Giving Gifts In China: Giver Beware.

China business culture

The China Law Insight blog wrote a few months back on the legal perils of gift giving in China. The post is entitled, Offering Gifts of Travel and Entertainment in China – What if the Recipient is a State Functionary, and it nicely sets out the risks of giving business gifts.

The post starts out by noting how in the last decade, almost two thirds of the corruption cases that have resulted in penalties investigated by Chinese authorities have arisen from international trade or involved foreign business entities. Since I do not for a minute believe foreign entities engage in these sorts of illegal activities any more than Chinese entities and since the number of Chinese entities dwarfs the number of foreign entities, I view this as just another example of how foreign companies in China have to toe the legal line more closely than their Chinese counterparts.

It is illegal in China to give “money or property” to a state functionary to obtain an “undue advantage.” In large part, the risk stems from China’s defining state functionaries to far more broadly than we typically think of that term in an everyday context in the West. State functionaries “includes persons who hold office in state organs, employees of state-owned companies and others who perform official duties according to the law. Foreign companies supplying infrastructure, teaching materials and hospital equipment in the Chinese market are examples of,those which deal with state functionaries on a regular basis.

Note however, that China’s definition of a State functionary for corruption purposes may not be all that different from the definition used by the United States government for Foreign Corrupt Practices Act (FCPA) purposes.

China’s courts define property as anything “that can be quantified with a monetary value.”  This definition includes reimbursement of travel expenses and meals, so long as the provider had the requisite intent to obtain an undue advantage. Though the China Insight post did not mention this, the definition of property no doubt also includes paying for a government official’s son or daughter to attend college in the United States or England, as is so often done.

Though there is a minimum threshold amount for criminal prosecution, going under this amount does not guarantee you will not face a Chinese judge:

In reality, there is a monetary threshold for criminal prosecution. According to the Threshold for Criminal Prosecution in Bribery Cases issued by the Supreme People’s Procuratorate, the “property” offered as a bribe must be at least RMB10,000 for an individual or RMB200,000 for a unit, to justify criminal prosecution. However, these amounts may be taken cumulatively so that if meals or entertainment of a low value are provided on a regular basis (and for the purpose of obtaining an undue advantage), it will progressively attract criminal liability to the provider and eventually justify criminal prosecution.

However, according to Article 10 of the 2008 Opinion, prosecutors and judges must comprehensively analyze relevant information in addition to the value and purpose of giving a “property interest”. The factors which they must consider include the past contacts between the provider and the recipient, whether provider and recipient are relatives or friends, the reason for and the occasion on which the “property interest” was given, whether the provider made any request in connection with the recipient’s post, and whether the recipient actually rewarded the provider by using his or her post in a corrupt way. The purpose of this analysis is to differentiate, on the basis of the facts of the case, between legitimate gifts and bribes, both to state functionaries and otherwise.

There is an exception for small value gifts given as part of common commercial practices and “low-cost meal treats and related hospitality is unlikely to trigger an investigation … if it is part of normal commercial practice. However, the provision of conspicuous or unusually expensive entertainment, such as a golf trip or a sightseeing tour, might attract attention.”

Be careful out there.

9 responses to “Giving Gifts In China: Giver Beware.”

  1. Dan: The risk stems from China’s defining state functionaries far more broadly than we do in the West.
    I don’t think this is true at all.
    I can’t think of anyone that would be included in the Chinese definition of state functionary that would be excluded by the Foreign Corrupt Practices Act definition of “foreign official”. Looking at the anti-corruption rules it seems that the copied them pretty much verbatim from Western laws, particularly the FCPA.
    Now it is true that the FCPA definition of “foreign official” includes a lot of people that wouldn’t be considered “government officials” in common discourse, but the USDOJ has made it very clear (i.e. they’ve prosecuted people for this) that Chinese SOE managers are “foreign officials” for the purpose of FCPA and the courts have backed them up on this.

  2. Great post Dan. I’m curious as to whether or not membership in the CCP is, (or more importantly, in cases of business disputes, could be) interpreted as a meeting the threshold of “state functionary” ? The party IS the state, after all. I’m concerned about Party members who work in private enterprises, and the risk of foreign firms applying the wrong definitions.
    It would be nice to see how these Chinese rules compare with the equally-as-important Foreign Corrupt Practices Act, too. Lord knows we have plenty of of clueless people in the US who view any company who conducts business in China with suspicion.

  3. @TwoFish,
    I did not mean to compare how we think of functionaries under the FCPA and how the Chinese government thinks of functionaries under its corruption laws. What I was trying to convey was that in everyday life, most businesspeople do not think of a mid-level manager as being a government official. I am going to go back and clarify.

  4. @ Tim Martin,
    “providing paid hospitality or paying for the travel expenses of a person who is a party member or civil servant may be considered a type of “unfair competition activity” under the Central Leadership Group of the Anti-Commercial Bribery Administration’s Opinion on Accurately Mastering the Policy in dealing with Commercial Bribery on May 28,2007(“2007 Opinion”).”

  5. In practice you are unlikely to have any dealings with Chinese party officials that have no state title. Any significant party official is going to have some state title.
    Also FCPA *explicitly* includes party officials in its definition of foreign official.

  6. In the end, aren’t you just saying that we all must be incredibly careful in giving gifts because we really don’t know if the person to whom we are giving the gift is a government official or not and the rules on amounts are pretty unclear?

  7. The China Law Insight blog did an glorious post a couple of months behind upon a authorised perils of present giving in China . The post is entitled, “Offering Gifts of Travel as well as Entertainment in China – What if a Recipient is a State Functionary.
    It is illegal in China to give “money or property” to a state functionary to obtain an “undue advantage.” In large part, the risk stems from China’s defining state functionaries to far more broadly than we typically think of that term in an everyday context in the West. State functionaries “includes persons who hold office in state organs, employees of state-owned companies and others who perform official duties according to the law. Foreign companies supplying infrastructure, teaching materials and hospital equipment in the Chinese market are examples of,those which deal with state functionaries on a regular basis.
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  8. This sort of thing is ridiculously confusing, made more so by the fact that a company like mine has to deal with the laws of multiple countries (the UK, the US and China). We have instituted a no gift policy under any circumsantces. It makes it less “friendly” for us, but it is about the only safe clear way to proceed.

  9. This whole area is a minefield, what with the FCPA and the Chinese government using these sorts of things selectively. My position is to not give out anything. Safer that way.

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