Responding to Commercial Bribery Investigations What to Do When the Chinese Administration for Industry and Commerce (AIC) Arrives At Your Door Eugene Chen Counsel, Hogan Lovells International LLP September 15, 2011
Agenda 1. Who can investigate you? 2. What you should do when the authorities knock at your door? 3. How do you reach the best resolution with the minimal level of risk? 2
Who Can Investigate You? 3
Investigatory Agencies Administrative Investigations AICs are authorised to carry out investigations and to impose administrative penalties in relation to commercial bribery activities. AIC at the central level has the authority to investigate commercial bribery activities committed on a nationwide basis. AIC at the local level has the authority to investigate commercial bribery activities committed within their respective jurisdictions Other Agencies Ministry of Housing and Urban and Rural Development and its local counterparts - revoking construction qualification licence. Food and Drug Administration and its local counterparts revoking drug production or sales licence but not imposing fines. Ministry of Hygiene and its local counterparts revoking medical practicing licence but not imposing fines. Criminal Investigation The People's Procuratorate is authorised to prosecute commercial bribery offence. Procuratorates at the local level have the authority to investigate commercial bribery offences committed within their respective jurisdictions. 4
Administrative Liability and Criminal Liability Administrative liability under the PRC Unfair Competition Law Fine (RMB 10,000 200,000) Confiscation of unlawful gains Revocation of business licence and pharmaceutical production or trading licence in the case of pharmaceutical companies. Criminal liability under the PRC Criminal Law Threshold for offence committed by legal persons: RMB 200,000. Threshold for offence committed by natural persons: RMB 10,000. Imprisonment: up to 10 years for giving bribes; up to 15 years for receiving bribes. 5
What Should You Do When the Authorities Knock On Your Door? 6
AIC On-site Investigation AIC is authorised to carry out on-site investigation at the business premises. Investigators should be in uniform and display Investigator Certificates. At least two investigators should always be present. AIC is authorised to collect evidence during the course of on-site investigation including: Witness statements. Video/audio materials and computer data. AIC is obliged to collect original evidence. Cooperation with AIC On-site Investigation. Corporate practice that AIC officials will be received by designated legal or compliance officers. Request a copy of the original evidence taken by AIC. Request a list of documents and properties taken by AIC. DO NOT ANSWER QUESTIONS IF YOU ARE NOT SURE OF THE ANSWER!! 7
How Do You Reach The Best Resolution With the Minimal Level of Risk? 8
Negotiations With the AIC 1. Request face-to-face meeting 2. Understand the allegations 3. Don't expect logic, reason or understanding of the law 4. Ask for supporting evidence, but don't be surprised if refused 5. Don't accept or deny liability in the first instance 6. Express cooperation, and ask for time to investigate internally 9
Value of Local Input AICs at the local level are entitled to considerable discretion in the investigation of the alleged conduct. Local law firms which are familiar with the local rules and procedures can facilitate communication with the authorities and help achieve the optimal outcome. Risk of local law firms engaging in improper conduct in the course of securing the optimal outcome. Clear communication with the law firm on anti-corruption policy. Prompt disengagement with the local law firm after acquiring knowledge of corrupt practice on the part of the law firm. 10
Key Goals 1. Successful resolution of the case 2. Minimize disruption to the business, to distributors, to customers, and to hospitals 3. Control the process try to avoid any characterization of commercial bribery in the penalty decision 4. Decide how aggressively to negotiate with the AIC 5. Understand the political motivations and influences on the AIC 11
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