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Regulatory Updates ·

1. Supreme People's Procuratorate: The second batch of pilot provinces for the compliance reform of enterprises involved in cases have handled more than 600 relevant cases.

Gao Jingfeng, Director of the Research Office of Law and Policy of the Supreme People's Procuratorate, disclosed in an interview with reporters that the second batch of pilot provinces for case-related enterprise compliance had handled more than 600 relevant cases. Starting from March 2020, the Supreme People's Procuratorate launched the pilot program of *Reform on the Application Mechanism of Relative Non-Prosecution for Enterprise Crimes* in 6 grass-roots people's procuratorates located in Shanghai, Jiangsu, Shandong and Guangdong. In March 2021, the Supreme People's Procuratorate decided to expand the pilot scope, and deployed the second phase of one-year pilot work in 10 provinces including Beijing, Shanghai, Jiangsu and Guangdong. The 10 provincial-level people's procuratorates selected and confirmed a total of 61 municipal people's procuratorates and 381 grass-roots people's procuratorates as pilot procuratorates to carry out the reform. As of the end of December 2021, the 10 pilot provinces had handled more than 600 case-related enterprise compliance cases, among which more than 300 cases applied the third-party supervision and evaluation mechanism (hereinafter referred to as the "third-party mechanism"). Procuratorial organs in some non-pilot provinces have also, in light of local conditions, proactively carried out work related to the compliance reform of enterprises involved in cases within the legal framework of China.

2. Shanghai: Investigation on Promoting Compliance Reform for Enterprises Involved in Cases and Optimizing the Business Environment

The Shanghai Municipal People's Procuratorate has launched the "Enterprise Credit Inquiry Service Application Platform", which is interconnected with the Unified Business Application System 2.0. Relying on data resources from the Shanghai Municipal Big Data Center, "Credit Shanghai", the social credit inquiry platform and other sources, it carries out compliance social investigations by leveraging external expertise and resources. The Pudong New Area People's Procuratorate has prioritized cases involving finance and securities, intellectual property rights, online information protection and other relevant fields into the scope of the pilot program. On the basis of comprehensively sorting out legal risks in the fields of intellectual property rights and digital economy, the Pudong New Area People's Procuratorate and the Yangpu District People's Procuratorate have successively issued the *Guidelines on Enterprise Intellectual Property Compliance Standards (for Trial Implementation)* and the *Guidelines on Enterprise Data Compliance*, guiding enterprises to strengthen compliance management in specific fields from the aspects of compliance management system, risk identification, risk assessment and disposal, etc. The Yangpu District People's Procuratorate has also jointly developed an enterprise data compliance self-assessment platform with the Shanghai Expert Working Group on Data Compliance and Security Industrial Development, providing free basic data compliance assessment services to help enterprises conduct a comprehensive inventory of their data governance systems covering privacy policies, data security and risk management measures. The platform automatically generates assessment reports including quantitative risk ratings, impact assessments and recommended solutions, which saves more than 60% of time compared with traditional methods, and greatly improves the intelligent level of enterprises' data compliance work.

3. Supreme People's Procuratorate: The national teleconference on criminal procuratorial work of people's procuratorates across China stressed the requirement of "strictness" 16 times consecutively.

How the 2022 Criminal Procuratorial Work Focuses on High-Quality Development The meeting pointed out that all types of criminal offences that undermine the public's sense of security shall be punished in accordance with the law. We shall properly conduct the work of early intervention in investigations to guide evidence collection, so as to consolidate the evidence foundation of cases. We shall strengthen guidance on and advancement of key cross-border gambling cases, and unify evidence standards and criteria for sentencing recommendations. We will intensify efforts to punish cybercrimes, adhere to the principle of strict, full-chain punishment in accordance with the law, and step up crackdown on telecommunication fraud crimes bred from the leakage of personal information by industry "insiders". Meanwhile, we will carry out regularized efforts to combat gang-related and evil crimes, punish tax-related crimes in accordance with the law, uphold the general keynote of strictness in handling food and drug-related criminal cases, and scale up punishment efforts. We will also promote the compliance reform for enterprises involved in cases, and diversify the types of such cases.

Case Focus ·

Case of Collusive Bidding by Company Y of Yinan County, Shandong Province, Yao Mouming and Other Persons

Conduct Third-Party Supervision and Assessment Through Inter-Regional Cooperation

Conduct "unannounced supervision" over third-party organizations

Promote industrial governance in the local field of tendering and bidding.

The Supreme People's Procuratorate has issued the *Typical Cases on Corporate Compliance (Second Batch)*

Basic Facts of the Case

Shandong Yinan County Y Co., Ltd. (hereinafter referred to as "Y Company") is a limited liability company specializing in the sale of household appliances and after-sales services, with Yao Mouming as its legal representative. In addition to Y Company, Yao Mouming also actually controls Yishui County H Electric Appliance Co., Ltd. (hereinafter referred to as "H Company"), whose legal representative is his cousin Yao Mouzhu.

