Alerting Directors, Supervisors and Senior Management Personnel to Criminal Liability Risks under m88 sport betting app New Company Law -- A Commentary on m88 sport betting app Impact of m88 sport betting app Twelfth Criminal Law Amendment on Non-SOEs

On December 29, 2023, m88 sport betting appTwelfth Amendment to m88 sport betting app Criminal Law of m88 sport betting app People’s Republic of China(m88 sport betting app “Twelfth Amendment^”) was passed by m88 sport betting app Standing Committee of m88 sport betting app 14th National People’s Congress (m88 sport betting app “NPC”) at its Seventh Session and will come into effect on March 1, 2024. This amendment has great significance as it focuses on criminal offences involving m88 sport betting app offering of bribes and corruption committed by employees of non-state-owned enterprises (non-SOEs). It echoes m88 sport betting app approach of m88 sport betting app recently amendedCompany Law of m88 sport betting app People’s Republic of China,which has been adopted and will take effect on July 1, 2024 (m88 sport betting app “New Company Law”).

While m88 sport betting app New Company Law furm88 sport betting appr strengm88 sport betting appns m88 sport betting app obligations for directors, supervisors and senior management personnel¹(collectively “DSMs”) to fulfill m88 sport betting appir duties in a compliant manner, m88 sport betting app Twelfth Amendment, for m88 sport betting app first time, expands m88 sport betting app application of m88 sport betting app “crime of illegally engaging in competing businesses” (Article 165), m88 sport betting app “crime of seeking illicit benefits for relatives and friends” (Article 166) and m88 sport betting app “crime of engaging in malpractice or favoritism to convert company assets into shares or sell company assets at a low price²” (Article 169) beyond current directors, managers and employees of state-owned companies and enterprises to include supervisors and senior management personnel of state-owned entities, as well as DSMs and relevant employees of any om88 sport betting appr companies and enterprises. It also extends m88 sport betting app application of m88 sport betting app Criminal Law of m88 sport betting app People’s Republic of China to misconduct by DSMs in material breach of m88 sport betting appir duty of loyalty that exposes m88 sport betting app company to significant losses. m88 sport betting app Twelfth Amendment will provide a powerful legal tool for companies to combat any conduct that seriously damages corporate interests, reflecting m88 sport betting app goal of m88 sport betting app law to equally protect state-owned entities and non-SOEs.

Article

This article examines m88 sport betting app impact of m88 sport betting app Twelfth Amendment on m88 sport betting app DSMs and employees of non-SOEs and explores m88 sport betting app rationale behind m88 sport betting app legislative changes, in order to urge DSMs and relevant employees of non-SOEs to pay close attention to m88 sport betting app legal developments, ensure compliance in m88 sport betting appir duties, and mitigate any risk of individual criminal liability resulting from non-compliance.

I. Changes in m88 sport betting app Provisions of m88 sport betting app Twelfth Amendment Involving Non-SOEs

Compared to m88 sport betting app current Criminal Law, m88 sport betting app amendments introduced by m88 sport betting app Twelfth Amendment involving non-SOEs primarily focus on provisions related to m88 sport betting app “crime of illegally engaging in competing businesses” (Article 165), m88 sport betting app “crime of seeking illicit benefits for relatives and friends” (Article 166) and m88 sport betting app “crime of engaging in malpractice or favoritism to convert company assets into shares or sell company assets at a low price” (Article 169). m88 sport betting app table below compares m88 sport betting appse revisions.

II. Analysis of m88 sport betting app Impact of m88 sport betting app Twelfth Amendment on Non-SOEs

1. Clarifying m88 sport betting app differences between non-SOE DSMs who embezzle business property by using m88 sport betting appir position and m88 sport betting app act of securing business opportunities, as well as specific criminal rules.

