Stricter punitive measures for bribery-related crimes, effective from March 1, 2024, also extended criminal liability to private sector employees for various fraudulent activities beyond ordinary corruption. The amendment reflects ongoing efforts to combat corruption and fraud across various industry sectors, in both state-owned and private companies.
Looking ahead to 2025, in-house legal teams should prepare for continued emphasis on data transmission, national security issues, and increased scrutiny of foreign investments and financial crimes. Regular risk assessments and compliance enhancements will be crucial for navigating the evolving landscape of white-collar crime in Mainland China.
Investigations trends/developments
Against the backdrop of current geo-political tensions between China and the West, many areas of white-collar practice had a national security context in 2024. China takes a broad view of national security under its Comprehensive National Security Concept (A Holistic Approach to National Security), and this may impact the business operations of foreign companies operating in China. Trends this year have included:
More encounters with the party’s disciplinary arm in anticorruption matters
We have seen growing involvement by the Central Commission for Discipline Inspection (CCDI) in cases involving foreign companies or foreign investors in the PRC. The CCDI is the disciplinary arm of the Communist Party of China (CPC or Party) and is primarily tasked with investigating corruption by Party officials. It has broad plenary authority to investigate such corruption. Companies that are caught up in their investigations have a general obligation to cooperate. Foreign companies or local enterprises with foreign investors are unlikely to be the direct target of a CCDI investigation, but their involvement can make matters complicated. The CCDI often works with the National Supervisory Commission (NSC), China’s supervisory and anti-corruption authority on the government side of the Chinese Party-State. Either or both the CCDI or the NSC could decide to transfer a case to Chinese prosecutors for prosecution if they believe there was evidence of a crime.
Continued prohibitions against certain types of information collection in the PRC by foreigners
The revisions to the Counter-Espionage Law in 2023 and the uptick in enforcement continued to be a major area of interest to foreign companies operating in China in 2024. Certain types of information collection activities by foreigners or foreign-invested enterprises are likely to remain under heightened scrutiny in coming years, with particular industry areas being an area of focus depending on current events. Areas under particular scrutiny in 2024 included agriculture, supply chain due diligence in sensitive regions, artificial intelligence, and electronic vehicles.
Promotion of China’s anti-sanction framework through wielding the unreliable entity list mechanism
In the early fall of 2024, China’s Ministry of Commerce launched an investigation, under its unreliable entity list (UEL) mechanism, into a large U.S. company for its alleged refusal to source cotton from the Xinjiang region. The UEL mechanism seeks to deter and penalize cooperation with foreign government actions perceived to be detrimental to Chinese business and government interests. While not specifically a form a criminal enforcement, inclusion on the list can cause significant disruption to a foreign company’s dealings in China. This new investigation may represent a watershed moment on the China anti-sanctions front because it is the first time the PRC authorities have publicly questioned the trading activities of foreign companies in sensitive parts of China.
Law reform
Stricter punishment for bribery and corporate corruption offenses was introduced in March 2024.1 The amendments impose higher penalties for both bribe givers and receivers, specifying the aggravating circumstances which could lead to more onerous penalties, as well as formalizing criminal liability concerning fraudulent activities by individuals in private sector enterprises.
Previously, while employees and officers in the private sector could be criminally liable for embezzlement, misappropriation, and taking or giving bribes, duty of loyalty breaches were arguably not covered (but were for employees of state-owned enterprises). Now there are clear provisions applicable to private companies regarding the responsibilities arising from illegal profit-making for relatives and friends, illegal operation of similar businesses, malpractice in undervaluing shares, and selling company assets.
In the counter-espionage area, e.g., prohibitions on certain types of information collection activities by foreign companies in China, two significant implementing documents were issued by the Ministry of State Security (MSS) at the end of April (which came into force on July 1). These were comprehensive (over 300 articles and more than 140 articles, respectively) and address how the Ministry of State Security is supposed to handle national security cases. This could signal a lot more involvement by the MSS. Most foreign companies have not experienced this Mainland regulator in practice. Some locality specific counter-espionage rules have also been issued, with a somewhat different emphasis than the national law, indicating that for business activities conducted in certain localities, additional local rules must be taken into account too.
There were also revisions to the PRC State Secrets Law in 2024. With some minor exceptions, most of the revisions were formalistic in nature, e.g., improving the method for classifying and declassifying state secrets, and strengthening the management of network information and network operators. However, references to “work/working secrets” in the miscellaneous provisions of the revised law received some attention in the Western media, although the concept itself is not particularly new. Work/Working secrets typically refers to certain internal, non-public documents or information of Chinese ministries or Chinese state-owned enterprises that do not constitute state secrets but would cause certain adverse effects if disclosed. Work secrets differ from state secrets in that the importance of their content and the degree of impact from their disclosure should both be significantly lower than the latter. There is nothing to suggest at present that the term includes information produced by foreign-invested enterprises operating in China, but this is something to keep an eye on.
For multinational corporations conducting internal investigations in China, data issues remain one of the key considerations, especially in light of the development of these national security-related laws and enforcement.
Specific sectors targeted by law reforms or criminal enforcement
China is focused on law reforms and criminal enforcement actions in several key sectors, a trend expected to continue in 2025.
From a legislative perspective, the amended Article 390 of the PRC Criminal Law stipulates seven aggravating factors in bribe-giving crimes, including “offering bribes and engaging in criminal conduct in fields such as environment, fiscal and finance, workplace safety, food and drugs, disaster prevention and rescue relief, social security, education, and healthcare.” CCDI’s meeting in January 2024 further emphasized the need to address corruption in finance, state-owned enterprises (SOEs), energy, pharmaceuticals, and infrastructure projects, targeting areas with concentrated power, funds, and resources.
From an enforcement perspective, the anti-bribery and corruption efforts have been particularly active in the pharmaceutical sector. the "Key Points for Crack-down on Malpractice in the Pharmaceutical Purchasing and Sales and Medical Services in 2024" was released in May 2024, highlighting a collaborative effort involving 14 ministries aimed at combating malpractice in pharmaceutical purchasing, sales, and medical services. Given the recent probes into medical insurance frauds and misuse of national healthcare funds, we expect that medical and pharmaceutical sectors will remain one of the key areas.
Predictions for 2025
We expect continued emphasis on data transmission issues and matters that have a national security backdrop.
Additionally, increased scrutiny on foreign investments, export controls, and sanctions will require thorough due diligence and adherence to complex regulations.
Financial crimes could be a new focus of internal investigations in 2025 with the amended PRC Anti-Money Laundering Law having taken effect on January 1, 2025, which imposes stricter requirements for corporate compliance.
Industries with an elevated risk of corruption are prone to various evolving bribery schemes. Regular assessments of potential risks should be conducted within these industries.
Directory quote
- “The firm offers expertise in regulatory investigations and mis-selling claims, leveraging the strength of its fraud, white-collar crime and money laundering practices. It is particularly noted for its work on multi-jurisdictional disputes across the Asia-Pacific region, with clients now also benefiting from the firm's PRC joint operation, Lang Yue Law Firm.” —Greater China Region Guide 2024: China
Footnotes
1. Amendment XII to the Criminal Law.
This article is part of the A&O Shearman Cross-Border White-Collar Crime and Investigations Review. Please click here for our overviews and insights in other jurisdictions.
.jpg%3Fh%3D1520%26iar%3D0%26w%3D2026&w=128&q=75)
