UK Government makes U-turn on the reform of corporate criminal liability

In September 2014, the new Attorney General, Jeremy Wright, revealed that the government was considering introducing a new offence of corporate failure to prevent economic crime, such as fraud and money laundering, similar to the corporate offence in the UK Bribery Act 2010 of an organisation failing to prevent bribery.

In its UK Anti-Corruption Plan, published in December 2014, the government undertook to examine the introduction of this new offence by June 2015. Their reasoning being that ‘in addition to bribery, there are likely to be other forms of economic crime for which it is appropriate to ensure that senior corporate actors are sufficiently accountable.’

In their 2015 election manifesto, the Conservatives pledged to make it illegal for ‘companies to fail to put in place measures to stop economic crime such as tax evasion in their organisations’ and to ensure that penalties were large enough to punish and deter.

Why were the reforms necessary?

These reforms were supported by Serious Fraud Office’s (“SFO”) director, David Green QC, who said that these changes would make it easier for the SFO to effectively bring charges against companies. David Green QC has frequently cited the inadequacy of the English Law on corporate criminal liability. He attributes this to the identification principle (the need to attribute guilty knowledge to the directing mind of a company to secure a conviction) and advocates a move closer to vicarious liability, as in the USA.

David Green QC also argued that this change would complement the new Deferred Prosecution Agreement (“DPA”) provisions, as at the moment companies are likely to conclude that whilst the prosecution of a company is so difficult under UK law, there is no advantage in self-reporting and agreeing to a DPA.

What is the development?

On 28 September 2015, in an answer to a written question submitted by conservative MP Byron Davies, Andrew Selous, Parliamentary Under-Secretary of the Ministry of Justice, announced plans to stop work on creating a new offence for failing to prevent economic crime. Selous cited two main reasons for the decision:

1) There have been no prosecutions under the model Bribery Act offence; and

2) There is little evidence of corporate economic wrongdoing going unpunished.

This indicates that the government does not consider there to be a problem, and that the introduction of new laws and the widening of the current ones would be surplus to requirement. This is surprising as the government have previously expressed grave concerns about the damaging effect of corporate economic crime on the economy and the lack of options for dealing with companies that offend.

What is the effect of the decision on companies?

For the time being at least, there seems to be no prospect of a change in the law on corporate liability for economic crime. Companies should however remain vigilant to the corporate offence under the Bribery Act and ensure they have adequate anti-bribery and corruption systems in place as the SFO and Financial Conduct Authority (FCA) will continue to use the current model of corporate criminal liability in order to try and prosecute companies.

If there continues to be a lack of prosecutions under the current provisions and the new DPA system fails to take off, it is possible that the SFO will press for the threshold for corporate liability to be lowered and a widening of the provisions may well be considered again in the not too distant future.

Companies should also be aware that a government consultation on a potential new corporate criminal offence of failure to prevent the facilitation of tax evasion closed on 8 October 2015. The consultation indicates that this new offence will apply to both corporations with a presence in the UK and non-UK based corporations whose agents criminally facilitate the evasion of UK taxes in other jurisdictions. As with the bribery offences, there is likely to be a due diligence defence to ensure that corporations who have taken reasonable steps to put in place adequate compliance procedures are not prosecuted.

Monthly China Anti-Bribery Update Report — October 2015

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) It was reported on October 6, 2015 that Wang Xizhong (“Wang”), the former Deputy General Secretary of the People’s Government of Luoyang City, Henan Province, had been sentenced by the Neiyang County People’s Court of Nanyang City, Henan Province to 8 years’ imprisonment for taking bribes. All of his illegal gains have been recovered.

The court found that while holding office, Wang unlawfully accepted cash in Renminbi and US dollars, as well as shopping cards and a camera, valued at nearly RMB 1.58 million (USD 248,850) in total. For those pecuniary gains, Wang unlawfully secured various benefits for third parties in the granting and facilitating of projects.

(2) On October 12, 2015, Xianning Intermediate People’s Court of Hubei Province issued a court verdict, sentencing Li Chuncheng (“Li”), the former Vice-Secretary of the Sichuan Province to 13 years imprisonment, with confiscation of personal property in the amount of RMB 1 million (USD 157,600).

Li, a member of the CPC, was found guilty of taking a significant number of bribes from 1999 to 2012 and breaching the ethical rules of the Chinese Communist Party. During his term of office, Li accepted bribes amounting to RMB 39.79 million (USD 6.27 million), and sought illegal benefits for bribe-givers, causing the losses of public funds exceeding RMB 3 million (USD 472,500). Li was the first provincial level officer who was put under investigation since the 18th CPC National Congress. Li was given a lighter sentence because of his confession and his return of illegal gains.

(3) On October 12, 2015, Jiang Jiemin (“Jiang”), the former Chief of State Owned Asset Supervision and Management Commission of the State Council, was sentenced to 16 years’ imprisonment by Hanjiang Intermediate People’s Court of Hubei Province, and his personal property valued at RMB 1 million (USD USD 157,600) was confiscated for taking bribes, abuse of power, and for possessing a large amount of assets from unidentified sources.

During his term of office from 2004 through 2013, Jiang had been appointed, successively, as the Vice-General Manager, General Manager, Director, Chairman of the board, and Party Secretary of Petro China Company Limited, a state-owned enterprise. While in office, Jiang was found to have received, for himself and for his close family members, unlawful benefits in the aggregate amount of RMB 14 million (USD 2.2 million). In return, Jiang was found to have procured favors, unlawful pecuniary interests, and job promotions for various third parties, and the court found that the amount of personal assets of Jiang and his family members was largely disproportionate to Jiang’s earnings throughout the alleged period. Jiang and his family members were unable to provide a rational basis for the wealth. Jiang was given a lighter sentence due to his confession and return of illegal gains.