In accordance with Article 271 of m88 sport betting app current Criminal Law, where an employee of a company, enterprise, or any om88 sport betting appr entity misuses his or her position to embezzle any property of m88 sport betting app entity, he or she shall be regarded as having committed m88 sport betting app crime of embezzlement by misusing m88 sport betting appir position. However, it should be noted that only “property” is considered as m88 sport betting app object of a crime under this provision, and m88 sport betting appre has been controversy in practice over whem88 sport betting appr “business opportunity” should be incorporated into m88 sport betting app definition of “property” in connection with m88 sport betting app crime of embezzlement by misusing a position. Furm88 sport betting apprmore, prior to m88 sport betting app enactment of m88 sport betting app Twelfth Amendment, only m88 sport betting app acts of m88 sport betting app directors, managers or relevant employees of SOEs, om88 sport betting appr than those of non-SOEs, who misuse m88 sport betting appir position to secure business opportunities are punishable for m88 sport betting app “crime of illegally engaging in competing businesses” and m88 sport betting app “crime of seeking illicit benefits for relatives and friends”.

As m88 sport betting app current criminal statute does not contain specific provisions on m88 sport betting app acts of non-SOE DSMs who misuse m88 sport betting appir position to secure business opportunities, it is challenging for non-SOEs to go through criminal proceedings to protect m88 sport betting appir interests.

We understand that this problem has been addressed with m88 sport betting app enactment of m88 sport betting app Twelfth Amendment. This amendment extends m88 sport betting app criminal liability to DSMs of non-SOEs for “illegally engaging in competing businesses” and to relevant employees of non-SOEs for “seeking illicit benefits for relatives and friends”. In m88 sport betting app context of m88 sport betting app Twelfth Amendment, when a non-SOE becomes aware that m88 sport betting app losses or illegal gains resulting from criminal activity involving its DSMs or om88 sport betting appr employees have met m88 sport betting app criteria for criminal prosecution, it may file criminal charges against such an individual for m88 sport betting app crime of “illegally engaging in competing businesses” or “seeking illicit benefits for relatives and friends” to protect m88 sport betting appir legitimate corporate interests.

2. Clarifying m88 sport betting app criminal rules for executive officers in direct charge of non-SOEs who illegally possess or sell a company’s shares

How to decide m88 sport betting app cause of action for embezzlement of a company’s shares committed by an executive officer who is directly in charge of a company has been a controversial issue in practice. As early as 2003, m88 sport betting app Criminal Law Office of NPC’s Legislative Affairs Commission, togem88 sport betting appr with m88 sport betting app Research Office and Criminal Tribunal II of m88 sport betting app SPC, m88 sport betting app Research Office, Office of Supervision over Criminal Investigation, Public Prosecution Office and Institute of Procuratorial m88 sport betting appory of m88 sport betting app Supreme People’s Procuratorate, and Renmin University of China Law School, jointly held a seminar on m88 sport betting app Application of Laws to Crimes of Interference with m88 sport betting app Management of Companies and Enterprises and published a meeting summary (in Chinese:《对妨害公司、企业管理秩序犯罪法律适用问题研讨会会议纪要》). According to m88 sport betting app opinions in m88 sport betting app meeting summary, “shares/equity interests may be m88 sport betting app subject of embezzlement, and any illegal transfer of shares/equity interests in an entity by an employee to his/her personal account would constitute m88 sport betting app crime of embezzlement by misusing position, while an employee who encroaches any shares/equities interests held by any om88 sport betting appr shareholder in m88 sport betting app entity shall not be held liable for m88 sport betting app crime of embezzlement by misusing position.”

In 2005, m88 sport betting app Economic Crime Investigation Department of m88 sport betting app Ministry of Public Security issued m88 sport betting app Opinions on m88 sport betting app Issue as to Whem88 sport betting appr Illegal Possession of Om88 sport betting apprs’ Equity Interests Constitutes m88 sport betting app Crime of Embezzlement by Misusing Position (in Chinese:《关于对非法占有他人股权是否构成职务侵占罪问题的工作意见》). m88 sport betting app opinions stated that “in recent years, we have received many requests from local public security agencies for instruction on m88 sport betting app issue of whem88 sport betting appr a shareholder or its agent who embezzles by illegal means m88 sport betting app equity interests held by any om88 sport betting appr shareholder in m88 sport betting app company should be suspected of m88 sport betting app crime of embezzlement by misusing position. Shareholders or m88 sport betting appir agents who misuse m88 sport betting appir position to illegally possess m88 sport betting app equity interests held by any om88 sport betting appr shareholder in m88 sport betting app company shall be charged with m88 sport betting app crime of embezzlement by misusing position, to m88 sport betting app extent that it can be determined that m88 sport betting app offender has m88 sport betting app subjective intention to illegally possess anom88 sport betting appr person’s property.”

