2021.01.22 YIN, Xiao (Benjamin)、MA, Disheng、ZHOU, Yuexin
Approved by the State Council, the Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures (the “Counteracting Rules”) was issued by the PRC Ministry of Commerce on January 9, 2021. As an important part of the countermeasures against “long-arm jurisdiction” and the “extra-territorial application of foreign legislation”, the Counteracting Rules demonstrate China’s aim to protect the legal rights of its citizens, legal persons and other organizations. The implementation of the Counteracting Rules contribute not only to the maintenance of normal trading environment, but also to the safeguard of national sovereignty, security and interests.
We understand that while providing civil law and administrative law based countermeasures against the unjustified application of foreign legislation on international trading, the Counteracting Rules per se and the specific provisions and requirements under it also as a fact provide enterprises and companies with guidance on how to cope with foreign criminal proceedings, as well as some hints and references on the potential criminal risks while facing the relevant regulations. This article aims to discuss the Counteracting Rules from a criminal perspective and puts forward some new thoughts on future compliance operation for both Chinese and foreign companies. It also aims to promote further dialogue and a greater understanding of this complex topic.
I.The Origin of Counteracting Criminal Long-arm Jurisdiction
From 1987 to 2019, China signed and ratified treaties and agreements on mutual legal assistance in criminal matters with 57 other countries. China has always upheld the basic principles of international law and international relations, and actively promoted the development of judicial assistance in criminal matters in public international law based on the principle of safeguarding national sovereignty and protecting national security. The promulgation of the PRC International Judicial Assistance in Criminal Matters Law (hereinafter referred to as the "PRC Criminal Assistance Law") on October 26, 2018 further promoted the implementation of criminal judicial assistance at the domestic law level.
It is worth mentioning here that, despite its original intention to promote judicial assistance in criminal matters, the PRC Criminal Assistance Law also indicates China’s first attempts to counteract the unjustified application of foreign legislation and other measures in criminal matters. The PRC Criminal Assistance Law codifies the resistance to long-arm jurisdiction in the field of criminal law and confirms this idea under Article 4, paragraph 3, which stipulates that, without the consent of the competent PRC authority, foreign institutions, organizations and individuals may not conduct any criminal proceedings within the territory of the PRC, and any institutions, organizations and individuals within the territory of the PRC shall not provide evidence materials and assistance regulated under the PRC Criminal Assistance Law to foreign countries. (According to Article 2 of the PRC Criminal Assistance Law, such assistance is widely defined by referring to the mutual assistance provided in such activities as criminal inquiries, investigations, prosecutions and trials and executions, including the service of documents, investigation and evidence collection, the arrangement of witnesses to testify or assistance in investigations, seizing, detaining, or freezing any property involved, confiscating or returning illegal income and other property involved, transfer of the sentenced person, and other assistance).
Two years after the release of the PRC Criminal Assistance Law, the Personal Information Protection Law (Opinions-soliciting Draft) (the “Drafted Information Protection Law”) once again addressed these issues. Article 41, paragraph 1 of the Drafted Information Protection Law explicitly provided that an application shall be filed with the competent authority for approval in accordance with the law where it is necessary to provide personal information outside the territory of China due to international judicial or administrative enforcement assistance. Therefore, when the Drafted Information Protection Law comes into force in the future, it will further provide strong protection for Chinese citizens, legal persons and other organizations when facing criminal judicial proceedings conducted by foreign governments.
Even though the PRC Criminal Assistance Law and the Drafted Information Protection Law have successively provided certain legal basis for counteracting long-arm jurisdiction in criminal matters, they fail to detail the counteracting procedures, counteracting measures and their requirements, as well as the penalties on violations. The promulgation of the Counteracting Rules would be the first systematic legislation specifically aimed at counteracting foreign long-arm jurisdiction, and not only provide a clear working mechanism and applicable injunctions, but also specify the legal liabilities of citizens, legal persons and other organizations that fail to fulfill their obligations. Thus, the Counteracting Rules has now become an important part of China’s countermeasures against long-arm jurisdiction.
II.The Potential Criminal Legal Issues under the Counteracting Rules
The Counteracting Rules only stipulates respectively in Articles 9 and 13 the civil and administrative liability for Chinese citizens and legal persons in the event of a failure to truthfully fulfill their reporting obligations or comply with an injunction. The subject of potential criminal liability seems to be limited to officials of the competent commercial departments under Article 14. However, it is worth noting that Article 1 of the Counteracting Rules clearly states that the Counteracting Rules is formulated in accordance with the PRC National Security Law (as the "PRC State Security Law") and other relevant legislations. Such emphasis on the PRC National Security Law indicates that legislators’ value orientation behind the Counteracting Rules is largely based on the considerations of national security and other related issues. Therefore, even though the Counteracting Rules do not clarify the criminal liability of the parties involved (namely, parties other than the officials of the commercial departments), considering the legislative intent, it could not exclude that the violation of these parties’ obligations under the Counteracting Rules would incur the regulation by the PRC State Security Law and other related criminal laws.
