD 28 million to settle parallel civil and criminal actions
involving violations of the U.S. Foreign Corrupt Practices Act
(“FCPA”) with the U.S. Department of Justice (“dOj”)
and the U.S. Securities and Exchange Commission (“sEC”).
The SEC’s investigation found that two Chinese subsidiaries
of the U.S. company provided non-business related travel and
other improper payments to various Chinese government
officials for the purpose of winning business. According to
DOJ/SEC press releases, the company’s Chinese subsidiaries
routinely relied on local third parties to assist the company in
sales to Chinese SOE customers. The company also provided
what it called “training” to SOE employees through those
third parties. The “training” sessions were usually hosted
in popular tourist destinations in the United States, such as
New York, Las Vegas, San Diego, Los Angeles, and Honolulu.
The training component was minimal compared to the
sightseeing or recreational activities.
For additional information on overseas enforcement actions,
please contact DLA Piper.
06 | China Regulatory Enforcement Quarterly
Notable individuals put
under investigation in
Q1 2016 include:
■ DENG Qilin, former
chairman and party
committee secretary of
a major iron and steel
company based in Wuhan
■ AI Baojun, former deputy
mayor of the city of
■ LV Xiwen, former member
of deputy secretary of
Municipal Party Committee
of the city of Beijing
■ DAI Weijie, former
president of No. 3 People’s
Hospital of the city of
■ WEI Hong, former
governor of Sichuan
1 JIANGSU 2 SHANGHAI
3 INNER MONGOLIA
6 – 10
2 – 5
Central Government and sOEs: 10
Heat Map of PRC Officials Under Investigation
www.dlapiper.com | 07
On February 25, 2016, the draft amendments to the
Anti-Unfair Competition Law (“AUCL”) were released by
the State Council for public comment. The draft amendments
extend the scope of the administrative commercial bribery
offense and address other issues, including the use of
third parties to commit commercial bribery, employer liability,
and updated accounting books and records requirements.
The draft amendments also introduce new law enforcement
measures and increased penalties for offenders who commit
commercial bribery. There is presently no clear indication
when the amended AUCL will be officially released. We
expect that it is likely to come out in the second half of 2016.
definition of commercial bribery expanded
The current AUCL does not have a detailed definition on
the administrative commercial bribery offense. It generally
prohibits any business operator who bribes its business
counterparties for the purpose of a sale or purchase of
commercial products. It further provides that under-
the-table kickbacks that are not recorded in companies’
accounting books constitute bribery. The draft amendments
now propose a wider definition of “commercial bribery”
as “a business operator providing or promising to provide
economic benefits to the counterparty in a transaction or a
third party who may have influence over the transaction, in
order to entice the party to seek business opportunity(ies)
or competitive advantage(s) for the business operator.”
Compared with the current AUCL, this definition covers
benefits provided to third parties who are not directly
dRAFT AMENdMENTs TO THE
ANTI-UNFAIR COMPETITION LAW
REsHAPE COMMERCIAL BRIBERY
involved in the underlying transactions and therefore
casts a wider net to catch potential offenders who may
try to bypass the current regulations by using third party
intermediaries to funnel improper payments or benefits to
the counterparties. Furthermore, the draft amendments also
expanded the definition of the term “business operator” to
include manufacturers of commercial products and all service
providers on top of the commercial traders and providers of
for-profit services as defined in the current AUCL.
Employer’s vicarious liability for employee conduct
The draft amendments further specify that an act of
commercial bribery by a business operator’s employee to
obtain business opportunities or competitive advantages for
the business operator should be considered an act of the
employer. This rule also makes it clear that an employer will
not be held liable when its employee takes bribes against
the interests of the employer. The draft amendments have
not addressed how the employer’s vicarious liability rule
may apply when an employee gives bribes to a business
counterparty against the interests of the employer.
Inaccurate or incomplete accounting books and
records may constitute commercial bribery
Under the current AUCL, a business operator is permitted
to give a discount to a counterparty or a commission to an
intermediary provided that the discount or commission is
accurately recorded in the accounting books and records.
The draft amendments further strengthen the books and
08 | China Regulatory Enforcement Quarterly
records provision by making it an offense of commercial
bribery if business operators engaging in a transaction fail to
accurately record all payments of economic benefits in their
contracts and respective accounting books.
Economic benefits obtained during the course of
The draft amendments establish an offense of commercial
bribery which prohibits business operators from committing
commercial bribery offense during the course of “public
services”. Previously, no such term “public services” appeared
in the AUCL. Although no guidance has been provided on
what “public services” entails, it is likely that public hospitals,
schools, utilities, and transportation providers would be
considered “public services.” Therefore, if relevant PRC
Criminal Law bribery provision thresholds are not met, it
is possible that a business operator could still be held liable
under the draft amendments for commercial bribery during
the course of “public services”.
No cap for penalties tied to commercial bribery
The current AUCL imposes a fine for commercial bribery of
between CNY 10,000 to CNY 200,000 (approx. USD 1,500
to 30,000), along with confiscation of illegal gains. The draft
amendments impose fines of between 10% to 30% of the
business revenue generated in relation to the illegal conduct.
Compared to a fixed maximum penalty, this increases
the potential costs for a business operator who violates the
commercial bribery provisions particularly where the bribe
generates large business revenue streams.
Increased enforcement powers and flexibility in
On top of the existing administrative enforcement measures
under the current AUCL, the draft amendments expressly
provide additional enforcement measures to the relevant
supervisory and inspection agencies. These new measures
include the power to seize properties in relation to
suspected violations, inquire into the bank accounts and
related accounting books and records of business operators
suspected of violations, freeze funds where attempts are
made to transfer or conceal illegal funds, and order business
operators under investigation to cease any suspected illegal
The draft amendments also grant enforcement agencies wide
discretion in imposing penalties against violators. Cooperation
may result in a lighter or mitigated penalty being imposed,
while significantly larger penalties of between CNY 20,000
to CNY 200,000 (approx. USD 3,000 to 30,000) could be
imposed for non-cooperation, where false materials are
provided, or where evidence is concealed or destroyed,
thereby impeding the investigation.
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10 | China Regulatory Enforcement Quarterly
DLA Piper is a global law firm operating through various separate and distinct legal entities. Further details of these entities can be found at www.dlapiper.com.
This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and
should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this
publication. This may qualify as “Lawyer Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
Copyright © 2016 DLA Piper. All rights reserved. | MAY16 | 3084799
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