In September 2016, March 2018 and June 2020, criminal suspect Yao Mouming, for the purpose of helping Company Y win bids for public bidding projects including the procurement of heating and air conditioning equipment for rural compulsory education schools in Yishui County and classroom air conditioning projects for No.1 and No.4 Middle Schools of Yishui County, arranged for criminal suspect Xu, an employee of Company Y, to borrow the qualifications of three companies including Company H. The parties colluded in bidding through behind-the-scenes manipulations such as unified preparation of bidding documents, centralized control of bidding quotations and coordination with members of the bid evaluation expert panel. Company Y won the bids successively afterwards, with the total value of the winning bids exceeding RMB 11.34 million. In January 2021, Yishui County Public Security Bureau transferred the case involving Company Y, Yao Mouming and other relevant personnel suspected of the crime of collusive bidding to Yishui County People's Procuratorate for review and prosecution.

Rectification Effect

First, conduct comprehensive review to confirm that the case is included in the scope of enterprise compliance inspection. Upon review, the People's Procuratorate of Yishui County holds that despite the large bid-winning amount involved in the case, Yao Mouming and other relevant personnel of Company Y have the circumstance of voluntary surrender and have voluntarily pleaded guilty and accepted punishment. Company Y is in a stage of rapid development, occupying a large share in the air conditioning sales markets of Yinan County and Yishui County, and took the lead in donating funds and materials during the COVID-19 pandemic. After comprehensively considering factors including the enterprise's social contribution, development prospect, overall social evaluation, consistent performance of the enterprise's responsible person, as well as the deficiencies of the enterprise in legal awareness, business ethics, personnel management, financial management and other aspects, it decides to apply the enterprise compliance pilot program to this case. In June 2021, upon soliciting consent from the involved enterprises and individuals, the People's Procuratorate of Yishui County submitted the request level by level to the People's Procuratorate of Shandong Province for review and approval, and officially launched the enterprise compliance inspection for this case.

Second, explore inter-regional cooperation to conduct third-party supervision and assessment for enterprises involved in the case. In view of the fact that Company Y, the enterprise involved in the case, is domiciled in Yinan County and the place of crime is Yishui County, the People's Procuratorate of Yishui County held multiple communications with the Management Committees of the Third-Party Mechanism of the two counties and the People's Procuratorate of Yinan County, and jointly signed the *Inter-Regional Cooperation Agreement on Enterprise Compliance*. The Management Committees of the Third-Party Mechanism of Yinan and Yishui selected 5 personnel including lawyers, market regulatory staff and staff of the Federation of Industry and Commerce from the professional personnel directory to form a third-party organization responsible for supervision and assessment on the compliance construction of Company Y. The third-party organization carried out multiple in-depth on-site visits and investigations to the enterprise, proactively interviewed the responsible persons of the enterprise, obtained a full picture of the enterprise's conditions, and identified various problems of Company Y in risk prevention and control and daily management, including absence of bidding and tendering management system, lax internal examination and approval, inaccurate account book registration, weak law-abiding awareness, and irregular wage payment. The third-party organization guided the enterprise to formulate a compliance plan covering the whole process, all links of production and operation as well as all management levels, and set a 3-month inspection period. During the rectification process, the third-party organization notified the two procuratorates and the two Management Committees of the Third-Party Mechanism of the implementation status of the compliance plan on a monthly basis. After consultation among the four parties, opinions and suggestions for revision and improvement of the compliance plan and its implementation were put forward, with regular follow-up and progress supervision. Upon expiration of the inspection period, a compliance inspection report on the involved enterprise was issued. Meanwhile, the People's Procuratorate of Yishui County actively proposed that the County Federation of Industry and Commerce and the County Market Supervision Bureau assign dedicated personnel to supervise and urge the affiliated enterprise Company H to complete its compliance rectification with reference to the compliance plan of Company Y.

Third, roving inspection teams shall be established to carry out "no-notice supervision" over the duty performance of third-party organizations. The Third-Party Mechanism Management Committee of Yishui County has formulated the *Working Plan of the Roving Inspection Team for the Pilot Enterprise Compliance Reform of Yishui County*. In light of the facts of the present case, 6 personnel familiar with enterprise operation and legal knowledge, including deputies to the People's Congress, members of the Chinese People's Political Consultative Conference (CPPCC) and people's supervisors, are selected to form the roving inspection team. The roving inspection team and case-handling prosecutors went to the two enterprises for on-site discussions without prior notification, conducted on-site spot checks on the recently won bidding projects of Company Y, and carried out "no-notice supervision" over the duty performance of third-party organizations and the compliance rectification status of the enterprises. Upon on-site verification, it is confirmed that the rectification of the case-related enterprises is fully in place, and no circumstance where third-party organizations fail to perform their duties objectively and impartially is found.

