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In brief

Effective from 1 January 2021, the Shanghai Anti-Unfair Competition Regulations (“Regulations“) require all business operators in Shanghai to strengthen their internal controls and compliance management.

Our alert discusses the implications of this significant development, which is the first time that the concept of a compliance program has been introduced into Chinese laws and regulations.

Key takeaways

The Regulations constitute the first set of amended local rules since the national Anti-Unfair Competition Law was revised in 2018. These developments have a significant impact on the prevention and enforcement of commercial bribery, and the management of compliance risks. Key points include:

  • the introduction of the concept of “compliance management” into legislation that requires business operators to establish and improve their compliance programs — preventing commercial bribery is an explicit requirement of such compliance management
  • the granting of power to authorities for an inspection of an organization’s implementation of their compliance program in preventing commercial bribery
  • the attachment of great importance to guidance from industry bodies and authorities on the establishment and improvement of compliance programs

Implications for doing business in China

Article 24 of the Regulations specifically provides that business operators shall “strengthen the internal control and compliance management, and consciously resist unfair competition acts.”

This development is the first time the requirement of a compliance program has been introduced into Chinese laws and regulations and it is in line with similar requirements of the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act (UKBA). However, unlike the FCPA and the UKBA, it is not clear whether an effective compliance program will mitigate or eliminate liability under the Regulations. There is also no indication as to whether the lack of an effective compliance program would be a ground for liability or penalty.

Despite this lack of clarity, the key message from the Regulations is that business operators in China urgently need to prioritize the implementation of an effective compliance program. As a further incentive, the Regulations specifically empower authorities to inspect the implementation of an organization’s compliance program when conducting investigations on commercial bribery.

We have assisted many companies in handling investigations or inspections by local authorities. In our experience, it is always helpful for a company to demonstrate to the enforcement authority that it has implemented an effective compliance program. This factor has been helpful to reduce corporate liability even when employees have been found to have acted in breach of the company’s program.

Actions to consider

We have previously issued alerts providing practical tips and recommendations on compliance risks in the current climate and how to manage these risks — see here and here. In addition to compliance policies dealing with procurement, reporting lines and interaction with government officials, we recommend the following:

  • Review of processes under the Chinese Labor Contract Law: Multinational companies seeking to apply global compliance programs or policies in their local Chinese subsidiaries should review their policies to check if they have adopted the mandatory democracy consultation process required under the Chinese Labor Contract Law. The process requires a company to consult with the labor union or employee representatives before taking steps to formulate, amend or determine rules that have a direct impact on employees’ immediate rights and interests. Given that compliance programs or policies usually include disciplinary measures for violations, a company needs to go through such a consultation process and ensure that the process is properly documented for such disciplinary measures to be enforceable.
  • Enhanced and customized compliance training: Companies should customize their training with case studies that originate from their employees’ daily work and practice. The training event should be an opportunity to detect and discuss any challenges and concerns that the employees have encountered and to formulate practical steps to ameliorate such issues. All training should be well recorded by keeping all training materials and attendance records.
  • Establish and ensure efficient accounting controls: Where rebates or other incentive arrangements are offered to transaction counterparties, companies are required to truthfully and accurately record the arrangements in their books. Cash payments should be avoided and underlying contracts of all transactions should be properly preserved.
  • Implement third-party management: Close attention must be given to the qualifications and associations of third-party partners, especially agents, consultants and distributors as third parties are commonly used to conceal misconduct. They should also carefully conduct due diligence on the business model and background checks of third-party partners, and require partners to sign compliance commitment and incorporate compliance terms into contracts.

Finally, the Regulations attach great importance to guidance from industry bodies and authorities to help companies in establishing and improving compliance programs. We will be closely monitoring announcements of any industry or government guidance and we will provide our update in due course.



Simon Hui is a partner and leads Baker McKenzie’s Dispute Resolution Group in Shanghai. Mr. Hui is ranked among the leading lawyers for dispute resolution/regulatory and compliance in China by Chambers Asia Pacific, Chambers Global and Legal 500 Asia Pacific. He has conducted complex internal investigations for a large number of multinational companies across a range of industries. He is also a skilled investigator and has experience in dealing with PRC government authorities and regulators such as PSB, SAMR, NSB and SPP. He has been interviewed by leading business media, such as the Financial Times, for his work on assisting the SOE in the establishment of compliance system as the country pushes for its SOEs to participate in the Belt & Road Initiatives.