(4) On October 13, 2015, Wang Yongchun (“Wang”), the former Deputy General Manager of China National Petroleum Corporation, was sentenced to 20 years in prison for taking bribes, possessing a large amount of assets from unidentified sources and abuse of power by the Intermediate People’s Court of Xiangyang City, Hubei Province, with confiscation of personal property worth RMB 2 million (USD 315,000).

Wang was found guilty of seeking illegal benefits in oilfield development, project contracts, job promotion, position adjustment, business operation, etc. for third parties in exchange of bribes of RMB 42.45 million (USD 6.68 million) received from 67 entities and individuals. Wang was given a lighter sentence due to his confession and the return of illegal gains.

(5) It was reported on October 27, 2015 that Zhang Xiaopu (“Zhang”), the former Party Secretary and Deputy Chief of Liaoning Development and Reform Commission and former Deputy Chief of the Provincial Committee of Population, Resources and Environment, was sentenced to 15 years in prison for embezzlement and accepting bribes by the Intermediate People’s Court of Benxi City, Liaoning Province.

Zhang was found guilty of taking bribes, individually or together with others, in an amount up to nearly RMB 10 million (USD 1.575 million) during his term of office from 2011 to 2014. In return, he assisted bribe-givers in obtaining governmental subsidies, winning governmental tenders, etc. The court also made the judgement to confiscate personal property in the amount of RMB 2.4 million (USD 378,000).

4. Other

No developments.
5. China-related FCPA Action

No developments.

Fair Go vs First Amendment in Australia: bans to political donations by property developers survive constitutional challenge

If you’ve ever been to Australia, or are familiar with Australian politics, there is a good chance that you have heard the catch cry of the ‘fair go.’ For our non-Australian audience, this can be roughly translated to ‘equality of opportunity for all Australians’. As we all know, in the United States freedom of speech sits at the apex of the US Constitution. Although they are both admirable values, the circumstances of McCloy v New South Wales[1] tasked the High Court to answer the question: what is the right balance between equality and liberty?


The case involved a challenge to the Election, Funding and Disclosure Act 1981 (NSW) (‘the Act’) by the plaintiff, Jeff McCloy, former Mayor of Newcastle and property developer. The plaintiff had been investigated by the New South Wales Independent Corruption and Crime Commission (ICAC) regarding political donations made to the NSW Liberal Party. These investigations led to the resignation of several of his party colleagues in the area.

The Act prohibits donations by property developers and alcohol and tobacco companies to NSW political parties at a local or state level[2] (’prohibited donations’). It also caps any donations to NSW state politicians at $5,000[3] (‘caps’). The rationale behind these provisions (which were introduced by the former NSW Labor government in the wake of its own corruption scandal) is to provide for equal and access to politicians for everyone, regardless of how deep their pockets.

There is no First Amendment equivalent found in the Australian Constitution. Instead, the plaintiff alleged that the provisions in the Act which prohibited donations and imposed caps were invalid because they impermissibly infringed on the freedom of political communication on government and political matters which has been implied into the Constitution by the High Court (‘the freedom’).

The Test

The majority of the High Court used a 3-stage process[4] to test whether the impugned law infringed the freedom.[5] The test can be summarised as follows:

If a law is shown to burden the freedom in its terms, operation or effect then, to be valid, the law must:

  • be compatible to the maintenance of the constitutionally prescribed system of representative government; and
  • be proportionate (in the sense of being reasonably appropriate and adapted to advance the legitimate object of that law).

The proportionality question involves a consideration of the suitability, necessity and adequacy of balance of the law.

All seven High Court Justices found that the freedom was burdened. However using this test, the majority (French CJ, Kiefel, Bell and Keane JJ in a joint judgment, Gageler J and Gordon J) rejected the plaintiff’s contentions and held that none of the provisions were invalid. Nettle J held that prohibited donations sections were invalid.

A distinctly Australian approach

The majority of the High Court rejected the plaintiff’s attempt to assert an individual, First Amendment-style right. They opined that the plaintiff’s argument “mistakenly equate[d] the freedom under our Constitution with an individual rights such as is conferred by the First Amendment of the United States Constitution, which operates in the field of political donations and is in the nature of both a right of political expression and a right of political association.”[6]

Instead of framing the legitimacy of a law based on individual rights, the High Court followed the egalitarian approach established in the Australian Capital Television Case[7] which struck down legislation that did not give equality of access to television and radio to all candidates of political parties. [8]

It wasn’t open to the plaintiff to seriously argue against the legitimacy the Act, since a challenge to the Act had been previously rejected by the High Court in Unions NSW[9]  where it was found that the Act served a legitimate anti-corruption purpose.

Instead, the plaintiff attempted to draw on United States’ jurisprudence to narrow the meaning of corruption and argue the law was invalid on the compatibility and proportionality grounds. However, in this case the High Court distanced itself from the United States Supreme Court which recently confined the meaning of ‘corruption’ to quid pro quo corruption in the context of political donations. [10]  The High Court did not agree that buying influence through donations did not amount to corruption.[11]

Far from agreeing with the plaintiff, the High Court said that the purpose of the caps on donations imposed by the Act “are not only compatible with the system of representative government; they enhance and preserve it.”[12]

NSW property developers beware

Although other States and Territories have experimented with caps in the past, bans on political donations by property developers are unique to NSW.[13] It does not appear that other Australian jurisdictions are likely to follow NSW and ban donations from property developers in the near future. Such provisions in the Act were made to respond to the incidence of property developers in NSW who sought to influence their self-interest, in the wake of eight adverse ICAC reports concerning land development applications in the last two decades.[14]

Now that the High Court has confirmed the validity of those laws banning property developer donations in NSW, it is likely that they are here to stay. Since the vast majority of planning decisions are made at the local government level, it is expected that the caps on political donations will be expanded down the chain to restrict donations made to local government elections and local government candidates.[15]

[1] McCloy v New South Wales [2015] HCA 34.