Fourth, extend procuratorial functions and amplify the effect of case handling. On the basis of a comprehensive review of the compliance inspection report and case facts, the handling prosecutor put forward a proposed non-prosecution opinion. To ensure openness and impartiality, the procuratorial organ invited 5 personnel including members of the Chinese People's Political Consultative Conference (CPPCC), people's supervisors and members of the third-party mechanism management committee to form a hearing panel, and conducted a compliance acceptance hearing on the case. All hearing participants unanimously agreed with the opinion of the procuratorial organ. In October 2021, the People's Procuratorate of Yishui County, after comprehensive assessment of the case facts, enterprise compliance rectification, public hearing and other relevant circumstances, held that Company Y, Yao Mouming and other relevant personnel voluntarily surrendered, confessed their guilt and accepted punishment, with relatively minor subjective malignancy and a small number of collusive bidding acts. In addition, they effectively carried out enterprise compliance rectification after the case occurred, established and improved relevant systems and mechanisms to plug management loopholes, operated in compliance with laws and regulations and continuously generated profits and taxes, with relatively minor social harmfulness. Accordingly, the procuratorate made a discretionary non-prosecution decision on Company Y, Yao Mouming and other relevant personnel in accordance with the law. In the meantime, in response to the problems discovered during case handling, the People's Procuratorate of Yishui County suggested that the competent administrative departments handle the qualification lending acts of Company Y and other companies in accordance with the law; it issued procuratorial proposals to the three departments of finance, education and market regulation on improving bidding and tendering management and plugging institutional loopholes, suggesting that systems and provisions including bribery crime record inquiry and inquiry on illegal and irregular acts in government procurement activities be further strictly implemented, and the administration of bidding agencies be strengthened.

Local market regulation and other relevant authorities have actively adopted procuratorial suggestions to launch special rectification in the field of tendering and bidding. They have carried out a full inspection of more than 60 tendering and bidding projects launched since 2021, identified 21 problems including lax pre-tender review and non-standard management of tendering agencies, and implemented item-by-item rectification targeting these problems. Special training sessions have been held for industry management personnel and staff of tendering agencies. The pre-tender commitment system for bidders and the mandatory inquiry system for illegal and irregular acts have been established and improved. Dynamic tracking is conducted for all winning bid projects awarded since the launch of the special rectification. Channels for reporting illegal acts have been unblocked, punishment intensity has been increased, and administrative supervision has been strengthened, which has effectively curbed the occurrence of illegal acts such as collusive bidding and bid rigging.

Rectification Effect

1. Proactively explore the implementation of "unannounced supervision" over third-party organizations. In this case, to ensure that the development of enterprise compliance and the supervision work of third-party organizations are carried out in a law-based, standardized and orderly manner, the Third-Party Mechanism Management Committee formed a roving inspection team, explored and established the "unannounced supervision" mechanism, and conducted unannounced on-site spot checks and follow-up supervision on the performance of duties of third-party organizations and their members. In practice, the Third-Party Mechanism Management Committee may take the lead in forming roving inspection teams, inviting deputies to the People's Congress, members of the Chinese People's Political Consultative Conference (CPPCC), people's supervisors, retired judges, procurators, as well as experts and scholars in relevant fields including accounting, auditing, law and compliance to serve as members of the roving inspection teams to carry out roving inspections. The teams shall timely report the inspection results to the Third-Party Mechanism Management Committee and its joint meeting, and put forward opinions and suggestions for work improvement.

2. Strengthen coordination and cooperation to promote joint rectification of affiliated enterprises. This case explored the establishment of an inter-regional coordination mode for third-party supervision and assessment, to carry out compliance building for the enterprises involved in the case. Meanwhile, the competent administrative authorities strengthened supervision and guidance on the compliance rectification of affiliated enterprises. Under joint supervision, the enterprises involved in the case and their affiliated enterprises specially engaged legal counsel to carry out compliance building, and established relevant mechanisms including monthly compliance debriefing, compliance learning, employee management, financial management and whistleblowing system. During the rectification period, Company Y participated in the bidding for 6 projects, contracted projects worth more than RMB 20 million in accordance with laws and regulations, and steadily and continuously provided more than 200 jobs. Meanwhile, all functional departments implemented the principle of "whoever enforces the law shall popularize the law" in their respective management links, strengthened positive guidance and negative warning, so as to enable relevant practitioners in the field of bidding to correctly judge the nature of their acts, abide by rules and laws, and strengthen industry self-discipline.

3. Focus on industry governance to achieve the effect of "handling one case and delivering governance over a whole sector". In recent years, driven by economic interests, lawbreakers have wantonly engaged in collusive bidding and bid rigging in multiple sectors such as project construction and equipment procurement. These acts have not only seriously disrupted the market economic order and infringed upon the lawful rights and interests of other parties to bidding and tendering activities, but also brought hidden risks to project quality and safety management. All parties must attach great importance to this issue and adopt effective measures to address it. In this case, the procuratorial organs actively extended their case-handling functions, took proactive actions, focused on strengthening communication and cooperation with relevant competent administrative departments, and made good use of the combined measures of public hearings, procuratorial opinions and procuratorial suggestions, so as to promote the upgrading from case-specific compliance to industry-wide compliance, help foster a law-based atmosphere for compliance building in the bidding and tendering sector, and strive to realize the sound demonstration effect of "handling one case, supporting a group of enterprises, and standardizing an entire industry".

Source: Supreme People's Procuratorate, Chang'an Sword of the Central Political and Legal Affairs Commission