On the afternoon of July 10, 2021, the 11th "Criminal Defense Ten-Person Forum" and the Seminar on Lawyers' Involvement in Corporate Compliance were held in Beijing. The forum was jointly organized by the "Criminal Defense Ten-Person Forum" and the Research Center for Corporate Criminal Risk Prevention at China University of Political Science and Law, with Beijing Xinglai Law Firm serving as the承办单位 (organizing entity).

On the afternoon of July 10, 2021, the 11th "Criminal Defense Ten-Person Forum" and the Seminar on Lawyers' Involvement in Corporate Compliance were held in Beijing. The forum was jointly organized by the "Criminal Defense Ten-Person Forum" and the Research Center for Corporate Criminal Risk Prevention at China University of Political Science and Law, with Beijing Xinglai Law Firm serving as the承办单位 (organizing entity).

At this forum, discussions centered around the theme of "Lawyers' Involvement in Corporate Compliance," delving into key topics such as "The Institutional Framework for Lawyers' Participation in Criminal Compliance," "Criminal Compliance vs. Criminal Defense," "Challenges and Risks Associated with Lawyers Engaging in Criminal Compliance," and "Relevant Issues for Lawyers Expanding Their Criminal Compliance Practices."

In addition to the full attendance of the "Ten Criminal Defense Experts," the forum also specially invited Dr. Gao Jingfeng, Director of the Policy Research Office at the Supreme People's Procuratorate; Professor Zhao Tianhong, Director of the Research Center for Corporate Criminal Risk Prevention at China University of Political Science and Law; Professor Li Hong, Director of the Center for Commercial Crime Studies at Tsinghua University; and Professor Zhao Jun from the Entrepreneurial Crime Research Center at Beijing Normal University to serve as panelists.

Here is the speech delivered by Attorney Mao Hongtao, Deputy Director of Beijing Deheheng Law Firm, at the forum—organized and shared for your benefit.

Mao Hongtao

Deputy Director of Beijing Deheheng Law Firm

Hello everyone, given that we only have 12 minutes for this presentation, the content I originally prepared—titled "Exploring the Localization of Criminal Compliance from a Lawyer's Perspective"—is quite extensive. Clearly, it’s impossible to cover everything in such a short time, so I’ll focus instead on highlighting the current challenges and offering some recommendations regarding the criminal compliance pilot programs.

I. The existing system of relative non-prosecution struggles to fully meet the demands of criminal compliance.

The Supreme People's Procuratorate’s *Guiding Opinions on Establishing a Third-Party Supervision and Evaluation Mechanism for Corporate Compliance in Criminal Cases (Trial)* (hereafter referred to as the *Guiding Opinions*) explicitly states that corporate criminal compliance is being explored within the existing legal framework, leveraging mechanisms such as the leniency system for guilty pleas and sentencing, the system of coercive measures, and the policy of conditional non-prosecution. According to the provisions of the *Criminal Procedure Law*, conditional non-prosecution applies exclusively to minors suspected of crimes outlined in Chapters 4, 5, and 6 of the Special Part of the Criminal Law—crimes punishable by up to one year of fixed-term imprisonment—and where the case meets prosecution criteria yet demonstrates genuine remorse. Currently, pilot programs focused on corporate criminal compliance can only proceed by utilizing the mechanism of conditional non-prosecution. However, this approach falls short of fully addressing the needs of corporate compliance due to several inherent limitations: First, in practice, judicial authorities rarely apply conditional non-prosecution; second, it is limited solely to minor offenses—cases deemed by China’s Criminal Law and Criminal Procedure Law as “minor in nature and not requiring criminal penalties”—thus failing to cover all types of criminal offenses; and third, the decision to grant conditional non-prosecution does not necessarily involve reaching a compliance agreement between the procuratorate and the company involved. In other words, implementing corporate compliance through this mechanism may lead to procedural inadequacies. Consequently, the current conditional non-prosecution system proves insufficient to meet the comprehensive demands of corporate criminal compliance. To overcome the institutional barriers currently hindering pilot initiatives, a legislative overhaul is urgently needed. Specifically, the *Criminal Procedure Law* should be revised to establish a robust non-prosecution framework tailored specifically to support "corporate criminal compliance."

