Corporate Compliance Series | Corporate Compliance from a Lawyer's Perspective
In particular, the ZTE incident has become a landmark event promoting the strengthening of compliance development of Chinese enterprises, promoting domestic enterprises to enter a new stage of strengthening compliance operation and management.
The 19th National Congress of the Communist Party of China (CPC) has identified comprehensive rule of law as the basic strategy for upholding and developing socialism with Chinese characteristics in the new era, and explicitly requires enterprises to strengthen compliance management and establish a compliance system. The foundation of Chinese enterprises' overseas operations is domestic, and the requirement for compliance in their overseas operations must be accompanied by the requirement for compliance in their domestic operations. The central government's requirements for the compliance of enterprises' overseas operations will inevitably translate into requirements for comprehensive compliance of enterprises' operations, including domestic enterprises.
1、 Development history of enterprise compliance system construction
(1) Global:
In line with the new trend of strengthening global compliance management, in the past decade, international organizations have actively guided and strengthened regulatory efforts with governments, jointly promoting the development of strengthening compliance management for global enterprises. In response to the requirements of international organizations and governments to strengthen corporate compliance, global enterprises have strengthened compliance management, which has become a new trend in the development of global enterprises.
(2) The development of China's compliance system construction mainly includes the following four stages of development:
Stage 1: Compliance system of foreign-related enterprises in the early stage of reform and opening up
With the deepening of China's reform and opening up, many multinational enterprises have settled in China, and their branches established in China have brought the compliance system into China.
With the increasing number of Chinese enterprises going global, and many enterprises starting to list in Hong Kong, the United States, Singapore, and other places, they are also establishing their own compliance systems in accordance with foreign laws and regulations.
Phase 2: The earliest step is to establish a compliance system within the financial and insurance industry
1. In 2006, the CBRC issued the "Guidelines for Compliance Risk Management of Commercial Banks" to promote the establishment of a compliance management system in the financial sector;
2. In 2007, the CIRC issued the "Guidelines for the Compliance Management of Insurance Companies" (repealed by the "Measures for the Compliance Management of Insurance Companies" in December 2016).
Stage 3: A comprehensive compliance management system is taking shape
1. In April 2016, the SASAC issued the "Notice on Conducting Compliance Management System Construction Pilot Work in Some Central Enterprises", which launched compliance pilot work in five central enterprises, including PetroChina, China Mobile, and China Railway. The curtain of compliance system construction has been officially opened in state-owned enterprises;
2. In April 2017, the China Securities Regulatory Commission issued the "Measures for the Compliance Management of Securities Companies and Securities Investment Fund Companies" to introduce a mandatory compliance system to securities companies in the form of administrative regulations.
4. In December 2017, the GB/T 35770-2017/ISO 19600:2014 Guidelines for Compliance Management Systems, developed under the leadership of the China Institute of Standardization, was officially approved and released by the General Administration of Quality Supervision, Inspection and Quarantine and the National Standardization Administration, and was implemented on August 1, 2018.
Stage 4: Domestic enterprises strengthen compliance management and enter a new stage
1. In May 2018, the China Council for the Promotion of International Trade initiated the establishment of the National Enterprise Compliance Committee.
2. In November 2018, the State-owned Assets Supervision and Administration Commission of the State Council issued the "Guidelines for the Compliance Management of Central Enterprises (for Trial Implementation)", which also enforces the construction of a compliance system through administrative orders.
3. In December 2018, the National Development and Reform Commission, together with six departments, issued the "Guidelines for the Compliance Management of Enterprises' Overseas Operations", setting standards for the compliance management issues of Chinese enterprises' overseas operations.
4. In March 2020, the Supreme People's Procuratorate launched the pilot work of compliance reform for enterprises involved in the case.
5. In June 2021, the Supreme People's Procuratorate, the Ministry of Justice, the Ministry of Finance, the Ministry of Ecological and Environmental Protection, the State Administration of Taxation, the State Administration of Market Supervision, and other ministries and commissions jointly issued the Guiding Opinions on Establishing a Third Party Supervision and Evaluation Mechanism for the Compliance of Enterprises Involved in Cases (for Trial Implementation).
