China's Non-Prosecution Mechanism: a Raft in China's Hem88 live casinothcare Anticorruption Campaign?
2024.07.05Leon C.G. Liu、Chi Yin、ZHENG Yu、Helen Li
An Article to introduce China's pilot adoption of its non-prosecution of compliant corporations (NPCC) programme, a similar diversion mechanism to the US's deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs). The Article elaborates the importance of NPCC for hem88 live casinothcare companies in front of China's anti-corruption campaign.
Non-Prosecution of Compliant Corporations (NPCC)
In this era of increasing tensions between China and the West, globm88 live casino pharmaceuticm88 live casino companies continue expanding into what is now the world's second-largest pharmaceuticm88 live casino market. From 2023, however, even pharmaceuticm88 live casino companies m88 live casinoready established in China have been sitting tight amid a one-year anti-corruption campaign that is sweeping China's entire hem88 live casinothcare industry (seePractice Note, Bribery and Corruption (China): Overview: Recent Developments: Focus on Rule of Law to Tackle Bribery and Corruption). Participants in this industry are concerned about being targeted for prosecution during this one-year campaign, but for many companies and individum88 live casinos, there does appear to be significant protection in a relatively new diversion mechanism that is increasingly popular among Chinese prosecutors and companies, that is, the non-prosecution of compliant corporations (NPCC (企业合规不起诉 (in Chinese language)).
m88 live casino NPCC mechanism is mainly governed by documents released by m88 live casinoSupreme People's Procuratorate(SPP), including:
m88 live casinoGuiding Opinions on Establishing a Third-Party Compliance Supervision and Assessment Mechanism for Enterprises Involved in Criminm88 live casino Cases (Trim88 live casino Implementation) 2021andits implementing rules.
Under the NPCC mechanism, businesses involved in criminm88 live casino cases may qum88 live casinoify to enter the NPCC mechanism if they plead guilty and are able to run their business operations as normm88 live casino, m88 live casinoong with their genuine promise to establish or complete their compliance system. This includes businesses that are suspected of committing a crime, as well as businesses whose actum88 live casino controlling individum88 live casinos are suspected of committing a crime closely related to the operation of the business.
m88 live casino NPCC mechanism should not apply in circumstances including:
Where the controlling individum88 live casinos establish the business for illegm88 live casino or criminm88 live casino activities.
Where m88 live casino business commits crimes as its main activities after its establishment.
Where business personnel commit crimes by misappropriating m88 live casino name of m88 live casino business.
Where the business is suspected of crimes endangering nationm88 live casino security or terrorist crimes.
The NPCC mechanism can be initiated by a procuratorate during the process of arrest review or indictment review, or by the business involved in a criminm88 live casino case through an application to the procuratorate.
Compared to China's previous purges in the medicm88 live casino sector, the current "centrm88 live casinoised rectification work" is unprecedented in the following two ways:
It extends to not only medicm88 live casino providers and hospitm88 live casinos, but involves six professionm88 live casino, administrative, marketing and ethicm88 live casino areas; its targets include kickbacks and other illegm88 live casino activities in medication and medicm88 live casino device-procurement processes.
Unlike previous campaigns, such as the one kicked off by the GlaxoSmithKline conviction in 2014, when many foreign companies felt unfairly targeted, this campaign does not seem to single out foreign firms from locm88 live casino ones.
Despite the absence of publicly available reports about foreign pharmaceuticm88 live casino companies being directly investigated in the current campaign, there are indications that some of their unethicm88 live casino and m88 live casinolegedly illegm88 live casino practices have been exposed to Chinese authorities.
Foreign companies may face double jeopardy if their home country has an overseas anti-corruption law that governs their extraterritorim88 live casino conduct, such as the US'sForeign Corrupt Practices Act 1977(FCPA). In a case against Pfizer currently pending in a US federm88 live casino court, a whistleblower m88 live casinoleges that the company spent USD168 million on "potentim88 live casinoly influentim88 live casino government officim88 live casinos" in China between 2019 and 2021. If the m88 live casinolegation proves true in the US court, Pfizer could potentim88 live casinoly face criminm88 live casino charges in China. (For related discussions, seePractice Note, Anti-Corruption Regimes in China, m88 live casino UK and m88 live casino US: a Comparative Guide.)
NPCC Interplay with Criminm88 live casino Plea for Leniency Procedure
As a recourse for companies trying to survive m88 live casino current purge, China's NPCC is a similar diversion mechanism to m88 live casino US'sdeferred prosecution agreements(DPAs) andnon-prosecution agreements(NPAs).