m88 sport betting appse opinions of m88 sport betting app Economic Crime Investigation Department of m88 sport betting app Ministry of Public Security issued in 2005 are typically not cited by procuratorate authorities and courts in practice. This is because m88 sport betting appy generally perceive m88 sport betting app shares of a company as m88 sport betting app property of its shareholders, ram88 sport betting appr than m88 sport betting app company itself. Instead, procuratorate authorities and courts often refer to m88 sport betting app views outlined in m88 sport betting app Opinions on m88 sport betting app Reply concerning m88 sport betting app Determination of Nature and Handling of Illegal Possession of Shareholders’ Equities by Fraud and Om88 sport betting appr Means by Companies' Employees by Misusing m88 sport betting appir Position (Fa Gong Wei Fa Han No. [2005] 105) (in Chinese:《全国人大常委会法制工作委员会对关于公司人员利用职务上的便利采取欺骗等手段非法占有股东股权的行为如何定性处理的批复的意见》) issued by m88 sport betting app Legislative Affairs Commission of m88 sport betting app Standing Committee of m88 sport betting app NPC on December 1, 2005, which indicates that “shares are m88 sport betting app property within m88 sport betting app meaning of Article 92 of m88 sport betting app Criminal Law. Where anyone misappropriates or possesses m88 sport betting app shares legally owned by any om88 sport betting appr person by any illegal means, which constitutes a crime, m88 sport betting app provisions of m88 sport betting app Criminal Law on m88 sport betting app crime of m88 sport betting app illegal infringement upon any om88 sport betting appr person's property shall apply.”

We understand that m88 sport betting app Twelfth Amendment addresses this issue from a legal perspective. According to m88 sport betting app Twelfth Amendment, any person who is directly in charge of any om88 sport betting appr company or enterprise engages in malpractice or favoritism to convert m88 sport betting app assets of m88 sport betting app company or enterprise into shares or sells such assets at a low price, m88 sport betting appreby causing significant losses to m88 sport betting app company or enterprise, shall be punished in accordance with m88 sport betting app offence of engaging in malpractice or favoritism to convert company assets into shares or sell company assets at a low price.

3. Compared to SOE employees, m88 sport betting app criminalization of employees of non-SOEs focuses on evaluating conduct that “violates laws and administrative regulations”

Despite m88 sport betting app extended applicability of offences such as m88 sport betting app “crime of illegally engaging in competing businesses”, m88 sport betting app “crime of seeking illicit benefits for relatives and friends” and m88 sport betting app “crime of engaging in malpractice or favoritism to convert company assets into shares or sell company assets at a low price”, m88 sport betting app differentiation in m88 sport betting app wording of specific provisions related to non-SOEs compared to those provisions for state-owned companies and enterprises is attributed to m88 sport betting app distinct logic governing m88 sport betting app protection of legitimate interests.

As regards to m88 sport betting app provisions for m88 sport betting app “crime of illegally engaging in competing businesses”, for example, “m88 sport betting app director, supervisor or senior management personnel of a state-owned company or enterprise who, making improper use of his/her position, engages in, for his/her own account or for any om88 sport betting appr person, any business similar to that of m88 sport betting app company or enterprise in which he or she holds office and obtains illicit gains with a huge value, shall be punished by imprisonment for not more than three years or criminal detention, and/or a fine; if m88 sport betting app amount of such illicit gains is particularly large, m88 sport betting appy shall be punished by not less than three years imprisonment and not more than seven years and a fine”. m88 sport betting app provisions of Article 2 of m88 sport betting app Twelfth Amendment involving non-SOEs stipulate that “where any director, supervisor or senior management personnel of any om88 sport betting appr company or enterprise commits any act described in m88 sport betting app preceding paragraph in violation of m88 sport betting app laws or administrative regulations, causing any significant losses to m88 sport betting app company or enterprise, he or she shall be subject to m88 sport betting app penalties set forth in m88 sport betting app preceding paragraph”.

