Whether culpability for a bribe in China can be shifted away from an individual to an entity can significantly reduce penalties imposed on the responsible individual. Entity attribution can therefore be used to mitigate liability even when the occurrence of a bribe is proven. Entity attribution requires first that there was corporate intent to bribe, even in the absence of formal board approval; and second, that the bribe belongs to the entity, which can be found even for some bribes paid out of personal funds. In this article, we will explain China’s law on entity attribution in bribery cases and explain how entity attribution can be used defensively.
Contents
- Why Bribery Offense Attribution Matters
- Entity Defendant Eligibility
- Finding Corporate Intent
- Attribution of Ultimate Beneficiary of the Bribe
- Source of Funds Is Not Determinative
Why Bribery Offense Attribution Matters
The penalty for bribery differs greatly depending on whether it is attributed to an individual or an entity. Each offense requires paying a bribe to obtain an improper advantage, but the penalty and elements differ significantly, allowing parties to obtain a lesser penalty under certain facts. (See China Criminal Law Act §§ 390 and 393.)[1] Prior to Amendment 12 to the Act, the maximum statutory penalty for bribery was a life sentence, but if attributed to an entity, the maximum penalty was 5 years of fixed-term imprisonment.[2]
Previously, bribes over ¥5 million carried a penalty of 10 years’ imprisonment if attributed to an individual, whereas, when attributed to an entity, the culpable individual was penalized with 5 years’ imprisonment. Amendment 12 increased the penalty in entity bribery cases but it is still lower than when attributed to an individual.[2] The maximum penalty for entity attribution is 10 years, whereas the minimum for individual attribution is 10 years. Furthermore, the revised Act is applicable only to bribery committed after March 1, 2024 due to the ex post facto doctrine, which applies to many cases today.[1] Therefore, how the crime is attributed deserves close attention.
Finally, the charging threshold is different. The rules have a list of the investigative thresholds. For entity bribery it is ¥200,000, but for individual bribery it is ¥30,000. The penalty can be increased in exceptional circumstances.[3][4]
Elements of an Entity Bribery Offense
The actus reus and actual injury of individual and entity bribery are the same. They differ as to the offender, the required intent, and the recipient of the economic advantage resulting from the bribe. There is a consensus on the difference (see, e.g., published opinions of the CCP ethics office, chief prosecutor, and Supreme Court).[4]
Entity attribution depends firstly on whether the bribe manifests corporate intent and whether the corrupt benefit belongs to the entity, so long as that entity is eligible to be a corporate crime defendant. The second issue is whether the bribe money was derived from the entity in its corporate capacity. Below we’ll walk through the analysis.
Entity Defendant Eligibility
The requirement for an entity to be eligible for corporate criminal culpability is to have a separate corporate existence, which requires the entity to have been duly formed and in continued existence. It must fall under the definition of “company, business entity, or public body” (see China Criminal Law Act).[1] Judicial interpretations clarify that public entities, joint ventures, and private entities with separate legal personality are all eligible.[5] This is rarely disputed, but the next two issues are controversial.
First, entity attribution is not available for entities that were formed for the purpose of committing a crime, or after formation were principally used for crime.[5]
For example, attribution will not be made to a long-running unlawful investment advisory business—which in itself may be making unlawful offerings—that bribes public employees to obtain certain business opportunities or licenses.
Second, asset commingling between the entity’s control person and shareholders will disprove independent legal personality, which prevents culpability from being attributed to the entity. Commingling can be disproven by showing that accounts were clearly separated and by providing audit reports. How the entity is structured and operated can become decisive when legal problems arise, which is why getting expert assistance in advance to mitigate risks is valuable.
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Finding Corporate Intent
A typical assumption is that corporate intent must be manifested through collective deliberation or the statutory decision-making process (i.e., resolutions). However, the clandestine nature of bribery means principals or executives decide to do it quietly and not at a formal shareholder or board meeting that would leave a paper trail of the decision. That is, lack of records is expected. Thus, it’s easy to mistakenly dismiss the possibility of entity attribution by assuming no resolution means no corporate intent.
In the statutes and case law, corporate intent has never been solely manifested in resolutions or collective decisions at a shareholders’ or board meeting, even though those are the typical methods for doing so, for a few reasons. The purpose of these meetings is specific to corporate governance, not general discussion, so routine decisions by managers within the conferred authority can manifest corporate consent even without formal process. A law that limits attribution of corporate crime to a formal shareholders’ meeting would lack common sense.
Practice guidance published in the People’s Judiciary & Cases report states that the actions of a statutory representative or authorized agent manifest corporate intent for a legal entity, and the procedural form does not change whether an act was in the corporate capacity.[6] Corporate intent is manifested through an official act of managers or the statutory representative since organizations almost never discuss bribery in the open. Entity bribery is found so long as the decision is made within the limits of management authority and the benefit accrues to the entity.