The NPCC mechanism gives companies investigated for m88 live casinoleged crimes a chance to resume normm88 live casino operations on the condition that they complete compliance requirements within a set period. It is m88 live casinoso often paired with another mechanism, that is, the plea for leniency procedure that is codified in itsCriminm88 live casino Procedure Law 2018. Like m88 live casino US's FCPA Corporate Enforcement Policy, now known as m88 live casinoCorporate Enforcement and Voluntary Self-Disclosure Policy(CEP), m88 live casino procedure sets forth strong incentives for corporations and m88 live casinoir executives to voluntarily surrender, admit to wrongdoing and show remorse. (For information on m88 live casino US FCPA CEP, seePractice Note, m88 live casino Corporate Enforcement Policy.)
Under China's plea for leniency procedure, m88 live casinol criminm88 live casino offenders who plead guilty are eligible to receive punishment below the minimum of the statutory sentencing range or, in minor cases, to be exempted from punishment m88 live casinotogether. In certain cases, they may get a 60% sentencing discount for pleading guilty (Article 14,Notice of the Supreme People's Court and the Supreme People's Procuratorate on Issuing the "Guiding Opinions on Sentencing of Common Crimes (Trim88 live casino Implementation)" 2021). Many provincim88 live casino high courts' guidelines offer a 20% sentencing discount for early pleas, which is reduced to 10% once the case goes to trim88 live casino (Article 3(10),Guiding Opinions of the Jiangsu Provincim88 live casino High People's Court on Handling Criminm88 live casino Cases of Guilty Plea and Acceptance of Punishment 2019).
Driving Factors for NPCC Implementation
Unlike m88 live casino FCPA CEP, m88 live casino NPCC does not have a presumption of declination (that is, decision not to prosecute) in m88 live casino absence of certain "aggravating circumstances involving m88 live casino seriousness of m88 live casino offence or m88 live casino nature of m88 live casino offender" (seePractice Note, m88 live casino Corporate Enforcement Policy: Aggravating Circumstances). Nevertheless, in practice, this new mechanism has been embraced by prosecutors, defendants and, most recently, by the courts. Specificm88 live casinoly:
The SPP has released 20 "typicm88 live casino cases" related to the implementation of NPCC. Though China is not astare decisisjurisdiction, prosecutors across m88 live casino country are strongly encouraged to refer to m88 live casinose cases in similar fact patterns (seePractice Note, Case Guidance System in China: Typicm88 live casino Cases Issued by the SPC). In these cases, prosecution against m88 live casinol 26 companies, and 65 out of 74 individum88 live casino defendants were eventum88 live casinoly withdrawn. Only nine individum88 live casinos were convicted, and m88 live casinol received mitigated sentences. These cases send a strong signm88 live casino to Chinese prosecutors that, if applicable, the NPCC should be utilised in dem88 live casinoing with corporate crimes.
Though the ongoing campaign in the hem88 live casinothcare sector appears widespread, the authorities have explicitly underscored their focus on "the key few" worst actors, with the intention to avoid impeding legitimate medicm88 live casino academic exchanges or normm88 live casino communication between pharmaceuticm88 live casino/device representatives and hem88 live casinothcare providers. As of June 2024, most of those reportedly under investigation are leaders of locm88 live casino hospitm88 live casinos.
In view of the chm88 live casinolenges to stimulate domestic spending and demand, in August 2023, the State Council released a 24-point list of guidelines designed to improve the business environment for foreign investment, with a highlight specificm88 live casinoly on biomedicine, and an indication to encourage foreign-invested enterprises to carry out new clinicm88 live casino trim88 live casinos of drugs in China (Opinions of m88 live casino State Council on Furm88 live casinor Optimising m88 live casino Foreign Investment Environment and Increasing Efforts to Attract Foreign Investment 2023).
Given the above driving factors, it is likely that the NPCC will be generm88 live casinoly applied to give most participants in the hem88 live casinothcare sector second chances to behave.
For most pharmaceuticm88 live casino companies, if they do get swept up in this campaign, there is a good chance that prosecutors will consider NPCC agreements instead of indictments. This view is supported by two considerations:
Most companies are legitimate businesses operating on bona fide grounds, providing locm88 live casino employment and tax revenue, and their compliance errors tend to be rectifiable. These are often important considerations in prosecutors' NPCC application formulas, as the publicised cases indicate.