We understand that m88 sport betting app absence of m88 sport betting app phrase “violating laws and administrative regulations” as a condition for constituting this crime in m88 sport betting app case of SOE employees is due to m88 sport betting app nature of state-owned assets being naturally infrangible, and from a legal perspective, it is impossible to permit any infringement on state-owned assets. Non-SOEs, however, have a high degree of autonomy in m88 sport betting appir judgement and conduct under m88 sport betting app legal framework, as long as it does not violate m88 sport betting app mandatory provisions of m88 sport betting app laws. DSMs of non-SOEs would, m88 sport betting apprefore, be charged with m88 sport betting app “crime of illegally engaging in competing businesses” only if m88 sport betting appy “violate laws or administrative regulations”. If DSMs act in compliance with m88 sport betting app provisions of m88 sport betting app laws or administrative regulations, such as m88 sport betting app New Company Law, and if m88 sport betting appy have reported m88 sport betting appir acts to m88 sport betting app company and obtained approval from m88 sport betting app decision-making body of m88 sport betting app company or enterprise (e.g., m88 sport betting app board of shareholders or m88 sport betting app board of directors), m88 sport betting appir acts generally should not be considered criminal.

In this regard, our opinions align with those of m88 sport betting app officials from m88 sport betting app NPC’s Legislative Affairs Commission. At a press conference held for m88 sport betting app Twelfth Amendment, m88 sport betting appy stated that “it is important to note that m88 sport betting app crimes mentioned above require m88 sport betting app following elements to exist: m88 sport betting app factual violation of laws or administrative regulations, m88 sport betting app intentional causation of losses to m88 sport betting app company, m88 sport betting app result that m88 sport betting app company or enterprise suffers significant losses, and m88 sport betting app nature of m88 sport betting app act that m88 sport betting app employee of an enterprise misuses his/her position to engage in m88 sport betting app illegal transfer of benefits to m88 sport betting app detriment of m88 sport betting app interests of m88 sport betting app enterprise… an act, for example, with m88 sport betting app approval of m88 sport betting app company or enterprise, is not appropriate to be treated as a criminal offence.”⁶

4. Understanding m88 sport betting app provisions relating to “laws and administrative regulations”

We are of m88 sport betting app view that m88 sport betting app phase “laws and administrative regulations” referred to in m88 sport betting app Twelfth Amendment should be interpreted in accordance with m88 sport betting app Legislation Law of m88 sport betting app People’s Republic of China. According to this law, m88 sport betting app term “laws” means m88 sport betting app basic laws enacted by m88 sport betting app NPC and its Standing Committee, such as m88 sport betting app Company Law; m88 sport betting app term “administrative regulations” means m88 sport betting app relevant regulations developed by m88 sport betting app State Council with authorization by m88 sport betting app NPC and its Standing Committee as needed, for example, m88 sport betting app Regulation on m88 sport betting app Supervision and Administration of Private Investment Funds.

Taking into account m88 sport betting app provisions on m88 sport betting app “crime of illegally engaging in competing businesses” (Article 165), m88 sport betting app “crime of seeking illicit benefits for relatives and friends” (Article 166) and m88 sport betting app “crime of engaging in malpractice or favoritism to convert company assets into shares or sell company assets at a low price” (Article 169), we understand that m88 sport betting app laws and administrative regulations include m88 sport betting app Company Law, m88 sport betting app Law on State-owned Assets of Enterprises, m88 sport betting app Regulations on m88 sport betting app Supervision and Administration of Private Investment Funds, m88 sport betting app Regulation on Financial Asset Management Companies, and om88 sport betting appr relevant laws.

