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Criminal Risks for Business Operations during the Coronavirus Outbreak

2020.02.14 WU, LeiYIN, Xiao (Benjamin)、YANG, Tong

In December 2019, a new type of coronavirus (i.e., 2019-nCov) causing novel coronavirus pneumonia (“NCP”) broke out in Wuhan city, Hubei Province, and NCP then became an epidemic disease in many provinces in China and was detected in some countries and regions all over the world.  While the Chinese government, healthcare institutions and personnel have been trying their best to control the epidemic situation, from a legal perspective, the 2019-nCov not only causes labor law issues for companies operating in China, it also brings criminal risks  to the daily business operation of companies.  For companies to understand these criminal risks better so as to minimize such risks,1 we have summarized several hypothetical scenarios, which may occur in different industries with preliminary legal introductions and analysis, as follows:


Abbreviations:


  • CL: the Criminal Law of the People's Republic of China

  • 03Int: the Interpretation on Several Issues regarding Law Application in Handling Criminal Cases in relation to Obstructing Prevention of and Controlling the Disasters including Breakout of Infectious Diseases (issued by the Supreme Court and the Supreme Procuratorate of the People's Republic of China in 2003)

  • 08Pro: the First Provision on Thresholds for Filing and Pursuing Criminal Cases by Public Security Bureau (issued by the Supreme Procuratorate and Ministry of Public Security of the People's Republic of China in 2008)

  • 13Int: the Interpretation on Several Issues concerning the Application of Law in Handling Criminal Cases involving Defamation and Other Offences Committed through Information Networks (issued by the Supreme Court and the Supreme Procuratorate of the People's Republic of China in 2013)

  • A: Article


1. Medicare Industry


Scenario

Crime

Law

Product liability-related crime

  • Manufacturing fake/ungraded products

  • Selling fake/ungraded products

Crime of manufacturing or selling fake/ungraded products (“catch-all article”)

CL-A140

03Int-A2

  • Manufacturing fake drugs

  • Selling fake drugs

Crime of manufacturing or selling fake drugs

CL-A141

03Int-A2

  • Manufacturing ungraded drugs

  • Selling ungraded drugs

Crime of manufacturing or selling ungraded drugs

CL-A142

03Int-A2

  • Manufacturing substandard medical devices

  • Selling substandard medical devices

  • Knowingly purchasing substandard medical devices for compensable use

Crime of manufacturing or selling substandard medical devices

CL-A145

03Int-A3

IP violation-related crime

  • Faking a registered trademark

Crime of faking a registered trademark

CL-A213

  • Selling products with a fake registered trademark

Crime of selling products with a fake registered trademark

CL-A214

Business operation-related crime

  • Raising prices to an unreasonably high level during the infectious disease breakout

Crime of operating business unlawfully

CL-A225

03Int-A6


2. Manufacturers


Scenario

Crime

Law

Epidemic disease-related crime

  • Restarting business operations ahead of the time scheduled by the government

Crime of obstructing the prevention and treatment of an epidemic disease

CL-A330

08Pro-A49

Environmental protection-related crime

  • Discharging, dumping or disposal of wastes containing pathogens of epidemic diseases or toxic substances, or other hazardous wastes to land, water or air

Crime of environmental pollution

CL-A338

03Int-A13


3.Retailers


Scenario

Crime

Law

Business operation-related crime

  • Raising prices to an unreasonably high level during an epidemic disease breakout

Crime of operating business unlawfully

CL-A225

03Int-A6


4. Advertising Industry



Scenario

Crime

Law

False advertising related crime

  • Advertiser, advertisement operator or publisher releases false advertisements to promote its products or services in the name of preventing epidemic diseases

Crime of releasing false advertisements

CL-A222

03Int-A5


5. Operators and Managers of Hotels, Malls, and Office Buildings


Scenario

Crime

Law

Epidemic disease-related crime

  • Providing drinking water that does not conform to the hygienic standards prescribed by the state

  • Refusing to sterilize the sewage, filth and faeces contaminated by the pathogens of epidemic diseases in accordance with the hygiene requirements prescribed by the health and anti-epidemic disease authorities

  • Permitting or conniving epidemic disease patients, pathogen carriers and suspected epidemic disease patients to engage in work which they are prohibited from engaging in by the health administration department of the State Council because of the likelihood of causing the spread of epidemic diseases

  • Refusing to implement  preventive and control measures proposed by the health and anti-epidemic disease authorities in accordance with the Law on Prevention and Treatment of Epidemic Diseases of the People's Republic of China

Crime of obstructing the prevention and treatment of epidemic disease

CL-A330

08Pro-A49


6. Network operators


Scenario

Crime

Law

Infringement on citizen rights-related crime

  • Conniving users to conduct defamation through an internet platform run by the operator