[2] Election, Funding and Disclosure Act 1981 (NSW), ss.96GA-GB

[3] Election, Funding and Disclosure Act 1981 (NSW), Div. 2A.

[4] Established by Lange v Australian Broadcasting Corporation [1997] HCA 25 and refined by Coleman v Power [2004] HCA 39

[5] [2015] HCA 34, [2].

[6] [2015] HCA 34, [30]

[7] Australian Capital Television Pty Ltd v The Commonwealth (1992) 177 CLR 106.

[8] [2015] HCA 34, [43]; Australian Capital Television Pty Ltd v The Commonwealth [1975] HCA 53.

[9] Unions NSW v New South Wales (2013) 252 CLR 530.

[10] McCutcheon v Federal Election Commission, 575 US (2014) (US Supreme Court, No 12-536, 2 April 2014)

[11] [2015] HCA 34, [35]-[43].

[12] [2015] HCA 34, [47].

[13] [2015] HCA 34, [49].

[14] [2015] HCA 34, [49], [51].

[15] Law Report, ‘Property developer loses HC challenge to rules on political donations’, 13 October 2015.

Cooperation is Key – Scottish Company receives civil penalty for contravention of Bribery Act

Brand-Rex Limited, a Scottish company specialising in developing cabling solutions for network infrastructure and industrial applications, has become the first UK Company to be penalised for contravention of Section 7 of the Bribery Act 2010.

The company avoided criminal prosecution and was instead ordered to pay £212,800 by way of a civil recovery order after self-disclosing an instance of failing to prevent bribery by a third party associated with the company.

What did Brand-Rex do wrong?

The company  had been operating a system called ‘Brand Breaks’ between 2008 and 2012, in which UK distributors and installers were eligible for varying degrees of rewards (including foreign holidays) for meeting or exceeding sales targets.

The scheme itself was wholly legitimate. The problem arose when an independent installer of Brand-Rex products (“an associated person” for the purposes of Section 7) offered tickets earned by him under the scheme to an employee of one of his customers. This went beyond the intended terms of the scheme, as this customer was an end user of Brand-Rex products, not an installer or distributor.  The individual who received the tickets was in a position to influence decisions as to where his company purchased cabling from, meaning Brand-Rex were in breach of Section 7 of the Bribery Act even though they did not intend this individual to receive any tickets.

Why did Brand-Rex receive a civil sanction for a criminal offence?

As soon as Brand-Rex became aware of the issue, and their potential liability under the Bribery Act, they engaged external solicitors and forensic accountants to investigate. In June 2015, they self-reported the matter to the Scottish Crown Office and Procurator Fiscal Service (COPFS), accepting responsibility for their failure to prevent bribery by an associated person under section 7 of the Bribery Act.

Due to this self-reporting and extensive co-operation with the authorities, the COPFS were lenient and agreed to a civil recovery order. The civil settlement was calculated based on the gross profit made by Brand-Rex resulting from the misuse of the incentive scheme.

Brand-Rex also agreed to ensure the implementation of its anti-bribery and corruption (ABC) policies, procedures and training programmes. Brand-Rex had ABC policies and procedures in place while the Brand Breaks scheme was operating, however they did not attempt to assert that they were adequate, which would have constituted a complete defence under Section 7(2) of the Bribery Act.

Would the result have been a different in England?

Brand-Rex took advantage of a specific voluntary disclosure programme in Scotland, which meant that their self-reporting and co-operation with the authorities worked heavily in their favour.  There is no such scheme operating at present in England.

It is possible that had the case been dealt with in England by the Serious Fraud Office (SFO), the company would have been given the option of entering into a Deferred Prosecution Agreement (DPA) as an alternative to a criminal prosecution. DPAs allow for the suspension of a prosecution for a fixed period of time, but only if the organisation agrees to stringent conditions, which may include fines, orders to pay compensation and other remedial measures.

The SFO has stressed that it wants to encourage genuine cooperation from corporate bodies, and hopes that offering DPAs as an alternative to criminal prosecutions will encourage companies to self-report. However, the SFO have said that whilst self-reporting is a factor that will be considered when deciding whether to prosecute an offender, it is only one factor and there is no guarantee that they will offer a DPA following a self-report and therefore, a reporting company may still be the subject of a criminal prosecution in respect of a contravention of the Bribery Act. Any evidence provided to the authorities from their self-reporting could in fact be used against the reporting company if criminal proceedings are taken.

What does this mean for UK businesses?

Most importantly, the case highlights the significance of formulating and enforcing adequate ABC procedures to prevent bribery by associated persons. Organisations can be liable for the acts of third-party agents and this is an area which is often overlooked. Adequate procedures should be in place to combat this risk. This may include compliance training to third parties and on-going monitoring of their business.  If adequate ABC procedures are in place, a company should have a complete defence to any criminal prosecution.

The Brand-Rex case also shows the importance of undertaking a full internal investigation into alleged wrongdoing at the earliest opportunity and, if a self-report is to be made, that this is done promptly.

It is unclear how the SFO would have approached this case in England, although a DPA would have been a high possibility. Companies should keep up to date with any developments regarding DPAs and look out for the publication of the first UK agreement, which according to some, is to be expected in late 2015/early 2016.

