The Compliance and Non-prosecution System has been on trial since March 2020 and is now being implemented nationwide. There is no formal legislation yet (other than a related Guidance on Establishing a Third-Party Supervision and Evaluation Mechanism for the Compliance of Enterprises Involved in Criminal Cases (for Trial Implementation)) but we foresee it is coming. In this update, we introduce the mechanism and give an overview ahead of the expected legislation.
The Compliance and Non-prosecution System, also known as Compliance of Companies Involved in Criminal Cases, is a legal mechanism in China that allows enterprises to avoid criminal charges after fulfilling certain requirements. Prosecutors will oversee the enterprises involved in criminal cases and meeting certain conditions (being “worth saving”) to establish and improve their compliance management, and after examination and assessment, they may decide not to prosecute such companies and terminate criminal proceedings.
The Compliance and Non-prosecution System mainly applies to cases involving economic crimes, custom duty-related crimes and other crimes committed in the course of corporate activities, covering both institutional crimes and individual crimes committed by controlling shareholders, management, key technical personnel, among others. during the course of performing their duties.
In the year of 2022, Chinese prosecutors handled 5,150 cases involving Compliance and Non-prosecution. Among these cases, charges for 1,498 enterprises and 3,051 individuals were dropped. These enterprises include Sino-foreign joint ventures, wholly foreign-owned enterprises.
Since the trial implementation of Compliance and Non-prosecution, we have participated in the formulation of several compliance standards promulgated by the Supreme People’s Procuratorate (i.e., the highest prosecuting body in the PRC), and acted as an independent supervisor or company’s compliance consultant in a number of influential cases. As more and more people call for the legislation on Compliance and Non-prosecution System, we recommend that companies proactively establish and improve their compliance management, so that in the unfortunate event that criminal charges are brought against them, they can prove that they are “worth saving” and convince prosecutors to adopt and initiate Compliance and Non-prosecution.