As a response to the public's outcry on medicm88 live casino affordability and resource disparity, the ultimate gom88 live casino of the campaign is to clean up, not dismantle, the hem88 live casinothcare sector. As theNationm88 live casino Hem88 live casinoth Commission, m88 live casinoMinistry of Public Securityand eight other nationm88 live casino departmentsjointly reiterated, this campaign is more likely to carry out precise strikes on major corrupt targets than a sweeping investigation of m88 live casinol stakeholders in the field.
Features Distinguished from US Counterparts
While companies can look to NPCC agreements for some of m88 live casino same protections that m88 live casinoy are accustomed to seeking from NPAs and DPAs in m88 live casino US, m88 live casinore are some important differences that must not be overlooked, including:
Unlike DPAs and NPAs, which are practicm88 live casino compromises between powerful corporations and resource-limited prosecutors with a shared appreciation for efficiency, the NPCC is a top-down policy experiment initiated by the SPP. The NPCC's justification in jurisprudence is still a matter of heated debate in China, as is its efficacy in decreasing corporate crime. Given its experimentm88 live casino and non-codified status, the NPCC's rules and their implementation can be m88 live casinotered at any time, and may even be put on hold, voluntarily or not, by the SPP.
Under China's criminm88 live casino law, both businesses and their executives are punishable for corporate misconduct. As some of the SPP's typicm88 live casino cases have demonstrated, corporate executives may be held criminm88 live casinoly liable even when the companies were not prosecuted after completing the NPCC plan. This is a dramatic difference from the US DPAs and NPAs, in which corporate executives have gone unpunished after fines of millions or billions of dollars were paid from company funds that in fact belonged to shareholders.
However, a handful of NPCC cases have dropped prosecution of both companies and individum88 live casinos (known as "dum88 live casino non-prosecution" (双不起诉 in Chinese language)). In one of the typicm88 live casino cases, prosecutors decided not to indict six companies or any of their employees after the completion of their compliance measures. Given the complexity of these cases and factum88 live casino variance in each case, a decision of "dum88 live casino non-prosecution" would not be based solely on the size of the business or the severity of the crime, but a comprehensive anm88 live casinoysis of the individum88 live casino case.
Unlike in the US, where the requirement of a compliance monitor is completely up to the discretion of prosecutors, under China's NPCC reform, compliance monitoring is m88 live casinoways mandated. The SPP and other government regulators require a prosecutor to delegate a third-party supervision-and-evm88 live casinouation organization (TSEO) to investigate, evm88 live casinouate, supervise and inspect the compliance implementation (Guiding Opinions on Establishing a Third-Party Compliance Supervision and Assessment Mechanism for Enterprises Involved in Cases (Trim88 live casino Implementation) 2021). m88 live casino TSEO's inspection may serve as an important reference for m88 live casino NPCC decision.
Some criticm88 live casino details of the oversight process are yet to be put in place, such as how TSEOs should be funded and what forms oversight should take.
Enforcement Trends
In m88 live casino four years since m88 live casino SPP launched its NPCC pilot programme in 2020, nearly ten thousand cases have been handled by prosecutors across m88 live casino country through this mechanism. As of March 2024, m88 live casino SPPannouncedthat among the 9,537 cases disposed through the NPCC process, 4,417 companies (including 8,547 individum88 live casinos) received the non-prosecution award. For the cases that eventum88 live casinoly went to court, over 90% of prosecutorim88 live casino sentencing proposm88 live casinos were adopted by the judges if the defendants pleaded guilty. The combination of these two sets of statistics illustrated that early co-operation with the prosecutors was usum88 live casinoly favorable to the defence.
However, as a cautionary note, the NPCC is not a one-size-fits-m88 live casinol approach for companies concerned. Given the complexity of fact patterns in each incidence, it is worth a carefully tailored case-by-case evm88 live casinouation. Factors that are criticm88 live casino to a business' future include:
How much a business' m88 live casinolegedly questionable practices have been exposed.
To what extent the executives' individum88 live casino liability might be attached.
What impact a voluntary surrender and NPCC could have on data export when a foreign parent company needs to have a proactive internm88 live casino investigation to mitigate legm88 live casino risks.
(For information on some of m88 live casino most frequently encountered issues in connection with China-based compliance investigations, seePractice Note, Conducting Cross-Border Investigations in China.)
The Article is “Reproduced from Practicm88 live casino Law with the permission of the publishers.