Australian Sports Coalition Makes Submission to Foreign Bribery Senate Inquiry

Australian Sports Coalition Makes Submission to Foreign Bribery Senate Inquiry

The Coalition of Major Professional and Participation Sports Inc. (COMPPS) has made a submission to the Senate Inquiry into Foreign Bribery, calling for a federal legislative response to tackle the threat of local and cross-border match fixing in Australia.

As sports betting in legal and illegal markets continues to grow, and with an ever-rising incidence of match-fixing across sport globally, COMPPS warns of “the potential for the threat of match fixing to strike at the core of sport’s integrity and the perception of sport’s integrity in Australia”.

COMPPS is comprised of the governing bodies of major professional sports in Australia: the Australian Football League (AFL); Australian Rugby Union (ARU); Cricket Australia (CA); Football Federation Australia (FFA); National Rugby League (NRL); Netball Australia; and Tennis Australia.

Keeping Sport Clean: Australian Initiatives

In the Coalition’s submission, dated 8 September 2015, Malcolm Speed, Executive Director of COMPPS, and former International Cricket Council CEO, acknowledged the “serious and concerted” efforts undertaken to address the serious threat that match fixing poses.

In June 2011, federal, state and territory sports ministers endorsed a National Policy on Match-Fixing in Sport, under which governments agreed to pursue measures including nationally consistent legislative arrangements to tackle and deter match fixing, and information-sharing arrangements between governments, major sports organisations, betting operators and law enforcers.

In line with the Policy, the federal government has established the National Integrity of Sport Unit (NISU) to provide national oversight, monitoring and coordination in respect of the threats posed by doping, match fixing and other forms of corruption.

Measures have also been taken by sporting bodies themselves. Working in concert with betting operators and players’ associations, COMPPS initiated an Anti-Corruption Working Party in 2011 to make recommendations for reform and formulate robust codes of conduct for COMPSS members.

COMPPS’ Integrity Committee (CIC) continues to coordinate joint activities amongst the members. “A key element of the work … undertaken by CIC is with the objective of ensuring to the greatest extent possible, consistency amongst the sports in combatting match-fixing,” Mr Speed said.

Dropping the Ball?

It is consistency which is still sorely lacking in the Australian anti-match fixing legislative framework, COMPPS cautions.

The task of tackling match fixing has fallen to be dealt with by local police forces and patchwork state and territory legislation, leading to a general lack of harmonisation in legislative and enforcement approaches across Australia. The promotion of legislative uniformity has been met with varying levels of enthusiasm. To date, not all states have created match fixing offences, and the laws, where implemented, are not all consistent.

These laws have, in places, been put to use. In September 2013, reports emerged of a syndicate conducting multi-million dollar match fixing activities involving Victoria’s Premier League soccer division. Six people were subsequently charged under new Victorian criminal offences introduced pursuant to the National Policy, including the coach, four players (all from the United Kingdom) and a Malaysian national.

COMPPS’ submission presses for greater uniformity to prevent offenders avoiding prosecution by “forum shopping” in jurisdictions which have not adopted the Policy.

Tackling Cross-Border Match Fixing

COMPPS also has transnational corruption in its sights. It suggests that certain forms of cross-border match fixing might be captured and deterred by extending the federal legislative framework on foreign bribery to cover sporting officials. Against the backdrop of the on-going Fifa corruption inquiry, COMPSS submitted that the conduct of officials in international sporting bodies could also fall within the reach of Commonwealth legislative reforms.

Samantha Bricknell, Research Manager at the Australian Institute of Criminology, suggests that corruption in Australia “has been predominantly homegrown”, and the extent to which it will become “a transnational phenomenon remains to be discovered”. Law enforcement and sporting bodies warn, however, of the inevitable infiltration of international syndicates into Australian sport and Australian-hosted sporting events.

Tellingly, ahead of the 2015 Cricket World Cup, the International Cricket Council (ICC) lobbied the Australian and New Zealand host governments to strengthen anti-corruption legislation. With elite cricket rocked in recent years by a series of corruption scandals, the ICC has sought to ramp up monitoring and regulation efforts to stem the perceived rot.

The threat is not so confined, however. COMPPS stresses that match fixing is “sport neutral”, with risks to one sport easily translating into risks to others.

“The extent of time and resources invested in this area and the level of formal and informal cooperation between these stakeholders is indicative of the seriousness with which the threat is perceived and the significant damage that could ensue to all sport if the scourge of match fixing were to increasingly infiltrate Australian sport,” Mr Speed said. It remains, COMPPS suggests, for federal reforms to “increas[e] the armoury available” to address the problem.

How We Can Help

Squire Patton Boggs has specific and extensive experience in:

  • advising on legal, commercial and regulatory issues affecting the sports industry
  • advising on domestic and global Anti-Bribery and Corruption legislative frameworks
  • providing comprehensive training for executive and staff on anti-corruption and bribery laws
  • advising on risk management and due diligence for Boards

Contact: Margie Tannock

SMEs and the UK Bribery Act – Compliance may not be as difficult as you fear!

Despite the fact that the Bribery Act 2010 (the “Act”) came into force on 1 July 2011, a recent government study has found that only two-thirds of SMEs are aware of the Act or its corporate offence for failure to prevent bribery (under section 7 of the Act). Of those that were aware of the act, 74% were not aware of the Ministry of Justice’s (“MOJ”) guidance under the Act, published in March 2011. The Ministry of Justice has also published a Quick Start Guide.

This article will examine Section 7 of the Act – failure of commercial organisations to prevent bribery – and what SMEs should be doing to protect themselves, including when and where to seek advice along with details of the average costs involved.


Small and medium sized enterprises (SMEs) play a vital role in the UK economy, making up more than half of employment in the UK private sector (in 2012). With an estimated 20% of these companies exporting, they are an essential part of the Government’s growth strategy. Many SMEs are however unaware of the Act or of what they need to do to comply.

