While the People's Republic of China (PRC) has long banned the making of bribes to PRC officials, legislation has now been passed which will legally prohibit the payment of bribes to non-PRC public officials. On February 25, 2011, the PRC legislature passed 49 amendments to the PRC Criminal Law. One of these amendments – Amendment No. 8 of the PRC Criminal Law – criminalizes the payment of bribes to non-PRC government officials and to international public organizations. While the Amendment is brand new and no interpretive guidance has been issued, it appears to be the PRC's analogue to the United States Foreign Corrupt Practices Act ("FCPA"). This amendment became effective on May 1, 2011 with an unofficial English translation as follows: "Whoever, for the purpose of seeking illegitimate commercial benefit, gives property to any foreign public official or official of an international public organization, shall be punished in accordance with the provisions of the preceding paragraph (1)…""
Who Does Amendment No. 8 Apply To?
Amendment No. 8, as part of the PRC Criminal Law, applies to all PRC citizens (wherever located); all natural persons in the PRC regardless of nationality; and all companies, enterprises, and institutions organized under PRC law. Therefore, in addition to PRC domestic companies, the PRC Criminal Law applies to all business entities organized under PRC law, including joint ventures, wholly foreign-owned enterprises and representative offices. Both PRC companies and non-PRC companies alike must, therefore, be compliant with the Amendment. Any businesses formed under PRC law may be criminally liable under the Amendment.
What Property is Considered a "Bribe"?
The law refers to bribes paid to public officials for the purpose of "seeking illegitimate commercial benefit" (a phrase yet to be interpreted). Depending on the final interpretation of this definition, the PRC may, as we have seen in other similar laws, interpret this to mean in violation of laws, regulations, rules or policies, or requiring the other party to provide assistance or facilitation in violation of laws, regulations, rules, policies or industry codes of practice. If such a broad definition is applied, the Amendment will criminalize the making of bribes to foreign officials in exchange for any commercial advantage. This would almost certainly include the securing of new contracts/renewal of existing ones, and would likely include other benefits such as procurement of favorable contract terms in otherwise lawful contracts.
Who is a "Foreign Public Official"?
If the PRC adopts a broad definition of "foreign public official," (to include members of the United Nations, for example), companies will need to be careful when dealing with any persons who have any connection to the public functions of a foreign country or state-owned businesses.
Global companies entering into joint ventures or other business collaborations organized under PRC law, or with a representative office in the PRC, must take steps to ensure that neither they nor their business partners offer bribes to non-PRC public officials for the purpose of obtaining an unfair business advantage. Penalties for violating this Amendment can include up to 10 years in prison and a fine.
As individuals, entities or any party that initiates the alleged bribe can be found liable, this raises the issue of insurance coverage for defense costs and/or payment of fines. At this time, local Directors and Officers liability (D&O) policies in China do not provide coverage for such defense costs or fines. There may be some "Difference in Conditions" coverage provided under global master programs issued to a corporate parent of a Chinese subsidiary, which would potentially allow the parent to centrally recoup some of these local costs. Due to non-admitted regulations in China, however, local claims cannot be paid directly to a Chinese subsidiary.
From a risk management perspective, therefore, it will be extremely important for global companies to conduct thorough due diligence on any company with which they seek to form a joint venture or other similar business entity. Before teaming up with another company in the PRC, companies should carefully vet the potential partner and identify any red flags suggesting that the partner may engage in corrupt business practices. In conducting this due diligence, companies should identify and assess any relationships that the potential business partner has with non-PRC public officials themselves, as well as any state-owned business from outside the PRC.
In 2010 we issued publications (see attached) outlining regulations that now apply to companies conducting clinical trials in Russia and their legal obligation for providing life insurance to patients participating in local clinical trials.
On June 2, 2011, the Russian Ministry of Health ("MOH") approved updates to these life insurance coverage specifications, with immediate effect. The following are highlights of the regulation amendments that affect insurance coverage to be provided and policies to be issued.
Regulations Prior to Amendment
Original regulations stated that a preliminary insurance contract must be issued before permission would be granted by MOH for a trial. Once permission for the trial is granted, the final insurance contracts are issued along with an invoice.
Coverage Provided for Patients
Prior to the recent amendments, only bodily injury to patients as a result of taking the drug was covered in the policy. This left gaps in coverage for other causes of injury, including significant causes such as medical malpractice and medical procedures and omissions. In addition, randomized patients were covered, but patients during "screening" were not.
June 2, 2011 Amendments
The June 2, 2011 amendments eliminate the need for preliminary insurance contracts. Permission to conduct a trial may now be obtained without a preliminary policy, with the main insurance policy then issued upon receipt of permission.
Compulsory life and health coverage for new patients joining a trial will be included in the main policy, with subsequent individual policies providing evidence of insurance for new patients issued as attachments to the main policy. Copies of individual policies do not need to be maintained at the site or sent to insurers, but a log register of patient ID codes must be sent to insurers.
Coverage Provided for Patients
The definition of bodily injury as a result of participation in the clinical trial has been expanded and now also includes the following risks:
- Taking a drug in accordance with the trial (previously included)
- Medical malpractice
- Medical procedures and omissions
- Both screening and randomized patients are now protected by insurance.
- Each patient will now receive an individual, anonymous patient ID code to protect their anonymity. Insurers will provide clinical research organizations ("CROs") with certificates containing patient ID numbers to be sent to the trial site and to the patients via investigators. ID codes may be provided to insurers either by investigators or CROs for entering into blank policies.
- A contract of compulsory insurance must contain a maximum number of insured patients.
- Fixed premium rates per patient, and the factors decreasing these rates remain unchanged from our previous Alert. However, please bear in mind that premiums are fixed in RUB, so rates of exchange may vary.