Crime of defamation

CL-A246

13Int-A8

Obstruction of social management-related crimes

  • Refusing to perform information security management obligations provided by laws and administrative regulations

Crime of refusing to perform obligations in respect of information network security management

CL-A286.1

  • Conniving users to fabricate or deliberately spread false  information through internet platforms run by the operator

Crime of fabricating or deliberately spreading false  information

CL-A291.1

13Int-A1

  • Conniving users to conduct provoking behavior through the internet which causes public disorder

Crime of conducting provocation acts

CL-A293

13Int-A5


7. Entities receiving donations


Scenario

Crime

Law

Corruption-related crime

  • Misappropriating funds and/or materials donated for the prevention and treatment of epidemic diseases

Crime of misappropriation of special funds and property

CL-A273

  • State staff embezzling funds and/or materials donated for the prevention and treatment of epidemic diseases

Crime of embezzlement by state staff

CL-A382

03Int-A14

  • Staff of non-state entities embezzling funds and/or materials donated for the prevention and treatment of epidemic diseases

Crime of embezzlement by non-state staff

CL-A271

03Int-A14


In addition to the aforementioned crimes closely relating to the epidemic disease breakout, please note that the following criminal risks may also be triggered by market players due to the lack of awareness of criminal compliance, as follows:


8. Crime of infringing citizens' personal information


During the special period of the NCP prevention and control, concerning public health and safety, governments, the medical industry, transport industry and other relevant industries may need to collect and use the personal information (e.g., health information, diagnosis and treatment information, whereabouts, personal address, etc.) of the patients and people who have been to the NCP breakout areas.  However, such collection and use of personal information should be compliant with the laws and regulations.


Scenario

Crime

Law

Personal information-related crime

  • Illegally obtaining citizens' personal information

  • Selling/providing citizens' personal information to others in violation of laws and regulations

Crime of infringing citizens' personal information

CL-A253.1



9. Crimes related to securities market


The NCP may also cause a huge impact to the securities market, and we suggest that listed companies and security practitioners focus on the following potential criminal risks, including but not limited to:


Scenario

Crime

Law

Securities market-related crime

  • Providing shareholders and the public with false financial statements or statements concealing important facts

  • Failing to disclose other important information which is required to be disclosed by law

Crime of illegally disclosing or failing to disclose important information

CL-A161

  • Trading securities or futures upon insider information

  • Disclosing insider information to others

  • Advising others explicitly or implicitly to engage in securities or futures transactions by taking advantage of insider information

  • Crime of conducting insider trading or leaking insider information

  • Crime of trading securities or futures by taking advantage of undisclosed information

CL-A180

  • Carrying out combined or successive purchases or sales by taking advantage of funds, shareholding or information, thereby manipulating the trading prices of securities or futures

  • Collaborating with another person to mutually trade securities or futures at a pre-arranged time and price and by pre-arranged means, thereby affecting the price or volume of the securities or futures traded

  • Carrying out securities trading between accounts under the actual control of the same person, or taking the person himself/herself as the trading counterparty, buying and selling futures contracts from and to himself/herself, thus effecting the trading price or volume of securities and futures

Crime of manipulating securities or futures market

CL-A182


10. Crimes related to raising funds


The NCP will have a grave negative impact on the economy, and some small or medium-sized enterprises will inevitably be faced with a series of problems including but not limited to financial difficulties, capital chain break, etc.  In such cases, some enterprises may be faced with criminal risks because of their prior non-compliant funds-raising process, etc.


Scenario

Crime

Law

Funds raising-related crime

  • Issuing stocks or corporate bonds without the approval of the relevant state departments

Crime of issuing stocks or corporate bonds without due approval

CL-A179

  • Raising funds through fraudulent methods with the purpose of unlawful possession

Crime of funds-raising fraud

CL-A192

  • Obtaining loans from banks or other financial institutions by fraudulent means with the purpose of unlawful possession

Crime of loan fraud

CL-A193

  • Obtaining loans from banks or other financial institutions by fraudulent means, causing huge losses to the banks or other financial institutions

Crime of defrauding loans

CL-A175.1

  • Obtaining another party's property through defrauding means in the process of signing or performing the contract with the purpose of unlawful possession

Crime of contract fraud

CL-A224



1.Pursuant to the criminal laws and administrative laws and regulations of the People's Republic of China, for many types of crimes, if the violation of law does not meet the criminal threshold, such violation may still be regarded as illegal conduct under the administrative laws and regulations (e.g., the Public Security Administration and Punishment Act of the People's Republic of China, the Advertisement Act of the People's Republic of China, etc.).  Please be informed that in this article, we only focus on and discuss criminal law-related issues, and leave administrative law issues untouched and to be fully discussed in subsequent article(s).

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