How great is the burden under the Bribery Act?

The government are aware that there was initially concern amongst SMEs that the Act would impose costly and burdensome responsibilities on them. However, the statutory burden isn’t actually that great for most companies as the Act only requires adequate (i.e. proportionate) procedures to be put in place to mitigate the risks of bribery. When determining what constitutes ‘adequate procedures’, the macro risks (e.g. risk of country exporting to, or the market) should be considered along with the following micro characteristics of your business:

  • size;
  • management structure;
  • corporate structure; and
  • business model.

This means that, generally speaking, smaller businesses with smaller risks need to take fewer precautions. Some businesses may assess their risk as very low and be able to use this assessment to justify not putting any procedures in place.  Some may find that existing control measures (for example financial controls or contractual terms) are sufficient to control their risk of bribery.

Consequences for failing to comply

Although there haven’t been any SME prosecutions under the Bribery Act 2010 to date, SMEs should be aware of the consequences of failing to comply with the requirements, which, for a breach of section 7, include an unlimited fine. This highlights the importance of companies being aware of the act and the corresponding MoJ guidance.

The MoJ Guidance

As mentioned above, only 26% of SMEs surveyed in the recent government study were aware of the MoJ guidance and out of that 26%, only 75% had read it. Perhaps the most motivating statistic is that 89% of those that did read it found it useful or very useful. Only 3 companies found it of no use at all, and they all agreed that this was because they thought it adopted a common-sense approach.

Of those that were aware of the guidance, 76% had bribery procedures in place, compared to only 50% for those who were unaware of the guidance.

If in doubt, seek advice

A third of the SMEs that were aware of the Act or the corporate liability for failure to prevent bribery used other guidance, such as lawyers and business consultants. Almost all (96%) of those found that advice useful, and over a third said that the advice had enabled them to put a bribery policy in place.

The study found that in terms of annual cost of bribery prevention procedures, the median annual spend was £500. The study found that smaller companies typically spent less than the medium sized companies- again emphasising the proportionality element.  A quarter of SMEs interviewed quoted their annual spend at zero.

As shown above, the costs for protecting your company are minor when compared to the potential (unlimited) fine companies can receive for failing to take the appropriate measures.

Prosecutions are coming…

Although there have been very few prosecutions as of yet, as per our previous blog, the SFO is continuing to crack down on fraud and financial crime with increased vigour, therefore all companies including SMEs should be aware of the implications of the Act and what steps they need to take. This article flags the very helpful guidance available publically, however, if you require more tailor-made advice or have any specific queries please free to contact a member of our team.


Monthly China Anti-Bribery Update Report — September 2015

1. New laws or regulations

State level: No developments.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) It was reported on September 2, 2015 that Li Zhen (“Li”), the former Chairman and General Manager of Anhui Kangyuan Electric Group Co., Ltd. (the “Company”), was sentenced by the Intermediate People’s Court of Bengbu City, Anhui Province to 18 years in prison for duty embezzlement, bribery-taking, and fund misappropriation.

The court declared that during the period when Li was acting as the Director and General Manager of the Company, Li took advantage of his positions to provide assistance to others in several regards, including without limitation the enterprise operation, job switches and promotions. In return, Li illegally received cash and other properties from bribe-givers on nearly 200 occasions, including RMB 4.86 million (USD 765,866), HK$ 50,000 (USD 6,451) and USD 6,000, and shopping cards valuing RMB 47,000 (USD 7,406). Li was also found guilty of embezzling and appropriating funds.

Interestingly, while taking bribes, Li once donated an amount of RMB 50,000 (USD 7,879) to a hope primary school and another amount of RMB 70,000 (USD 11,031) to a village, all under the name of others and from the bribes Li accepted.

(2) On September 9, 2015, Jiang Yongqing (“Jiang”), the original Party Secretary of Liling City, Hunan Province was reported to be sentenced by the Intermediate People’s Court of Hengyang City to 18 years’ imprisonment plus confiscation of properties valuing RMB 3.1 million (USD 488,358) for corruption and bribery-taking. The amount of bribes is alleged to be around RMB 9.94 million (USD 1.56 million) in total.

Jiang was accused of taking advantage of his position to seek benefits for others in relation to real estate development, project contract, project price payment and employment, and accordingly accepted or solicited bribes together with Zhao Shanjun and Hu Bihua over RMB 12.25 million (USD 1.93 million) in return, including cash, valuable jade article, bank card, etc. Additionally, Jiang is also alleged to have embezzled public funds together with others amounting to RMB 370,000 (USD 58,287).

(3) On September 14, 2015, Guan Shouzhong (“Guan”), the former Deputy General Manager of Anhui Electric Power Corporation (the “Company”), a state-owned power corporation of China, was sentenced to 12 years in prison plus confiscation of personal properties valuing RMB 400,000 (USD 63,034) by the Intermediate People’s Court of Lu’an City, Anhui Province.

Guan, 59 years old now, successively acted as the Director of the Dispatch and Communication Center, the General Manager, the General Engineer and the Deputy General Manager of the Company. During the period when Guan took on the foregoing positions, Guan sought benefits for bribe-givers in several bidding projects, such as the electric communication project, the construction of power dispatching data network, the automation of transformer substations and development of the system software. In return, Guan illegally accepted several shopping cards and cash in the currency of RMB, USD and EUR. The total ill-gotten gains accepted by Guan amount to RMB 4.9 million (USD 772,170).

Considering Guan pleaded guilty to a better attitude and voluntarily confessed other key bribery facts that had not been mastered by the procuratorate and given that Guan’s relatives voluntarily surrendered bribes amounting to RMB 2.32 million (USD 365,599), Guan therefore was given a lighter sentence.