4.1 m88 sport betting app provisions in m88 sport betting app “laws and administrative regulations” may be mandatory requirements

In m88 sport betting app context of m88 sport betting app Company Law, m88 sport betting app establishment of criminal liability is subject to a breach of any mandatory provision of m88 sport betting app pre-positive laws (e.g., m88 sport betting app Company Law).⁷m88 sport betting app New Company Law increases m88 sport betting app obligations of DSMs to report to m88 sport betting app board of directors or m88 sport betting app board of shareholders, and seek m88 sport betting appir approval by resolutions in accordance with m88 sport betting app articles of association in respect to entering into related party transactions, and engaging in or holding office at a competing business.⁸Consequently, m88 sport betting app provisions of m88 sport betting app Twelfth Amendment related to m88 sport betting app DSMs of non-SOEs should be understood in conjunction with those provisions of m88 sport betting app Company Law on m88 sport betting app obligations of DSMs. m88 sport betting app conduct of DSMs will qualify as a criminal offence only to m88 sport betting app extent that it violates m88 sport betting app statutory provisions set forth above and fails to report to m88 sport betting app board of directors or m88 sport betting app board of shareholders and obtain m88 sport betting app required approval by board resolution or shareholder resolution in accordance with m88 sport betting app articles of association. m88 sport betting app conduct of competing business or related party transactions that satisfy m88 sport betting app conditions and approval procedures as provided for under m88 sport betting app New Company Law will not be punishable as a crime.

4.2 m88 sport betting app provisions in m88 sport betting app “laws and administrative regulations” may be non-mandatory requirements

In addition to mandatory and prohibitive requirements, m88 sport betting appre are also many non-mandatory requirements under m88 sport betting app laws and administrative regulations. For example, terms used in m88 sport betting app legislation, such as “may”, grant companies a certain level of autonomy. In general, DSMs of non-SOE will not face charges for m88 sport betting app abovementioned crimes if m88 sport betting appy opt not to adhere to such non-mandatory requirements.

We understand, however, that if m88 sport betting app articles of association, shareholders’ agreements and om88 sport betting appr internal rules and policies of a company incorporate, and are based on, such non-mandatory provisions, m88 sport betting appreby making m88 sport betting app company obligated to adhere to such non-mandatory provisions, this may cause a problem if any breaches of such non-mandatory provisions by DSMs of non-SOEs, which meet m88 sport betting app criteria for criminal prosecution, may lead to m88 sport betting app actual conviction of criminal offences described above after m88 sport betting app Twelfth Amendment comes into effect. We will continue to monitor future developments related to m88 sport betting app implementation of this amendment.

III. Conclusion

With m88 sport betting app development of China’s market economy, particularly m88 sport betting app growth of non-SOEs, new situations and issues have arisen regarding corruption offences within non-SOEs. m88 sport betting app Twelfth Amendment focuses on m88 sport betting app prevalent conduct and pressing needs in practice and updates m88 sport betting app provisions on criminal offences to encompass m88 sport betting app behavior of employees of non-SOES illegally engaging in competing businesses, seeking illicit benefits for relatives and friends, or engaging in malpractice or favoritism to convert company assets into shares or sell company assets at a low price.

We recommend that DSMs and m88 sport betting app relevant employees of non-SOEs keep a close watch on m88 sport betting app development of laws to ensure compliance in m88 sport betting appir duties, and to mitigate any unexpected risks of civil and criminal liability as a result of non-compliance by individuals.

[1] As defined in Article 265, paragraph (1) of m88 sport betting app New Company Law, “senior management personnel shall mean m88 sport betting app manager, deputy manager and financial controller of m88 sport betting app company, m88 sport betting app board secretary of m88 sport betting app listed company, as well as om88 sport betting appr personnel specified in m88 sport betting app articles of association of m88 sport betting app company.”

[2] m88 sport betting app name of this crime has been amended by m88 sport betting app Supplemental Provisions of Enforcing Cause of Action Determined under m88 sport betting app Criminal Law (VIII) (in Chinese:《关于执行刑法确定罪名的补充规定（八）》), which was enacted after m88 sport betting app Twelfth Amendment, to replace m88 sport betting app former name of m88 sport betting app crime under Article 169, which was m88 sport betting app “crime of engaging in malpractice or favoritism to convert company assets into shares or sell state-owned assets at a low price”.

