- The corporate compliance non-prosecution, established under the promotion of China’s Supreme People's Procuratorate (SPP) in 2020, has gradually been recognized by the judiciary and legal practitioners.
- In June 2021, the SPP, other regulators and chambers of commerce jointly released the Guiding Opinions on Establishing a Third-Party Supervision and Evaluation Mechanism for the Compliance of Corporates Involved in Cases (for Trial Implementation), introducing a third-party supervision and evaluation mechanism.
- The third-party supervision and assessment organisation is an interim working group appointed by the third-party supervision and assessment mechanism management committee to inspect and accept the rectification of the enterprise involved in a particular case.
Restorative justice for corporations in China mainly refers to corporate compliance non-prosecution.
- China’s Deferred Prosecution: A Closer Look at Corporate Compliance Non-Prosecution
- The Age of CCO: China Establishing Chief Compliance Officer in State-owned Enterprises
This mechanism for corporate compliance non-prosecution, established under the promotion of China’s Supreme People's Procuratorate (“SPP”) in 2020, has gradually been recognized by the judiciary and legal practitioners.
I. General Framework
Chen Lei, an associate researcher at the Institute of Procuratorial Theory of the SPP, summarized the process how the mechanism was established and published his article, “Practice and Development of Corporate Compliance Reform” (涉案企业合规改革的实践与发展), in the journal, “People's Procuratorate” (人民检察) (No. 15, 2022).
In his view, the process of promoting corporate compliance non-prosecution by the SPP can be divided into three phases.
1. The first batch of pilot programs
In March 2020, the SPP launched the first batch of pilot programs for corporate compliance non-prosecution in six pilot procuratorates, including People's Procuratorates in Pudong New District, and Jinshan District of Shanghai Municipality, Zhangjiagang of Jiangsu Province, Tancheng of Shandong Province, and Nanshan District and Baoan District of Shenzhen Municipality.
The SPP required that these pilot procuratorates, when handling cases that did not require arrest or prosecution in accordance with the law, could order the enterprises involved to make a compliance commitment and take relevant rectification measures. The six procuratorates would explore and formulate detailed rules and procedures at their own discretion and the SPP would learn from their experience to develop a better mechanism.
In this regard, the SPP established a working group on the research and guidance on corporate compliance issues in November 2020, to take the lead in advancing the theoretical research and practical guidance on corporate compliance issues.
2. The second batch of pilot programs
In April 2021, the SPP launched the pilot program for corporate compliance non-prosecution and issued the “Work Plan on Launching the Pilot Program for Corporate Compliance Reform” (关于开展企业合规改革试点工作方案). The SPP expanded its second batch of pilot programs into 61 municipal-level procuratorates and 38 grassroots-level procuratorates.
Procuratorates in China are divided into four levels from the top to local, namely, the SPP, provincial procuratorates, municipal procuratorates, and grassroots procuratorates.
For the second batch of pilot programs, in June 2021, the SPP, other regulators and chambers of commerce jointly released the “Guiding Opinions on Establishing a Third-Party Supervision and Evaluation Mechanism for the Compliance of Corporates Involved in Cases (for Trial Implementation)” (the “Guiding Opinions”, 关于建立涉案企业合规第三方监督评估机制的指导意见(试行)).
Pursuant to the Guiding Opinions, the management committee of the third-party supervision and evaluation mechanism will select and appoint third-party supervision and evaluation organizations (the “Third Party Organization"), and the Third Party Organization will investigate, evaluate, supervise and inspect the compliance commitments of the enterprises involved in the cases, and the investigation results shall serve as an important reference for the procuratorates to handle cases according to law.
3. Full implementation
In April 2022, the SPP comprehensively summarized the experience and practice of the pilot programs of corporate compliance reform in the previous two batches, and fully implemented the policy of corporate compliance non-prosecution among procuratorates all over the country.
In this regard, the SPP has worked with other government authorities and organizations to release the “Measures on Development, Assessment and Review of the Compliance of Corporates Involved in Cases (for Trial Implementation)” (涉案企业合规建设、评估和审查办法(试行)).
II. Procedures for compliance non-prosecution
Once an enterprise is involved in a criminal case, it may apply to the procuratorate to initiate the process of compliance non-prosecution, or the Procuratorate may decide to initiate the process at its own discretion.
If a company applies for compliance non-prosecution, the procuratorate will conduct an investigation, so as to determine whether the company meets the conditions for rectification. Such investigation may be conducted by the procuratorate itself, or it may have the local third-party supervision and assessment mechanism management committee appoint lawyers to conduct due diligence on the enterprise involved in the case.
If the procuratorate decides at its own discretion to initiate the procedure, a letter of intent for compliance rectification needs to be granted to the company.
2.Enterprises make compliance commitments and issue compliance plans
If a company wants to make compliance rectification, it needs to issue an undertaking for compliance rectification, to the procuratorate. The company is then required to submit a compliance rectification plan to the procuratorate detailing the proposed rectification measures.
3. The third-party supervision and assessment mechanism management committee selects the Third Party Organization for the case
Corporate compliance rectification involves many specialized areas, so procuratorates often do not have sufficient professional competency to assess the status of corporate rectification. Therefore, procuratorates have established such third-party supervision and assessment mechanism management committee, together with other regulatory authorities, industry associations, chambers of commerce, and legal and financial professionals, for the purpose of regulatory cooperation.
The Third Party Organization for supervisory and assessment is an interim working group appointed by the third-party supervision and assessment mechanism management committee to inspect and accept the rectification of the company involved in a particular case.
The Third Party Organization has the following powers:
(1) to review the feasibility, effectiveness and comprehensiveness of the compliance rectification plan proposed by the company, and to make suggestions for amendments and improvements;
(2) to determine the time limit for rectification pursuant to the specific circumstances of the case and the time limit committed by the enterprise to perform; and
(3) to review the status of the enterprise's rectification.
4. Hearing and acceptance
At the end of the rectification, the company can apply to the procuratorate for a hearing to determine whether the rectification of the enterprise is eligible for acceptance.
If the enterprise rectification is accepted, the procuratorate will issue a prosecutorial opinion on the leniency of the administrative penalties imposed on the enterprise.
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Contributors: Guodong Du 杜国栋