(4) On September 24, 2015, the Intermediate People’s Court of Hengshui City, Hebei Province held a hearing for Tan Qiwei (“Tan”), the former Deputy Director of the Standing Committee of National People’s Congress (“SCNPC”) in Chongqing City, Sichuan Province, who is prosecuted for taking bribes.

According to the procuratorate, Tan took advantage of his previous positions, such as the Deputy Mayor of Chongqing City and the Deputy Director of the SCNPC in Chongqing City, to provide assistance to a real estate company, an advertising company and a communications engineering company in several matters such as project contacting and reduction of land-transferring fee. In return, Tan directly or indirectly via his wife accepted properties valuing RMB 11.27 million (USD 1.76 million) and USD 20,000 in cash, totaling RMB 11.43 million (USD 1.79 million).

The court will make its judgement on a given date.
4. Other

No developments.
5. China-related FCPA Action

No developments.

New EU directive allows public contract suppliers convicted of corruption to “self-clean” their bad behaviour

The Public Contacts Directive (2014/24/EC – the “2014 Directive”)[1] sets out the legal framework for public procurement when contracting authorities seek to acquire supplies, services, or works (e.g. civil engineering or building). The intention is that procurement rules become simpler and more flexible. Despite the 2014 Directive not requiring transposition into Member States’[2] law until April 2016, the UK prioritised the implementation through the Public Contracts Regulations 2015, which came into force on 26 February 2015 (with some exceptions).

The 2014 Directive provides that contracting authorities must follow certain procedures when considering suppliers for the award of contracts. Authorities can choose between a number of different types of procedures. The procedures only apply when the contract exceeds prescribed thresholds and will not apply if the contract qualifies for an exemption, such as grounds of national security, ‘in-house awards’ (i.e. contacts with an entity which the contracting authority controls) and ‘inter-authority cooperation’ (i.e. agreements between  two or more contracting authorities who deliver a public service jointly).

Interestingly, the 2014 Directive contains a number of provisions which should help combat bribery and corruption. These include:

  1. A continued requirement that organisations convicted of corruption be subject to mandatory exclusion. Under the 2014 Directive, breaches of the UK Bribery Act 2010 section 1 (active bribery), section 2 (passive bribery) and section 6 (bribery of foreign public official) gives rise to a mandatory exclusion. Breach of section 7 (failure of commercial organisations to prevent bribery) however may give rise to discretionary exclusion but does not require mandatory exclusion.
  2. Despite the continued exclusion requirements, the 2014 Directive provides that suppliers previously excluded from public procurement for bad practice (including but not limited to corruption) will be able to “self-clean” – i.e. their exclusion will be brought to an end, if they can prove they have sufficiently remediated and changed their behaviour to such an extent that they can demonstrate their reliability despite the existence of a relevant ground for exclusion. The contracting authority can then choose whether or not to accept that the organisation has “self-cleaned”. Only Austria, Germany and Italy previously had such provisions.
  3.  Contracting authorities must implement procedures to deal with conflicts of interest. Although the specific procedures required are not defined, requiring employees to declare any interests that they have with potential contracting parties so that any dealings with them can be closely monitored, is likely to be sufficient.
  4.  Suppliers will only be able to be excluded for a certain amount of time, which can be 3 or 5 years depending on the circumstances.

There are however specific requirements that an organisation must have undertaken for the “self-cleaning” provision to apply. An organisation must have:

  1. paid or undertaken to pay compensation in respect of any damage caused by the criminal offence or misconduct;
  2.  clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities; and
  3. taken concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct. These measures will be evaluated depending on the gravity and particular circumstances of the criminal conduct.

Given point C above, organisations that bid for public sector work and that have been convicted of corruption now have an even greater incentive to ensure that they implement remedial measures to ensure that they do not engage in further corrupt activities. Organisations should be mindful of the “adequate procedures” that the UK Bribery Act 2010 and its guidance requires organisations to implement to prevent bribery, as implementing these is likely to be sufficient to be able to mount a successful argument that the organisation has indeed “self-cleaned”.


[1] The 2014 Directive supersedes the Public Contracts Directive 2004/18/EC.

[2] The rules in the 2014 Directive will be applicable to all countries in the EU and the EEA (European Economic Area) but also to all other countries who are signatories to the Government Procurement Agreement (GPA), these being: Armenia; Aruba; Canada; Hong Kong; China; Chinese Taipei; Iceland; Israel; Japan; Republic of Korea; Liechtenstein; Norway; Singapore; Switzerland; and the USA.

Monthly China Anti-Bribery Update Report — August 2015

1. New laws or regulations

State level:

(1) On August 29, 2015, the Ninth Amendment to PRC Criminal Law (the “Ninth Amendment”) was officially promulgated by National People’s Congress Standing Committee. The changes will become effective as of November 1, 2015. The Ninth Amendment proposes several updates, revisions, and addition to the current PRC Criminal Law, including to the sanctions concerning bribery and corruption crimes. The following are particularly worthy of note in this regard:

(i) The threshold at which bribes may trigger sanction has been deleted.

Under the current PRC Criminal Law, a person committing the crime of receiving bribery will be punished depending on the amount of bribes s/he has taken, i.e., if below RMB 5,000 (USD 786), s/he may be sentenced to up to 2 years’ imprisonment; if between RMB 5,000 (USD 786) and RMB 50,000 (USD 7,866), s/he may be sentenced to up to 10 years’ imprisonment; if between RMB 50,000 (USD 7,866) and RMB 100,000 (USD 15,732), s/he may be sentenced to life imprisonment; and if over RMB 100,000 (USD 15,732), s/he may receive the death penalty.

