Corporate Crime in China

History and contemporary debates

Zhenjie Zhou

• Publisher: Taylor & Francis
• Year: 2014
• Print ISBN: 9781138056176
• eBook ISBN: 9781317632825
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Corporate crime in China has garnered worldwide attention and in the recent years we have witnessed positive legislative and administrative efforts by the Chinese government to prevent corporate misconducts.

This book first defines the meaning of corporate crime in China and answers the basic questions of what corporate crime is through real life cases. Then, it introduces the history of corporate crime and reviews academic studies through these key questions. The book also discusses the scope of corporate crime, the basis of corporate criminal liability, the criminal liability of State organizations, the corporate compliance programs and corporate criminal liability and the procedural issues. The book also provides suggestions from a comparative perspective by referring to the latest global developments on corporate crime. In the concluding chapter, the book discusses the goals of corporate crime prevention policy and comes up with feasible reform proposals with a brief summary on the existing problems of the current policies through a macro perspective.

There is no existing book that deals with the legislation and criminal justice practices of corporate crime in China and this book will help to shed insight into the subject.

1
Introduction

An overview of corporate crime in China

A. Definition of corporate crime

1. Objective elements

2. Subjective elements

3. Prescription of criminal law

B. Punishment of corporations

1. Principles of punishment

2. Culpable individuals

C. Case studies

1. The Sanlu milk powder contamination case: the Waterloo of a renowned corporation

2. The Yuanhua smuggling case: the end of the cat and the rat’s honeymoon

3. The Urumqi Railway Transport Intermediate People’s Court bribery case: a challenge to the constitution?

D. Influence of political consideration

E. Conclusion

Since the late 1980s, corporate crime represented by bribery, environment pollution, food safety-related crimes and industrial accidents has drawn unprecedented public attention in China because of its massive harm being highlighted by the media. Although voluminous works of research have accumulated, fundamental questions concerning corporate crime are still open, such as how to assess the influence of state-owned corporations officially recognised as the leading force of China’s national economy¹ on corporate crime legislation and its implementation, the scope of corporate crime, the basis of corporate criminal liability and how to strengthen the role of non-governmental organisations (NGOs) in preventing corporate crime. Therefore, this topic is still worth further study.

In this chapter, as an introduction, first, corporate crime in China is defined based on existing criminal laws and the interpretation documents issued by the Supreme People’s Court (SPC) and the Supreme People’s Procuratorate (SPP). Next, an attempt is made to answer basic questions concerning corporate crime by discussing three representative cases. Finally, considering that the special role of state organs and state-owned corporations on the Chinese political stage and the importance placed on gross domestic product (GDP) growth by local governments make it difficult to address corporate crime without putting it into a political context, a number of preliminary thoughts concerning the influence of political consideration on corporate crime and its prevention are presented.

A. Definition of corporate crime

In academic studies, several phrases have been used to describe a crime committed by an organisation, such as ‘crime of legal persons’, ‘crime of legal entities’, ‘unit crime’ and ‘corporate crime’. The majority of Chinese researchers prefer ‘unit crime’ because the Criminal Law of the People’s Republic of China (PRC) as amended by the Eighth National People’s Congress on 14 March 1997 (1997 Criminal Law) refers to an organisation as a ‘unit’ (Dan Wei). In this book, the phrase ‘corporate crime’ is used because it is used by most foreign laws and acts and therefore helps to promote mutual understanding. Then, what is corporate crime in China’s criminal law? According to article 30 of the 1997 Criminal Law,² corporate crime refers to (1) an act committed by an organisation that endangers society with (2) a guilty mind and is (3) prescribed by law as a crime.

1. Objective elements

Corporate crime first must be an ‘act’. Theoretically, an act that endangers society is considered an indispensable objective element of the constitution of a crime and is the basis of Chinese criminal law (e.g. see Gao and Ma 2011: 63). The ‘act’ element is required not only by the fundamental principle of combing objective and subjective elements but also by article 13 of the 1997 Criminal Law, which defines a crime as an act that endangers the sovereignty, territorial integrity and security of the state; splits the state; subverts the state’s power of the people’s democratic dictatorship and overthrows the socialist system; undermines public and economic order; or violates collective or individual rights. Therefore, a plan, an idea or a proposal without any external effect (commission, omission or possession), however malicious it may be, shall never be punished using criminal law.

Second, the act must have the potential to endanger or must have endangered society. According to the principles of justified defence in article 20 and necessity in article 21 of the 1997 Criminal Law, an act should not be punished even if it has harmful consequences and has satisfied all formal requirements of the constitution regarding a crime if it was intended to protect legal rights or interests from illegal infringement or in the case of an emergency. Therefore, the decision regarding whether an act has the potential to cause or has caused harm to society is substantial, because it is based on not only the harmful consequences that the act caused or may cause but also on what ‘good’ the act could do or has done for society. As will be expounded, this in part results in the reluctance of local governments to sanction liable corporations, because corporate illegality might ‘benefit’ the local economy.

