On May 13, 2021, the State-owned Assets Supervision and Administration Commission of the State Council announced that all central enterprises have now established compliance committees. Meanwhile, Procurator-General Zhang Jun led a research team from the Supreme People’s Procuratorate to the Zhangjiagang City Procuratorate in Jiangsu Province for a special seminar focused on corporate compliance. During the seminar, Procurator-General Zhang Jun emphasized, "We must fully leverage the role of third-party oversight—including lawyers—to lay a solid foundation for improving corporate compliance systems. The Supreme People’s Procuratorate has already collaborated with relevant departments to strengthen research and jointly issue standardized guiding opinions." He further noted, when discussing suggestions for selecting law firms to be included in the compliance supervisor roster, that it would be most effective to specify individual lawyers by name to ensure the work is implemented precisely and effectively.

Currently, nearly 30 procuratorates in Nanjing, Suzhou, and Wuxi—three cities piloting the initiative in Jiangsu Province—will be authorized to carry out pilot programs for corporate compliance reforms. In the future, more companies involved in legal cases across Jiangsu are expected to benefit from the "compliance-based non-prosecution" policy. One might naturally wonder: Since corporate criminal compliance is currently led by the procuratorial authorities, what exactly can lawyers do? Drawing insights from Prosecutor-General Zhang Jun’s remarks, the author believes that a lawyer’s role in corporate criminal compliance is akin to that of a doctor in treating and saving patients. Lawyers not only provide businesses with "comprehensive risk assessments and preventive measures against criminal hazards," but also offer "defense strategies aimed at achieving compliance-based exoneration." Moreover, they can even serve as third-party oversight professionals, assisting companies caught in legal troubles to implement effective compliance reforms. Below, the author will discuss three key services lawyers can deliver to businesses in the context of criminal compliance, drawing on personally handled compliance defense cases.

1. In-Depth Health Check to Prevent and Control Corporate Criminal Risks

According to data released on April 28, 2021, by Zhang Yuanhuang, Dean of the Institute of Criminal Law Science at Beijing Normal University and Director of the China Enterprise Crime Prevention Research Center, in the "2019-2020 Entrepreneurial Criminal Risk Analysis Report": Among criminal judgment cases uploaded from December 1, 2019, to November 30, 2020, a total of 2,635 entrepreneurial crime cases were identified, involving 3,082 entrepreneurs. Notably, among these offenders, as many as 2,876 were owners of private enterprises—accounting for approximately 93.32% of all convicted entrepreneurs. This highlights that Chinese businesses, particularly private enterprises, are grappling with a "gray rhino" dilemma in their operations, exposing them to significant criminal risks.

In this context, lawyers can offer businesses in-depth legal "health check" services, providing comprehensive "criminal compliance assessments" to help companies establish effective criminal compliance systems and mitigate potential criminal risks they may encounter in future operations. Additionally, during the process of conducting a thorough "criminal compliance health check" for an organization, lawyers can use a dedicated corporate compliance checklist to systematically identify and address common criminal risk areas specific to the business.

Figure 1: Corporate Compliance Health Checklist

(Note: Currently, the Criminal Law includes a total of 483 offenses. Due to space constraints, the author has selected only a few of the most common corporate crime charges for your reference.)

Through case analysis, we can further conclude the critical importance of conducting in-depth corporate health checks to proactively manage and mitigate criminal risks. China’s first corporate criminal compliance case—the Nestlé employee case involving the infringement of citizens' personal information—demonstrates how a relatively robust internal criminal compliance system at Nestlé successfully separated the company’s liability from that of individual employees. As the Lanzhou Intermediate People’s Court clarified in its second-instance ruling: "Nestlé strictly prohibits employees from engaging in illegal activities that violate citizens' personal information rights. However, the appellants’ actions—committing crimes to boost their personal performance—clearly constitute individual misconduct, independent of the company’s policies." Consequently, in this case, only the employees were held personally accountable, while the company itself avoided criminal charges altogether. Had Nestlé not established such a well-structured criminal compliance framework, this case might have ended very differently.

Figure 2: Nestlé's Corporate Criminal Compliance Model

On the contrary, compared to Nestlé, the case handled personally by the author—Qingxin Copper Industry (fictitious name)—involved illegal trading and storage of hazardous substances, and Qingxin Copper Industry was far less fortunate. Due to its lack of a robust corporate compliance mechanism in place beforehand, the company was held criminally liable. Prosecutors charged Qingxin Copper Industry (which holds the necessary qualifications to handle hazardous chemicals) with illegally selling 2,321.6 kilograms of highly toxic sodium cyanide to Bao Mouming—who lacked the proper credentials to trade such materials—for use in production at the leased workshop. If convicted, the company could face a prison sentence of between three and ten years.

Figure 3: Unauthorized Operating Model of the Original Leased Workshop

The author delivered an effective defense by skillfully navigating complex issues such as challenging evidence, addressing the intersection of criminal and administrative law, analyzing potential harm to legal interests, and conducting thorough searches for similar cases—ultimately securing suspended sentences for all six defendants in the case. Both the company and the clients expressed deep gratitude for the successful outcome.