According to the Ninth Amendment, the foregoing thresholds have been removed and replaced by more general parameters, i.e., (a) relatively high (s/he may be sentenced to up to 3 years’ imprisonment), (b) very high (s/he may be sentenced to up to 10 years’ imprisonment) or (c) extremely high (s/he may receive the death penalty). This Ninth Amendment, however, does not specify the amount of bribes that will be regarded as “relatively high”, “very high”, or “extremely high”, giving the authorities discretion in making such determinations.

(ii) New provision penalizing those bribing any close relative of a current or retired State Functionary.

The current PRC Criminal Law does not stipulate whether or how a person or entity who offers a bribe to a close relative of a state functionary should be sanctioned. The Ninth Amendment addresses this situation by specifying that a person/entity will be deemed to have committed the crime of offering bribery if s/he/it has bribed any close relative or any other person who has a close relation with a state functionary for the purpose of seeking an improper benefit.

(iii) Fines will be imposed upon the person/entity involved in any bribery or corruption crime.

Under the current PRC Criminal Law, not every kind of bribery or corruption crime will include monetary punishment. The Ninth Amendment corrects this by establishing the fine as a general punishment for any person/entity who commits a bribery or corruption crime.

Local level (Beijing & Shanghai): No developments.

Communist Party Rules: No developments.

2. Upcoming laws or regulations

No developments.

3. Government Action

(1) It was reported on August 4, 2015 that Shen Peiping (“Shen”), the former Deputy Governor of Yunnan Province, was being prosecuted by No.1 People’s Procuratorate of Beijing Municipality for taking bribes. According to the prosecution, during the period from 2000 to 2012, Shen took advantage of his positions as the Party Secretary of Tengchong County and the mayor of Simao City, Yunnan Province to provide illegal and improper assistance to many entities in connection with the sale of iron ore, the governance of overload transport, the exploration of copper projects, and the settling of mass disturbances in mining areas. In return, Shen is alleged to have received benefits from bribe-givers valued at RMB 16.15 million (USD 2.54 million) in total. The No.1 Intermediate People’s Court of Beijing will issue a verdict in the future.

(2) On August 11, 2015, Wang Zongnan (“Wang”), the former General Manager of Shanghai Friendship Group Co., Ltd. (“Friendship Group”) and former Chairman of Shanghai Lianhua Supermarket Co., Ltd. (“Lianhua Supermarket”), was sentenced to 18 years in prison plus confiscation of personal property totaling RMB 1 million (USD 157,334) by No.2 Intermediate People’s Court of Shanghai for embezzlement and bribery-taking. Wang was also deprived of political rights for 5 years.

The court found that between 2001 and 2006, Wang conspired with his colleagues in Lianhua Supermarket, including the former general manager, director, financial officer, and HR manager of Lianhua Supermarket, to take advantage of their positions to embezzle the public funds of Lianhua Supermarket and its subsidiaries/branches amounting to RMB 195 million (USD 30.68 million) over a total of more than 10 occasions, using such funds to register two companies in Shanghai to engage in businesses of company registration services, capital verification services, and real estate investment. Reportedly, Wang has enjoyed illegal gains exceeding RMB 1.2 million (USD 188,800).

(3) On August 14, 2015, Guan Shouzhong (“Guan”), the former Deputy General Manager of Anhui Electric Power Company was sentenced to 12 years’ imprisonment for taking bribes by the Intermediate People’s Court of Lu’an City, Anhui Province with personal properties worth RMB 400,000 (USD 62,933) confiscated.

It was determined that during his term of office from 2000 to 2013, Guan abused his position by seeking illegal benefits from project bidding and contracts in relation to the power communication backbone network, the renovation of transformer substations, and the buildout of control building for bribe-givers and accepting RMB 4.54 million (USD 714,296), USD 40,000, EUR 10,000 (USD 11,245) and shopping cards valued at RMB 50,000 (USD 7866) in exchange.

(4) It was reported on August 19, 2015 that Liu Ya (“Liu”), the former Deputy Mayor of Bengbu City, Anhui Province had been sentenced by the Intermediate People’s Court of Lu’an City, Anhui Province to 20 years in prison plus confiscation of personal property amounting to RMB 700,000 (USD 110,133) for bribery-taking, mediate bribery, and owning large amounts of unidentified property.

Reportedly, during the period from 1993 to 2013, Liu took advantage of his position to seek illegal benefits for others, and solicited and accepted bribes including RMB 7.33 million (USD 1.15 million), HKD 100,000 (USD 12,903), USD 10,000, EUR 10,000 (USD 11,245) in cash, shopping cards valued at RMB 50,000 (USD 7,866), and 500 grams of gold. Liu also was found to have illegally accepted properties valued at up to RMB 4.5 million (USD 708,003) from bribe-givers who sought improper benefits through the misuse of official positions by state functionaries with whom Liu had close relation. Apart from bribery-taking and mediate bribery, Liu’s household property and expenditure was found to exceed his legal income, and part of his properties valued at more than RMB 3.78 million (USD 594,723) have no legitimate origin.

(5) On August 31, 2015, Chen Mingxian (“Chen”), the former Party Secretary and Deputy Director of the Department of Transportation of Hunan Province was sentenced by the Intermediate People’s Court of Zhuzhou City, Hunan Province to death with a 2-year’s reprieve for accepting bribes and holding large amounts of unidentified property.

Chen was accused of abusing position functions, soliciting and accepting bribes individually and together with his wife and other individuals in amounts up to RMB 49.41 million (USD 7.77 million), USD 10,000, and HKD 40,000 (USD 5,161). In return, Chen was found to have sought illegal benefits in project bidding, the supply of materials, and the insurance business with regard to civil works, greening, power distribution, and the design of highways in Hunan Province. Chen also failed to explain the source of certain large properties that he owned. These were valued at RMB 12.81 million (USD 2.01 million), USD 150,000, HKD 570,000 (USD 73,548), GBP 10,000 (USD 15,308), ERU 10,000 (USD 11,245) and JPY 5,000 (USD 41).