Third, the actor of corporate crime in Chinese criminal law includes not only commercial organisations such as companies and enterprises but also public institutions, State organs and other organisations, and the status of legal person is not necessary. ‘Companies’ here refer to limited-liability companies or companies limited by shares established within Chinese territory, either state-owned or private-owned, in accordance with the Company Law of the PRC adopted by the Standing Committee of the Eighth National People’s Congress (the legislature) on 29 December 1993; ‘enterprises’ are those for-profit economic organisations with the status of legal entity; and ‘public institutions’ covers all organisations established according to laws or administrative orders with the purpose of offering public services and activities and promoting social development, such as public schools, universities and academic institutions. Public institutions are further divided into state-owned institutions and collectively owned institutions. The criminal liability of the ‘state organ’ has generated heated debate in recent years because it includes the legislature, the military and even the people’s courts and prosecution offices in addition to administrative authorities. An organisation that is not a company, an enterprise, a public institution or a state organ is categorised as an ‘other unit’. Meanwhile, a criminal act by a branch or an internal department of a corporation, if committed on behalf and in the interest of the branch or the department, should be punished as a corporate crime according to the Summary of Meetings of People’s Courts at all Levels on Trying Financial Crimes, issued by the Supreme People’s Court on 1 January 2001. Briefly, any legally constituted organisation, for-profit or not-for-profit, public or private, civil or administrative, with or without the status of legal person, can be the actor of a corporate crime. The coverage of the actor of a corporate crime in China is apparently much wider than that in foreign countries. At least, the court of law cannot be prosecuted in any jurisdiction except China, although certain jurisdictions, such as France, prosecute public organisations.³

It should be noted here that because the SPC has stated in its Interpretation on Application of Law in Case of Corporate Crime, issued on 25 June 1999, that if an organisation is established the sole intention of committing crimes or if, after establishment, its main activities are illegal, crimes committed by the organisation shall not be dealt with as corporate crime; organised crime is in principle distinguished from corporate crime in China and therefore beyond the coverage of this work. Meanwhile, corporate crime is also distinguished from white-collar crime, a category of crime committed by well-educated, socially respected and successful businessperson in the course of his or her profession, as advocated by Sutherland (1949) more than sixty years ago, because what the latter stresses is individual liability instead of the liability of a corporation as a whole.

How and who should be prosecuted in the case of a corporation being revoked or cancelled or, in the case of a merger, a reconstruction or an amalgamation, after it commits a crime? The SPP proclaimed in its Reply to the Question Raised by Sichuan Provincial People’s Procuratorate with regard to How to Address Criminal Liability in the Case where a Suspected Corporation Is Revoked, Cancelled or Declared Bankruptcy, issued on 4 July 2002, that the persons directly in charge of and other persons who are directly responsible for the criminal act in question should be accused instead of the corporation itself. Similarly, in a case in which there is a merger, a reconstruction or an amalgamation after a corporation commits an offence, culpable individuals will naturally be charged for their contribution in the commission of the crime, and the merged, reconstructed or amalgamated corporation should not be held criminally liable according to the fundamental rationale of modern criminal law that each person shall only be responsible for his or her own acts.

2. Subjective elements

The 1997 Criminal Law provides two categories of subjective element, intention and negligence, respectively, in article 14 and article 15. It is commonly recognised that corporations can be prosecuted for intention crimes, in which the actor clearly knows that his or her act will entail harmful consequences to society and wishes or allows such consequences to occur. The question is whether corporations can be charged with negligence crimes, in other words, whether negligence is a subjective element of the constitution of corporate crime. The most convincing argument against including negligence in the constitution of corporate crime is the absence of the intent to benefit a corporation. It is commonly accepted that negligence in the 1997 Criminal Law could actually be divided into following two categories and that neither leaves room for a ‘purpose’ because the actor does not ‘wish’ or ‘allow’ the consequence to occur in either case: (1) when a person should have foreseen that his act would possibly entail harmful consequences to society but fails to do so and (2) when a person, having foreseen the consequences, readily believes that they can be avoided, and thereby, the consequences do occur. Because all the actors of corporate crime engage in misconduct with the purpose to benefit a corporation, negligence should be excluded from the constitution of corporate crime (e.g. see X. Chen 1999; Liu and Shi 1999). Obviously, the unsaid precondition of this stance is that the purpose to benefit a corporation is a necessary subjective element of the constitution of corporate crime. Then, is it?

Negating that ‘the purpose to benefit a corporation’ is an indispensable subjective element is how researchers begin their rebuttal for including negligence in the constitution of corporate crime. For example Chen (2007: 40) noted that the purpose of benefitting a corporation might be found in most real-life cases but not in criminal laws. Moreover, corporations, although taken to be perpetrators, are actually victims in a number of specific corporate crimes, such as the crime of secretly dividing state-owned assets, as noted in article 396 of the 1997 Criminal Law. According to the article, it is a crime in which a state organ, a state-owned company, an enterprise, an institution or a people’s organ-isation, in violation of state regulations and in the name of the unit, divides state-owned assets in secret among the individuals of the unit. It can be easily observed that the individuals here aim to solely pursue individual instead of collective interests. Therefore, the purpose of benefitting a corporation is not an element of the constitution of corporate crime unless provided by criminal law, and it follows that corporations can be charged with negligence crimes. The author of this work holds that the purpose to benefit a corporation should not be a constitutive element if viewed from existing criminal law.