However, the author still feels regretful about this case—after all, if the company involved had conducted a thorough "criminal compliance check" during its operations, it could have identified the issues early on. Based on the company’s operational model, the author would design a tailored internal contracting and compliance plan to effectively mitigate any criminal risks.

II. Compliance-Based Defense for Exoneration from Charges

Regarding compliance-based defenses for avoiding criminal charges, the author uses as an example the case of Company H, which was personally handled and involved alleged illegal issuance of special VAT invoices—specifically, a compliance defense strategy. The prosecution accused Company H of issuing over 100 million yuan worth of fraudulent special VAT invoices, thereby defrauding the state of more than 15 million yuan in tax revenue. If convicted, the company would face a mandatory sentence of 10 years or more in prison, putting its enterprise—with investments totaling hundreds of millions of yuan—at risk of bankruptcy.

Figure 6: H Company’s Original Procurement, Payment, and Invoicing Model (Involving Criminal Activity)

During the review and prosecution phase, the author carefully designed a tailored procurement substitution model to address the issues exposed in H Company's original procurement, payment, and invoicing processes. This approach effectively mitigates risks, enabling the company to operate in full compliance with regulations.

Figure 7: H Company's Procurement Outsourcing Model (Exoneration)

This case was thoroughly examined by the author, who collaborated with tax law and criminal law experts, conducted extensive investigations, gathered critical evidence, and developed—then rigorously monitored—the implementation of a compliance plan. The author also sought support from government and tax authorities through research initiatives. Notably, prosecutors visited the company multiple times to assess its operations firsthand. Ultimately, because the company engaged in genuine procurement activities, demonstrated no intent to fraudulently obtain state taxes, and had already adopted compliant business practices, the case was closed without prosecution.

III. Third-Party Independent Regulatory Services

In addition to offering services such as "in-depth corporate health checks to prevent criminal risks" and "defense strategies for achieving non-criminal outcomes through compliance," lawyers can also provide third-party compliance monitoring services for businesses. For instance, in the case of Y Company and Tang, who were accused of issuing false special VAT invoices—handled by the Zhangjiagang City Procuratorate—the investigative authorities referred the case to the city’s People’s Procuratorate for review and prosecution, alleging that both Y Company and Tang had committed the crime of fraudulently issuing special VAT invoices. During the review process, prosecutors identified several critical criminal risk factors within Y Company, including irregularities in financial controls, internal management loopholes, and non-compliant practices in hazardous waste disposal. Based on these findings, the procuratorial authorities recommended that Y Company strengthen its criminal compliance framework, particularly in areas such as financial systems, hazardous waste management, and daily operational protocols. In response, Y Company engaged a specialized lawyer specializing in corporate criminal compliance as an independent Compliance Review Officer. This professional conducted a comprehensive compliance assessment of the company and subsequently helped Y Company develop and implement over 20 robust systems covering key aspects of business operations, production management, financial and tax reporting, environmental protection, and emergency response mechanisms. Ultimately, the procuratorial authorities held a public hearing to review the decision not to prosecute, carefully considering input from all stakeholders involved. Ultimately, they made the legally sound decision to announce a conditional non-prosecution verdict for both Y Company and Tang. In this case, the criminal compliance specialist played a pivotal and highly positive role as an independent Compliance Review Officer, significantly contributing to the establishment and enhancement of Y Company’s overall compliance system.

In addition, the Jinshan District People's Procuratorate in Shanghai, serving as a pilot program, has jointly issued with the District Justice Bureau the "Provisional Regulations on the Selection, Appointment, and Management of Third-Party Compliance Supervisors for Enterprises," establishing a mechanism for third-party oversight. These regulations clearly stipulate that the District Justice Bureau will publicly select law firms to form a roster of qualified third-party supervisors. Lawyers will then participate, in their capacity as third-party supervisors, in building corporate criminal compliance systems.

Figure 9: Workflow Diagram of the Third-Party Supervisor Exploried by the Procuratorate

IV. Conclusion

Compared to state-owned enterprises that have already established full-fledged compliance committees, private companies—though far more numerous and varying significantly in their level of development—are increasingly highlighting the need for robust compliance management. In my view, criminal compliance is no longer optional but an essential requirement for the healthy growth of private businesses. So, should entrepreneurs simply wait until criminal prosecution looms before considering hiring a lawyer for defense—or should they prioritize corporate compliance from the outset, building a comprehensive compliance system to ensure lawful and ethical business operations? Clearly, the latter approach is the right one. As the saying goes, "The best doctor treats diseases before they occur." For companies that haven’t yet encountered criminal legal risks, legal advisors or criminal compliance lawyers can conduct an in-depth "criminal compliance checkup," helping identify potential pitfalls early on and guiding businesses to sidestep these risks altogether. Meanwhile, when criminal issues do arise, criminal compliance lawyers can step in by assisting companies in crafting effective compliance strategies. Alternatively, they can even act as independent third-party monitors, overseeing the company’s remediation efforts and ensuring that corrective measures are implemented properly—ultimately helping the business stay on the right side of the law and fostering sustainable, long-term growth.

Author: Xue Huogen, Criminal Law Committee of the All China Lawyers Association

Source: Quiet Legal Expert