4. Other

No developments.
5. China-related FCPA Action

No developments.

Australian Education Providers Warned of Corruption and Bribery Risks Associated with International Students

A deal to strengthen vocational education and training (VET) ties with China could increase the incidence of corruption and bribery occurring at Australian education institutions, with one commentator warning that education providers must assess and manage the quality assurance risks associated with international student enrolments.

Griffith University Business School senior lecturer and Renmin University visiting research fellow Dr Rakesh Gupta recently told ABC’s Radio National that corruption in the Chinese higher education system is rampant, and normalised to a degree that he “ha[s] not seen anywhere else in the world”.

Dr Gupta expressed concerns about the quality of graduates from the offshore campuses of Australian education and training providers, and the risks posed to the reputation of Australian education facilities. “One institute not performing will mean there’s an effect on the whole education sector from Australia,” Dr Gupta warned.

Exporting Education

Australia’s international student market contributed $17 billion to the economy in 2014 and was the country’s largest export after iron ore, coal and gold.

International students, who often pay more than three times as much as locals for their degrees, generate a quarter of the annual income at some Australian universities. China supplies the greatest proportion of international students enrolled with Australian education providers.

The growth of China’s VET market is also seen to hold promise. In 2013, over 35,000 people enrolled with Australian VET providers in China. More than 30 million students undertake formal VET in China, with the State Council targeting growth of total VET student numbers to 38.3 million by 2020 to develop a skilled workforce.

The Australian Government has set a target to double the number of international students in Australia and double the offshore delivery of education by 2025. Reaching this target will require Australian education providers to enhance their global competitiveness. The Australian international student industry has faced growing competition from universities around the world, even as the global supply of university places continues to outpace the growth in the number of students with academic competency and adequate English-language proficiency.

Strengthening Ties with China

Last month the Australian Skills Quality Authority signed a memorandum of understanding (MOU) with the China Education Association for International Exchange to strengthen collaboration on quality assurance for VET. Assistant Minister for Education and Training Senator Simon Birmingham says that assuring the quality of skills training delivered by Australian providers in China is a key focus for building stronger educational ties in the future.

The MOU follows the ratification of the China-Australia Free Trade Agreement in June. Minister for Trade and Investment Andrew Robb says the agreement will “lock in existing trade and provide the catalyst for future growth across a range of areas including goods, services and investment”.

These agreements may pave the way for Australia to meet its 2025 targets, but it remains incumbent on Australian education and training providers, both current and emergent, to ensure they are well-prepared to engage the international student market.

ICAC Report

In April this year, the NSW Independent Commission Against Corruption (ICAC) released a report identifying several corruption risks created by universities’ international student businesses.

The report suggests that Australian universities were ill-prepared to enter the international student market, resulting in the adoption of detrimental practices, including the aggressive marketing of international students without adequate cost- and risk-assessments, reliance on largely unregulated agents and the establishment of offshore partnerships without necessary due diligence.

Offshore Corruption

Offshore VET collaborations countenance a number of corruption risks. The ICAC reports that universities in NSW have experienced long-running problems with nepotism and corrupt handing of plagiarism at offshore campuses, offshore bribery, and loss of intellectual property to offshore partners. Systemic cheating and widespread fraud in English-language testing are also widely reported, the ICAC notes.

The risks associated with education provision at offshore campuses are just one aspect of the endemic difficulties plaguing the international student business. Corruption has long been a major concern in international student admissions. An investigation by ABC’s Four Corners earlier this year suggests that Australian universities are paying more than an estimated $250 million annually to unregulated agents for the recruitment of international students, despite widespread acknowledgement that a number of these agents are corrupt and deal in fraudulent documents.

Onshore Corruption

The ICAC report demonstrates that corruption is not confined to offshore campuses. With universities increasingly dependent on “on a cohort of students, many of whom are struggling to pass, but who the university cannot afford to fail … [t]he equilibrium between student capability, financial security of the university, course rigour and reputational standing has been disrupted”.

Academic misconduct is not limited to international students, but those with inadequate English proficiency or poor educational preparation are placed in a particularly desperate position. The recent investigation into the online essay ghostwriting service, MyMaster, exposed the widespread use of cheat sites by mainly international students.

Conversely, the ICAC reports, “the financial dependence on international student numbers and student success creates pressures on university staff to accept cheating and plagiarism and to re-mark assessments to pass students who would otherwise fail”. The range of corruption issues which have emerged suggest standards have been compromised. Past inquiries by the Corruption and Crime Commission (CCC) into an English-language testing centre revealed serious misconduct amongst staff members and academics, ranging from the acceptance of financial bribes to sexual favours in exchange for higher marks.

Consequences of Falling Quality Standards

The problems associated with offshore and onshore corruption are not only costly, but publicly embarrassing. Australian education providers must prepare for the anticipated increase in international student numbers, and the corresponding increase in corruption risk, by having robust internal systems in place. We recommend that Australian education providers review their internal policies to ensure they are:

  • managing risk through monitoring of lecturers’ marking and teaching standards
  • initiating best practice due diligence on all agents
  • providing comprehensive training for executive and staff on anti-corruption and bribery laws
  • ensuring offshore partnerships are established with necessary due diligence

Squire Patton Boggs has specific and extensive experience in:

  • advising on domestic and global Anti-Bribery and Corruption legislative frameworks
  • working with Australian universities
  • partnership agreements
  • intellectual property agreements