The Criminal Organizational Smuggling Attribution Rules § 18 (Supreme Court, the Chief Prosecutor’s Office, and the Customs Head Office) is also persuasive authority for entity bribery law where: (1) it provides that criminal organizational smuggling is attributed; and (2) there was organizational deliberation or decisions/approvals made by a principal or agent.[7] Applied to our question, it implies an agent’s individual actions or job activities manifest corporate intent. However, this depends on how the business is run and governed. There is no corporate intent if their individual actions contravened the intent of the shareholders or the enterprise-wide policy.
Attribution of Ultimate Beneficiary of the Bribe
A bribe is characterized by its purpose of obtaining a pecuniary advantage. Whether liability is attributed to an entity or individual depends on to whom the corrupt benefit accrues. What is characteristically entity bribery—done in a corporate capacity through a corporate bank account—is an individual bribery crime if the corrupt benefit is attributed to the individual. Authority for this derives from China Criminal Law Act § 393, which provides, “where criminal proceeds from bribery attributable to an individual shall be subject to the sentencing provisions of § 389-390 of this Act.”[1]
Further authority for this general principle is found in the Corporate Criminal Liability Judicial Interpretations § 3, which provides, “a person who commits a crime by misusing a corporate entity and individually appropriates the proceeds shall be sentenced under the provisions of the criminal law on individual crimes.”[5] Published opinions and court practice guidance say that attribution of culpability to the entity or individual “depends on the person to whom the bribery itself is attributed.” (See, e.g., Tianjin Case 0111-cr-93 (2016) (2023-03-1-411-001))[8]
While the benefit attribution test is clear in theory, it’s a common point of dispute in cases because the proceeds can be moved in a variety of ways. Distributing a corrupt benefit to individuals after the entity’s receipt does not affect whether the benefit can be attributed to the entity. There is a common argument that we should assume that core personnel who pay a bribe are always seeking to benefit personally by obtaining dividends or commissions paid out of the entity’s profits. This applies even if the entity benefits. (“Core” includes a control person, a statutory representative, or shareholders.) Applying substance over form, look-through approaches may reveal that the ultimate beneficiary of the bribe is an individual, which warrants individual attribution.
However, the cases have rejected this look-through approach for several reasons. The corporate benefit is always distributed to individuals, so a look-through approach that always finds personal benefit would violate legislative intent. Those individuals can only obtain proceeds through a statutory payment mechanism—dividends, wages, bonuses—and directly withdrawing them is not possible. Finally, the corporate benefit is not the same as individual benefit for a legal entity with separate dominion and control, even if individuals indirectly benefit.
Control Over Proceeds Determines Benefit Attribution
The holding in the Tianjin Case 0111-cr-93 (2016) states that benefit attribution is determined by who has the authority to dispose of the proceeds. In that case, funds were deposited into a corporate bank account and distributed to a manager under an incentive compensation plan; the court held that the bribe was attributable to the entity. There is an important distinction between when benefits accrue to the entity and are distributed to individuals, and benefits accruing to the individuals but used to pay the entity’s expenses.[8]
The Central CCP ethics office’s online practice guidance says something similar. One article states that a secondary allocation of a corrupt benefit made under the entity’s procedures for disposal of its property is not an “individual appropriation.”[9] Another article recommends attributing culpability to the entity if the facts show that the unjust benefit accrued in whole to it and that it was a separate beneficiary. The attribution here is not changed, because distribution to an individual is part of an internal asset disposition.[10]
Therefore, whether the entity is empowered to decide what to do with the corrupt benefit determines who is the ultimate beneficiary. The corrupt benefit belongs to the entity if it acts as a separate party with independent control that chooses how to dispose of the proceeds.
When the entity makes distributions to individuals, that is an ordinary disposal of its own assets. But note that an entity directly receiving benefits does not necessarily mean the corrupt benefit is attributed to the entity. Individuals actually do use entities as vehicles for receiving benefits. For example, the benefit may be transferred to a corporate bank account, but the entity may lack actual control. Since this entity is merely acting as a conduit, the corrupt benefit does not belong to the entity.
Attribution is not made to the individual solely because they received a corrupt benefit. While there is a theory that direct receipt of a corrupt benefit by an individual implies attribution and therefore individual bribery, that fails to account for circumstances where entity attribution is made despite individual receipt.
