One person’s gift, another person’s bribe: The challenge of giving gifts in China, Part II

In the second of our two-part series on giving gifts in China, we look at the rules and traditions surrounding the cultivation of bao (“social reciprocity”), through gift giving. This month, we look closely at the gift-giving rules that apply toPRC Government officials. With penalties for officials as severe as death by firing squad, businesses need to ensure giftsgiven to give “face,” i.e., to show respect, to the recipient and increase the “face,” i.e., raise the status, of the giver are well within the bounds of what is legally acceptable and can be proved to be so.

Bribery of officials

In respect of bribery of officials, Articles 389 to 391 and Article 393 of the PRC Criminal Law prohibit (regardless of whether the perpetrator is an individual or entity) giving state officials, state agencies, state-owned enterprises and civil organisations bribes in order to receive improper benefits. In order to constitute the offence of “giving bribes” the following criteria must be met:

• There must be a payment in the form of property or unlawful kickbacks or procedural fees
• The recipient must be a state official, state agency, state-owned enterprise, unit (an organisation) or civil organisation
• The purpose must have been to receive improper benefits (emphasis added).

According to a Notice issued by the Supreme People’s Court and the Supreme People’s Procuratorate in 2008, “property” in this context is defined as

Either money or physical objects, and includes proprietary interests that can be measured in monetary terms, such as the provision of housing renovations, membership cards and gift cards (coupons) carrying monetary value, travel expenses, etc.

The Notice also seeks to fill a gap in the Criminal Law by clarifying the meaning of “seeking improper benefits” in the context of the crime of bribery contemplated in Article 389 of the Criminal Law. According to the Notice, seeking improper benefits refers, rather vaguely, to circumstances where the giver of a bribe seeks a benefit that is in violation of laws, regulations, rules or policies, or where the giver of the bribe requests the receiver of the briber to provide help or convenience in violation of laws, regulations, policies or industry norms.

Importantly, the Notice seems to provide a safe harbour to prevent normal social networking activities from being regarded as bribery, by stipulating that, in adjudicating bribery cases, it is necessary to distinguish gifts or donation from bribes. In this connection, the Notice describes four factors to consider when distinguishing valid gifts from bribes:

1. The background that leads to such property exchanges, e.g., whether the giver and recipient are friends or relatives, or whether they have any relationship or previous contacts, and the degree of such contacts, etc.
2. The value of the property given
3. The reasons, timing and means of property exchanges
4. Whether or not recipients secured benefits for the givers in exchange for the property given.

Separate regulations issued by the State Council in 1993 set forth further requirements for state officials. They require officials of government agencies at various levels to report and hand over any gifts accepted in foreign-related activities exceeding RMB200 (approximately US$32) to the employer or the state treasury, depending on the nature and value of the gifts.

Other regulations jointly issued by the Administrative Office of the State Council and the Administrative Office of the Central Committee of the Communist Party of China in 1995 set forth rules by which state and party officials must disclose and/or hand over certain gifts received. “Gifts” are interpreted broadly to include cash, coupons or any item purchased at unreasonable discounts. This interpretation is arguably sufficiently broad to include intangible benefits as well.

Opinions promulgated jointly by the Supreme People’s Court and the Supreme People’s Procuratorate in 2007 specifically prohibit the acceptance by officials of gifts of shares, participation in equity investments or common corporate investments without actual capital inflows injected by such state officials, i.e., phantom shareholdings, and other forms of bribery disguised within business transactions. In 2011 and 2012, China adopted regulations that prohibit state officials from accepting prepaid gift cards.

The Communist Party’s internal rules

Although not technically a source of law, the Communist Party’s internal rules adopt strict prohibitions on obtaining an improper benefit “through influence arising from one’s authority”. This includes “accepting gifts or invitations to meals as well as the arrangement of such activities such as travel, going to the gym or entertainment that may affect the fair execution of public service.”

Additionally, the Communiqué of the Fifth Plenary Session of the CPC Central Disciplinary Committee, adopted in 1995, provides that Chinese officials should not attend any banquet or entertainment event if the event may affect their impartiality in performing their public duties. This restriction is implemented by internal rules formulated by various government agencies in the state administrative system, under which recreational activities for private purposes involving use of public funds or hospitality activities that squander public funds are prohibited. In addition, attendance at foreign-related hospitality activities requires prior approval.

Can you ever give a gift to a government official?

As we saw last month Chinese culture often requires the giving of gifts in order to give and maintain “face”. Where cultural sensitivity and general respect and politeness require it, how can a business safely and confidently give a gift to a government official?

As we also saw last month, there are regulations in China that establish disclosure and disgorgement obligations for state officials in connection with gifts accepted in international activities. These regulations suggest a threshold of RMB 200 (around US$32) for determining acceptable gifts. As a result, it is not uncommon for companies to have compliance program requirements that refer to the RMB 200 amount, using it as a cut-off for entertainment and gifts. It should be noted that these regulations apply to officials and not to the donors of the gifts, and that, because this RMB 200 limit was set many years ago, the purchasing power intended for the RMB 200 mark was substantially higher than it is today. Therefore, the applicability and reasonableness of using the RMB 200 threshold as a guideline for incurring hospitality and gift expenses today might need to be revisited.

It is possible to give gifts to government officials in China in a manner that both upholds cultural norms and legal obligations. In order to do so, foreign companies should set a reasonable threshold for the value of the gift, e.g., RMB 500, keep a registry of such gifts and take into account the four factors mentioned above before the gift is given so as to ensure that it is not given for an improper benefit.