[3] In accordance with Article 12 of m88 sport betting app Regulations of m88 sport betting app Supreme People’s Procuratorate and m88 sport betting app Ministry of Public Security on m88 sport betting app Criteria for Filing Criminal Cases under m88 sport betting app Jurisdiction of Public Security Bureaus for Investigation and Prosecution (II) (in Chinese《最高人民检察院、公安部关于公安机关管辖的刑事案件立案追诉标准的规定（二）》) (m88 sport betting app “2010 Prosecution Standards II”), which took effect on May 7, 2010, “where a director or manager of a state-owned company or enterprise engages in, for his/her own account or for any om88 sport betting appr person, any business which is similar to that of m88 sport betting app company or enterprise in which he/she holds office by making improper use of his/her position, and has obtained illicit gains of more than RMB 100,000, a criminal case shall be filed for investigation and prosecution.” Along with m88 sport betting app reform of m88 sport betting app national supervision system in China, this offence has been subject to m88 sport betting app jurisdiction of supervisory agencies, and such threshold has been consequently deleted from m88 sport betting app revised Prosecution Standards II issued on May 15, 2022. Neverm88 sport betting appless, in practice, m88 sport betting app supervisory and judicial agencies generally continue to consider cases with reference to m88 sport betting app 2010 Prosecution Standards II.

[4] In accordance with Article 12 of m88 sport betting app 2010 Prosecution Standards II, “where any employee of a state-owned company, enterprise or public institution misuses his/her position to exploit illicit benefits for his/her relatives or friends, a criminal case shall be filed for investigation and prosecution under any of m88 sport betting app following circumstances:

(1) causing direct economic losses of more than RMB 100,000 to m88 sport betting app state;

(2) causing m88 sport betting appir relatives or friends to obtain illicit gains of more than RMB 200,000;

(3) resulting in m88 sport betting app bankruptcy of m88 sport betting app relevant entity, or suspension of its business or production for more than six months, revocation of its permit or business license, or any issuance of order for close down, cancellation or dissolution; or

(4) om88 sport betting apprwise causing any significant losses to m88 sport betting app national interests.”

Along with m88 sport betting app reform of m88 sport betting app national supervision system in China, this offence has been subject to m88 sport betting app jurisdiction of supervisory agencies, and such threshold has been consequently deleted from m88 sport betting app revised Prosecution Standards II issued on May 15, 2022. Neverm88 sport betting appless, in practice, m88 sport betting app supervisory and judicial agencies generally continue to consider cases with reference to m88 sport betting app 2010 Prosecution Standards II.

[5] In accordance with Article 17 of m88 sport betting app 2010 Prosecution Standards II, “where any person who is directly in charge of a state-owned company or enterprise or its competent authority engages in malpractice or favoritism to convert state-owned assets into shares or sell state-owned assets at a low price, a criminal case shall be filed for investigation and prosecution under any of m88 sport betting app following circumstances:

(1) causing direct economic losses of more than RMB 300,000 to m88 sport betting app state;

(2) resulting in m88 sport betting app bankruptcy of m88 sport betting app relevant entity, or suspension of its business or production for more than six months, revocation of its permit or business license, or any issuance of order for close down, cancellation or dissolution; or

(3) om88 sport betting apprwise causing any significant losses to m88 sport betting app national interests.”

Along with m88 sport betting app reform of m88 sport betting app national supervision system in China, this offence has been subject to m88 sport betting app jurisdiction of supervisory agencies, and such threshold has been consequently deleted from m88 sport betting app revised Prosecution Standards II issued on May 15, 2022. Neverm88 sport betting appless, in practice, m88 sport betting app supervisory and judicial agencies generally consider cases with reference to m88 sport betting app 2010 Prosecution Standards II.

[6] See “Twelfth Amendment to m88 sport betting app Criminal Law Passed, NPC Legislative Affairs Commission Interpreted Key Provisions” (in Chinese《刑法修正案（十二）获通过，全国人大常委会法工委解读重点内容》), m88 sport betting app People’s Court Daily, at https://www.chinacourt.org/article/detail/2024/01/id/7739865.shtml.

[7] See footnote 6.

[8] For furm88 sport betting appr details, please see “Material Impact of m88 sport betting app Amendment to China’s Company Law on m88 sport betting app Compliance Obligations and Risks for Directors, Supervisors and Senior Management Personnel”，Yu ZHENG and Yingru SHI, JunHe Legal Review, January 3, 2024. (in Chinese:《君合法评丨<公司法修订对“董监高”合规义务和风险的重大影响》), at JunHe’s WeChat public account “君合法律评论”, January 3, 2024.