6. In December 2021, the General Office of the Ministry of Justice issued the "Notice on Strengthening the Participation of Corporate Lawyers in Enterprise Compliance Management", which proposed: "Focus on key and difficult points, and promote the full participation of corporate lawyers in enterprise compliance management.".
To sum up, both the external international environment and relevant domestic policy documents in the context of globalization have put forward higher requirements for the compliance management of domestic enterprises.
2、 The Value of Enterprise Compliance Management
(1) The Safety Value of Enterprise Compliance - Compliance Non Prosecution System
Since March 2020, the Supreme Court of Inspection has conducted compliance non prosecution pilot work in Shanghai, Jiangsu, Shandong, Guangdong, and other places. In April 2021, the Supreme Inspection Commission issued the "Plan for Conducting the Pilot Work of Enterprise Compliance Reform", Programme provisions "When handling criminal cases involving enterprises, the inspection authorities should, in accordance with the law, make a decision not to approve arrest, not to prosecute, or propose a lenient punishment system based on pleading guilty. At the same time, in view of the specific crimes suspected by the enterprise, in combination with the actual situation of handling the case, urge the enterprise involved to make compliance commitments and actively rectify and implement them, promote the compliance and law-abiding operation of the enterprise, reduce and prevent enterprise crimes, and achieve the political, legal, and social effects of judicial handling of cases." "The organic unity of fruit.".
The "compliance non prosecution system" includes: compliance non arrest, compliance non prosecution, compliance lenient punishment (administrative punishment), etc.
The basic idea of this system is to require enterprises to establish effective compliance plans. When an enterprise is suspected of committing a crime, the compliance plan is used as a basis for seeking non prosecution, making a plea of innocence, obtaining a reduced penalty, and even signing a suspension or non prosecution agreement with the regulatory authority. This allows enterprises to minimize losses.
(2) The Business Value of Enterprise Compliance - Compliance Brings More Business and Business Opportunities to Enterprises
Compliance management helps enterprises establish a reputation for integrity and compliance, enhances business partners' awareness, sense of security, and sense of identification with their honest operations, which is bound to bring more business and business opportunities to enterprises, and maintains the stability and continuity of cooperation and transactions between enterprises and business partners. Currently, many large central enterprises are strengthening the compliance management of suppliers. Taking PetroChina as an example, PetroChina's compliance management culture is very advanced and complete, and PetroChina also puts forward clear compliance requirements for suppliers. "Compliance" serves not only as an admission condition for the preparatory cooperative suppliers of these large central enterprises, but also as an assessment requirement for suppliers by large central enterprises. If an enterprise maintains compliance operations for a long time, it will undoubtedly gain an advantage in competing with its peers in the business of central enterprises.
(3) Incentive value of corporate compliance - compliant enterprises can enjoy "credit dividends"
In March 2021, Bao'an District of Shenzhen established the first district-level enterprise compliance construction committee in China, proposing "credit compliance". In the work of credit compliance, Bao'an District took the lead in promoting the construction of credit standardization nationwide, establishing enterprise credit files in key areas, and promoting hierarchical and classified supervision of enterprise credit; Encourage enterprises to establish a compliance system and include compliant enterprises in the "3A Credit Enterprise List" after passing relevant evaluation procedures. Enterprises on this list can use the "Xinyi Loan" service and the "Xinyi Rent" service.
In the near future, an enterprise with a corporate compliance system will enjoy many incentives brought about by "credit dividends" after being recognized as having excellent credit and included in the "management white list". This measure may have a more far-reaching impact on small and medium-sized enterprises, as under this system, small and medium-sized enterprises can enhance their own credit and enhance their credibility in financial institutions by building a compliance system, thereby addressing the "financing difficulties" of small and medium-sized enterprises to a certain extent.
After establishing their own compliance system, enterprises can enjoy a "credit bonus" and obtain a "pass" in the commercial community. The perfection of the enterprise's compliance system will become an important reference and guide for consumers to choose enterprises and counterparties to choose partners.
(4) Enterprise compliance creates management value - compliance management helps prevent and control risks, reducing the cost of risk disposal for enterprises
Establish a complete compliance system. In the event of non-compliance, on the one hand, enterprises and their managers can defend themselves with effective compliance management systems that have been established and implemented by the enterprise, thereby helping to reduce the likelihood that the enterprise will be subject to legal sanctions or regulatory penalties due to violations of laws and regulations, and correspondingly avoiding or controlling the adverse consequences of damage to the enterprise's property or reputation. On the other hand, if employee violations occur, the corporate compliance management system can help identify whether employee violations are corporate or personal, thereby reducing the risk of corporate violations.