3. Prescription of criminal law

An act should not be punished unless provided as a corporate crime, as required by the principle of legality in article 3 of the 1997 Criminal Law. In addition to the 1997 Criminal Law, corporate crime could only be found in the Decision of the Standing Committee of the National People’s Congress on Punishing Crimes of Fraudulently Purchasing, Evading and Illegally Trading in Foreign Exchange, adopted on 29 December 1998. Chinese legislators adopted a criminalisation approach quite similar to that in Japan, that is confining corporate crime in principle within regulatory offences and listing them in one article after another, although the former lists corporate crimes in criminal laws whereas the latter lists them in administrative acts (Kawasaki 2004).

The 1997 Criminal Law provides 136 specific corporate crimes in nine chapters of its Special Part, which does not include chapter X, Crimes of Servicemen’s Transgression of Duties. Specifically, eighty crimes are provided in chapter III, Crimes of Disrupting the Order of the Socialist Market Economy, accounting for almost 60 per cent of the total; thirty-five are provided in chapter VI, Crimes of Obstructing the Administration of Public Order, accounting for nearly a quarter; and eight are provided in chapter II, Crimes of Endangering Public Security, accounting for 6 per cent. Thus, only thirteen (nearly 10 per cent) are distributed among the remaining six chapters. Apparently, the vast majority of corporate crimes are those disturbing economic order, impairing social administration and endangering public security. After 1997, the Decision of the Standing Committee of the National People’s Congress on Punishing Crimes of Fraudulently Purchasing, Evading and Illegally Trading in Foreign Exchange’ and eight amendments to the 1997 Criminal Law created 17 new corporate crimes, increasing the total to 153.

Academic researchers usually divide corporate crimes into two categories according to whether the actor must be a corporation (e.g. see Wang 2008: 13). One category is standard corporate crimes, which can only be committed by corporations. For instance, article 137 of the 1997 Criminal Law stipulates that standard corporate crimes are crimes in which any building, designing, construction or engineering supervision corporation, in violation of state regulations, lowers the quality standard of a project and thereby causes a serious accident. The word corporation in the article clearly excludes the possibility of any person becoming the actor of the crime. Standard corporate crimes could be found in only fourteen articles in the 1997 Criminal Law, accounting for less than 10 per cent of the entire list of corporate crime. It is worth mentioning that it is often not the ‘actor’ but culpable natural persons who are actually punished in the case of standard corporate crime. For example, although the wording in article 396, mentioned earlier, that ‘where a State organ, State-owned company, enterprise, institution or people’s organisation’ makes it clear that the actor is a corporation, the persons directly in charge of and those directly responsible for the crime incur liability. The logic behind this choice is that the ‘true actor’ is actually a victim, and it is therefore unreasonable to punish the corporation as it has suffered financial or reputational loss. However, does it not seem illogical to punish natural persons associated with a corporate crime without punishing its ‘true actor’? Meanwhile, to punish only individuals implies that the organisation itself is not considered a prevention target, while the cause of such crimes is mainly systemic deficiencies. The other category is non-standard corporate crime, which can be committed by both individuals and corporations. The 1997 Criminal Law prescribes non-standard corporate crime in two ways: (1) having inserted a paragraph into a specific article stipulating that the crime in the article may also be committed by a corporation or (2) having stipulated in an independent article at the end of a section that a corporation may become an actor of crimes in the previous articles.

What if a corporation commits a crime that has not been prescribed a corporate crime? This question has been asked and discussed since the beginning of new century, when a number of corporations were found to have organised the theft of water, electricity and gas (e.g. see Wang 2003; Dong 2006). The people’s court usually punished individuals who ordered, approved, directed and carried out the act in question instead of a corporation itself, in practice according to the Official Reply to the Question of How to Apply the Law in Case of a Theft Organized by Given Persons of A Unit, issued by the SPP on 13 August 2002. The Interpretation on Certain Questions of How to Apply the Law in Handling Theft-related Criminal Cases, jointly issued by the SPP and the SPC on 18 March 2013, confirmed the practice by providing that when a corpo...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of tables and figures
• Preface and acknowledgements
• Table of cases
• Table of legislation and interpretation
• 1 Introduction: an overview of corporate crime in China
• 2 Review of corporate crime legislation and literature
• 3 What crimes can a corporation commit?
• 4 Criminal liability of state organs: is it acceptable?
• 5 The basis of corporate criminal liability: individual or organisational fault?
• 6 Corporate compliance programmes and corporate criminal liability
• 7 Procedural debates and reforms
• 8 Corporate crime prevention policy: purposes, problems and proposals
• Bibliography
• Index