Investigations trends/developments
Data compliance remained a key area of enforcement, although in the second half of 2023 the government seems to have contemplated relaxing some data control regulations to better facilitate the digital economy and cross-border business exchanges. The development of new technologies such as artificial intelligence generated content (AIGC) raised novel issues in this field.
Although the revision of the Anti-Espionage Law sparked debate on whether the Chinese government would use it as an opportunity to strengthen its national security enforcement activities, the revised law clarifies the powers of the enforcement authorities and the relevant procedural rules. More details here.
Anti-bribery enforcement also increased. 2023 marked the 30th anniversary of the implementation of the PRC Anti-Unfair Competition Law, which regulates commercial bribery activities in China. Coupled with more aggressive enforcement action by the authorities, we saw many businesses being more proactive in taking action against employees who accepted bribes from business partners.
A "compliance in lieu of prosecution" program is being promoted and tested by Chinese authorities. This allows the Procuratorate to not prosecute a company for certain corporate crimes if the company sets up or enhances its compliance management systems under the Procuratorate's supervision and direction.
The program is different from a deferred prosecution agreement, non-prosecution agreement or other similar schemes in other jurisdictions, because, at least at this stage, it mainly targets less serious cases. For more serious charges, there might be some prosecution leniency granted, but a company would not be spared prosecution.
The compliance system rectification period is considered short, ie. generally less than a year. This suggests that the authorities are primarily experimenting using this program with less complex cases. In the context of an economic downturn, it is likely that the authorities will more actively consider using the "compliance in lieu of prosecution" program for economic-related corporate offenses, and it will be interesting to see if it is expanded to more high-profile and complex cases.
Internal investigations – key considerations
Data issues feature prominently in internal investigations, especially for multinational corporations. They need to carefully consider before deciding whether and how to conduct internal investigations, whether such investigations require data stored in China to be transferred abroad, and whether the data might include important data or sensitive information that relates to China's national security or national interests.
A large-scale anti-corruption campaign in the healthcare and pharmaceutical sector was launched in 2023. Although this sector has always been a focus of anti-corruption and white-collar crime investigations, the scale of the 2023 campaign was significant, making this sector once again an enforcement hotspot. The sponsorship of academic activities and lecture fees for public hospital doctors, hospitality, and donations of materials or money to medical institutions or professionals were all under scrutiny.
The financial sector has also received attention. China reformed its financial regulatory system in 2023, abolishing the former banking and insurance regulators and establishing a new, comprehensive financial regulator, the National Financial Regulatory Administration. One of the goals of this reform was to improve the efficiency and coverage of regulation and enhance the effectiveness of enforcement. Recently, senior financial regulators have expressed their intention to strengthen financial regulation and enforcement on different occasions, so 2024 may be a year of more active enforcement actions involving financial regulation.
Cross-border coordinated investigation or enforcement activity
The level of cooperation between Chinese law enforcement agencies and foreign law enforcement agencies in investigative activities depends on the industry sector.
Cooperation is more common in the financial regulatory sector, where Chinese financial regulators and foreign financial regulators have signed memoranda of understanding for enforcement cooperation. For example, China's Securities Regulatory Commission (CSRC) and the U.S. Securities and Exchange Commission (SEC), the Hong Kong Securities and Futures Commission (SFC) and others have cooperated in cross-border enforcement actions in this area. In particular, in 2023, the CSRC continued to cooperate with the U.S. Public Company Accounting Oversight Board (PCAOB) to provide assistance for the PCAOB's inspection of the accounting work papers of Chinese companies listed in the U.S.
China and the U.S. agreed in principle to cooperate on clamping down on companies exporting chemicals used to make fentanyl, during a November 2023 summit meeting between the two countries' presidents.
Predictions for 2024
The current economic uncertainty may reduce the frequency and intensity of enforcement actions, as government authorities may prioritize developing the economy and supporting the industries that are struggling. However, it may also reveal some historical non-compliance issues that were hidden or ignored when the industries were operating well but are now exposed when businesses face economic crisis or bankruptcy. This may trigger an increase in government enforcement activity, especially in response to specific events that may attract public attention or pose significant risks. Therefore, we expect that the government's enforcement mode may change from large-scale industry-wide inspections to more targeted and event-driven enforcement campaigns.
Further ahead on the horizon
China has been undergoing a wave of regulatory innovation in the past few years, introducing new rules, new institutions, and new pilot programs to address various challenges and opportunities in emerging and traditional fields. These include new technologies, data, and national security, as well as financial regulation. However, many of these new regulations are still in the early stages of implementation, and the enforcement authorities have not yet exercised their full powers and responsibilities. We anticipate that in the next few years, the enforcement authorities will begin to test and apply their new tools more actively and extensively to achieve their regulatory goals. This may not only deepen the understanding of the relevant regulations among the regulated entities and the public, but also generate new rules based on the feedback and experience from the enforcement actions.
This article is part of our Cross-Border White Collar Crime and Investigations Review. Please click here for our overviews and insights in other jurisdictions.
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