3、 The Value Embodiment of Lawyers in Enterprise Compliance Management
In December 2021, the General Office of the Ministry of Justice issued the "Notice on Strengthening the Participation of Corporate Lawyers in Enterprise Compliance Management", which proposed: "Focus on key and difficult points, and promote the full participation of corporate lawyers in enterprise compliance management.". The Notice proposes that corporate lawyers should focus on corporate governance, criminal compliance, administrative compliance, overseas compliance, antitrust compliance, intellectual property compliance, and other corporate compliance management work. The Notice also clearly states that lawyers are an important group and main force involved in corporate compliance management in the future.
Based on the current situation, the compliance construction of enterprises should start with the corporate culture and system, and strengthen the compliance construction of enterprises, so as to prevent the risks of the business process and relevant personnel of the enterprise from the source. Lawyers can play a significant role in this process. The details are as follows:
(1) Help enterprises carry out compliance "physical examination" and identify compliance issues
Lawyers must provide targeted legal services for corporate compliance construction. The nature, scale, and industry of an enterprise are different, resulting in different problems and legal risks. Before providing compliance construction services to an enterprise, lawyers should conduct a comprehensive "physical examination" of the enterprise, thoroughly understand all aspects of the enterprise's production and operation, and various existing rules and regulations. If any loopholes or problems are found, they should sort out and classify them one by one.
On this basis, a risk assessment is conducted to assess the criminal risk points that may occur in the production and operation of the enterprise, the likelihood of commercial risks occurring, and the magnitude of losses incurred once risks occur.
(2) Help enterprises improve their compliance management system
To ensure the orderly implementation of enterprise compliance management, it is necessary to institutionalize and standardize compliance management. Lawyers assist enterprises in establishing compliance management systems for issues and loopholes found in compliance "physical examinations", including personnel management systems, seal management systems, procurement systems, warehousing systems, production systems, safety systems, quality systems, financial systems, sales systems, and other systems in the entire process and field during production and operation.
In addition, it is necessary to help enterprises establish a standardized and effective compliance system for preventing, monitoring, and responding to risks in terms of organizational structure, staffing, operating systems, operating processes, fault punishment, and system improvement. Compliance management plans and specific plans should be regularly formulated and implemented to ensure that all work related to enterprise compliance management has a system and rules to follow.
(3) Help enterprises strengthen compliance training and strengthen the construction of compliance culture
Lawyers should carry out compliance training based on the economic nature, industry characteristics, and scale of the service enterprise, in response to the problems found in the "physical examination", in combination with specific cases, legal provisions, crime composition, and punishment results, to improve the risk awareness of entrepreneurs and employees, cultivate the company's compliance culture and concept, and conceptually guide entrepreneurs and employees to comply with the compliance system. Create a compliance culture atmosphere, enable all employees to continuously enhance their compliance awareness, and enhance their awareness and initiative to participate in and support compliance management work.
(4) Help enterprises carry out compliance supervision and implement compliance construction
The implementation of compliance construction by enterprises may increase many costs in the early stage, but also bring many constraints to entrepreneurs and their employees. The profit-seeking nature of enterprises encourages entrepreneurs and their employees to naturally resent and oppose the implementation of compliance systems at the initial stage. As a lawyer, we should overcome difficulties and obstacles, actively supervise and promote the implementation of the compliance system.
epilogue
The construction of corporate compliance in China is still at an early stage of development, and many corporate leaders have not yet realized the importance of compliance. They need to help entrepreneurs establish a "compliance" awareness in order to achieve stability and prosperity in future business activities.
In short, comprehensive corporate compliance management is a long-term issue, and corporate compliance management requires the joint participation of all professional groups, including but not limited to lawyers. Under the new situation, lawyers should be based on the overall situation of the Party and state work, actively participate in enterprise compliance management, strengthen the legal service guarantee function, promote the improvement of enterprise compliance management system, prevent and resolve enterprise operational risks, and promote high-quality development of China's economy.
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