In addition, Article 2 of the Counteracting Rules elaborates on the conditions of application in the same way as Article 4 of the PRC Criminal Assistance Law. Namely, the main purpose of the Countering Rules is to protect Chinese citizens, legal persons or other organizations from unjustified prohibitions and restrictions imposed by foreign legislation and other measures when conducting normal economic, trading and other related activities, thus, private judicial assistance in criminal matters (e.g., the enforcement of foreign criminal judgments and rulings) without the permission of the competent authorities may also be included in the scope of such prohibitions and restrictions. Therefore, parties who violate the Counteracting Rules, under certain specific circumstances, may also violate the PRC Criminal Assistance Law, or even the PRC Criminal Law and other relevant laws, and may face the risk of criminal liability, especially when sensitive issues such as national security, state secrets, intelligence, personal information, and cross-border data transfer are involved.
III.Discussion of the Impact of the Counteracting Rules on Enterprises
The starting point and principal intent of issuing the Counteracting Rules is to safeguard national sovereignty and security, as well as to protect the legitimate interests of Chinese citizens, legal persons, and other organizations in international trade. From now on, Chinese citizens, legal persons and other organizations that have been unjustifiably prohibited or restricted by foreign sanctions may obtain injunctions based on the corresponding measures under the Counteracting Rules, enabling them to limit the detriment of their own interests from other parties due to compliance with foreign legislation and other measures. Furthermore, they would also be entitled to file civil litigation or take other legal measures to safeguard their legitimate rights and interests in addition to the administrative procedures.
However, for many enterprises, especially those involved in foreign trade or cross-border services, the promulgation of the Counteracting Rules would put them in the middle of multi-national legal regulation. The dilemma of whether to fully comply with one country's regulations or to seek exemption from such regulations to achieve balance of their business operations would bring about risks and challenges, which would have to be faced and addressed in the future by these enterprises. Currently, some international enterprises are considering splitting up companies to alleviate the difficulties of being regulated under laws of multiple jurisdictions due to their original large group structures. However, our past experience in similar cases shows that such solutions cannot avoid some pitfalls and may be only an intermediate alternative rather than a permanent solution. For example, problems like how to deal with past contracts, how to achieve a complete severance of an affiliation, and how to avoid liability under the substantive standard of review under the PRC Criminal Law could be incurred. Thus, a change in form only to seek judicial immunity may not be beneficial to all enterprises, and further consideration of preferential countermeasures would still be needed.
In terms of the Counteracting Rules itself, Article 8 provides a possible way out for companies facing the dilemma, i.e. applying for exemption from injunctions, which is one of the ways that companies would certainly consider in order to find solutions under cross-regulation by multiple jurisdictions. However, as mentioned above, the Counteracting Rules, both in terms of stipulation and implementation, are inseparable from the considerations of national sovereignty and security. The exemption from injunctions under the Counteracting Rules would thus become a remedy for certain enterprises within reasonable applicable scope and with justifiable reasons. However, as far as matters regarding national security are concerned, especially those that may fall within criminal fields, this measure may not effectively enable companies to fully protect themselves against all legal risks. The investigation and regulation that enterprises may face cannot be fully covered by the civil and administrative procedures in the Counteracting Rules either. No matter whether involved in assistance with foreign criminal laws or measures, or dealing with criminal issues in compliance with foreign sanctions, enterprises may face potential and extended criminal liability under the Counteracting Rules in the Chinese legal system to counteract the unjustified extra-territorial application of foreign legislation and other measures, and therefore, enterprises need to be extremely cautious while making decisions on the countermeasures to avoid unnecessary legal risks.
The promulgation of the Counteracting Rules provides Chinese citizens, legal persons and other organizations facing foreign legislation and other measures with protection at the national level, and also constitutes a significant measure of the Chinese legal system to counteract long-arm jurisdiction and the extra-territorial application of foreign legislation in China, thus the potential criminal significance of the Counteracting Rules should not be ignored. For enterprises, daily business decisions and compliance with national laws would no longer be a simple choice between right and wrong. How to effectively develop response strategies, seek a solid footing in an increasingly complex and volatile international environment, and figure out a relatively optimal solution in multiple regulations of legislation and other measures of various governments to avoid unnecessary legal risks and liabilities, especially harsh and criminal liabilities and penalties, are all essential challenges that need be carefully and cautiously faced by enterprises.