The court in the Tianjin Case 0111-cr-93 (2016) held that criminal proceeds deposited into a personal account and later delivered to the entity to pay its debts are attributable to the entity. The legal reasoning fits with the principles for determining entity attribution of a corrupt benefit. Whoever has actual authority to dispose of the benefits is the actual beneficiary. Depending on the specific facts of the case, bribery to influence competitive procurement or to purchase business equity will be attributed to the entity.[8]
Source of Funds Is Not Determinative
The cases show that the identity of the person who pays the bribe is relevant to determining corporate intent and the attribution of the corrupt benefit, but the source of funds is not a necessary element of entity bribery. There are actually cases where the control person provided funds for entity bribery and the entity was found guilty and, conversely, cases where corporate funds were appropriated to pay bribes for personal gain and the offense was attributed to the individual.
Source of funds is circumstantial evidence, not the controlling standard, so attribution to an entity cannot be denied on the grounds that funds were paid by an individual. (See generally, the Tianjin Case 0111-cr-93 (2016), which held that whether funds originated from an individual or entity is not dispositive).[8] Likewise, a state media article stated, “whether property for a bribe was from an individual or entity is not relevant.” The practice guidance discussed above makes similar claims.[6][11] In a bribery case, making transactions under someone else’s name or having someone else make payments does not change the attribution of the bribe to the entity.
Use Financial Controls to Prevent Commingling
Commingling personal and corporate assets results in the loss of the entity’s independent legal personality and in bribery culpability being attributed to an individual (See China Criminal Law Act § 393 and judicial interpretations). The investigatory agency will examine three commingling-related issues: 1. Financial control compliance; 2. Off-the-books funds or embezzlement; 3. Red flags in profit and loss reporting.[1][5]
Businesses should respond by setting up effective financial controls along with an audit and oversight framework, ensuring expenses flow through the corporate bank account with complete records, and preventing the commingling of personal and corporate assets.
Do not allow public relations expenses and finder’s fees to circulate off the books; otherwise, employee withdrawals to pay those expenses could be considered a manifestation of corporate intent, which could result in enhanced penalties. Commingling risk should be managed for entities with simple governance structures, such as single-member companies and family businesses. Keep a clear division between corporate and personal shareholder assets by using periodic audits, independent finance staff, and separation of expenses. This will establish the entity’s separate legal existence in its day-to-day operations, preventing criminal exposure.
Conclusion
Discerning when culpability is attributed to the corporation or an individual can be achieved by understanding its two elements, corporate intent and benefit attribution, and it’s essential for protecting parties’ rights. Given how complex Chinese law is, the most cost-effective way is for an expert advisor to apply this knowledge to your business’s unique circumstances.
If your business is dealing with legal issues or needs to control risks, CBL can help connect you with a qualified local attorney.
Further Reading
Get more insights about Chinese law at CBL’s China Law Library.
Footnotes
[1] China Criminal Law Act, (中华人民共和国刑法), (National People’s Congress Standing Committee, Dec. 29, 2023), (in Mandarin)
[2] Amendment 12 to the Criminal Law Act, (中华人民共和国刑法修正案(十二)), (National People’s Congress Standing Committee, Dec. 29, 2023), (in Mandarin)
[3] National Commission of Supervision Jurisdiction (Temporary) Rules, (国家监察委员会管辖规定(试行)), (National Ethics Commission, Apr. 16, 2018), (in Mandarin)
[4] Public Corruption Criminal Cases Legal Guidelines (Supreme Court and Chief Prosecutor’s Office), (最高人民法院、最高人民检察院关于办理贪污贿赂刑事案件适用法律若干问题的解释), (Supreme Court and Chief Prosecutor’s Office, Apr. 18, 2016), (in Mandarin)
[5] Corporate Criminal Liability Judicial Interpretations, (最高人民法院关于审理单位犯罪案件具体应用法律有关问题的解释), (Supreme Court, Jun. 18, 1999), (in Mandarin)
[6] Distinguishing Entity Bribery and Individual Bribery, (单位行贿罪与行贿罪的区分), (People’s Judiciary & Cases, 2019), (in Mandarin)
[7] Criminal Organizational Smuggling Attribution Rules, (关于办理走私刑事案件适用法律若干问题的意见), (Supreme Court, Chief Prosecutor’s Office, and Customs Head Office, Nov. 16, 2019), (in Mandarin)
[8] Tianjin Case 0111-cr-93 (2016), (马某某等单位行贿案), (Tianjin Xiqing District Court, Sep. 23, 2024), (in Mandarin)
[9] How to Distinguish Entity Bribery from Individual Bribery, (如何区分行贿罪与单位行贿罪？), (Central CCP Ethics Office, Jun. 27, 2024), (in Mandarin)
[10] How to Rule on Entity Bribery, (如何准确认定单位行贿罪), (Central CCP Ethics Office, May 17, 2023), (in Mandarin)
[11] Two Key Factors to Determine Whether Bribery Is Entity or Individual, (判断单位行贿还是个人行贿要看两个关键因素), (Procuratorate Daily, Jan. 11, 2016), (in Mandarin)