Suggestion: After the pilot program on criminal compliance, the relevant provisions of the Criminal Procedure Law could be revised based on practical experience, establishing a system of "conditional non-prosecution for enterprises" to meet the stringent requirements of criminal compliance. Under this system, the conditions would include setting a specific compliance review period and outlining mandatory compliance obligations. Once the review period concludes, the People's Procuratorate would assess the suspect's performance during this period and decide whether to ultimately pursue prosecution or opt for non-prosecution.

II. The scope of criminal compliance is relatively broad and requires the development of specific guidelines for clarification.

Articles 3, 4, and 5 of the "Guiding Opinions" outline the scope of criminal compliance, specifying the applicable entities, conditions for application, and the "negative list." However, the guidelines’ provisions on the scope of criminal compliance are relatively general, which may lead to discrepancies in interpretation when local procuratorates subsequently develop detailed implementation rules and operational procedures based on these opinions.

1. Is it necessary to specify the alleged charges?

Article 3 of the "Guiding Opinions" specifies that criminal compliance applies to "economic crimes and official misconduct cases involving market entities such as companies and enterprises in their production and business activities," while Article 5 clarifies that corporate criminal cases involving suspected crimes endangering national security or terrorist activities are excluded from the scope of criminal compliance. We note that although the "Guiding Opinions" uses the inclusive term "and others" after listing economic and official misconduct crimes related to production and business activities, it does not rule out the possibility that prosecutors may choose to apply criminal compliance only to corporate criminal cases specifically involving these two types of offenses. Currently, some pilot units have already outlined specific categories of criminal cases eligible for this system—though this list is far from exhaustive—including commercial bribery and crimes disrupting market order; manufacturing and selling substandard or fake products; tax-related offenses; crimes committed by local financial institutions; offenses targeting banking and insurance firms; environmental pollution crimes; crimes harming natural resources; and smuggling activities. Therefore, it remains essential to discuss whether criminal compliance should indeed be limited to certain designated types of offenses.

Suggestion: You may refer to the provisions of the leniency system for guilty pleas and penalties. For offenses allegedly committed by enterprises and their related personnel, avoid imposing excessive restrictions—instead, focus on cases directly tied to the company's production and business operations.

2. Are there specific entity requirements for companies involved in criminal compliance programs?

The subject of examination under the criminal compliance system is the companies involved in the case, though there remains some debate over whether specific eligibility criteria should be imposed on these companies. The "Guiding Opinions" do not impose any restrictive requirements on the eligibility of such companies; instead, they simply state that as long as the company is capable of normal production and operations, commits to establishing or improving its corporate compliance system, and meets the basic conditions for initiating a third-party mechanism, it qualifies to participate.

In the previous pilot programs, different regions adopted varying standards. For instance, a pilot province’s "Opinions on the Compliance Examination System" specifically outlined the "subject qualifications" for companies involved in cases, including: (1) Playing a certain role in lawful tax payment, employment generation, and boosting local economic development; (2) Possessing independent intellectual property rights, strong brand reputation, proprietary technologies, or trade secrets; (3) Aligning with current industrial policies or future industry development trends; (4) Their operational status significantly impacting the industry they belong to, as well as upstream and downstream supply chains and regional competitiveness; (5) The directly responsible executives and other personnel bearing direct accountability being key figures—such as company leaders, actual controllers, or core technical staff—who play a critical role in the business’s growth and operations. In other words, only companies meeting these specific criteria are eligible to benefit from the examination system. Meanwhile, the Criminal Compliance Procedures issued by the procuratorate in another pilot region did not impose any such restrictions on the subject qualifications of the companies involved.

Suggestion: The criminal compliance system should neither require nor impose any corporate eligibility criteria for businesses involved in cases. The primary reason is that setting too many "eligibility conditions" would significantly narrow the scope of application for companies subject to the criminal compliance regime. For instance, if only enterprises with substantial market competitiveness or significant influence within their industry or region were included, it would inevitably limit the system's reach and effectiveness. Moreover, in practice, it’s often the broader range of small, medium, and micro-sized enterprises—rather than leading or large-scale, highly established corporations—that truly stand to benefit from a criminal compliance framework. After all, protecting all types of businesses is precisely what compliance-based non-prosecution policies should aim to achieve. Therefore, avoiding strict corporate eligibility criteria altogether aligns more closely with the original intent of the "Guiding Opinions."

3. How long exactly should the compliance review period be?

Currently, there is no unified consensus on the length of the compliance review or remediation period. For instance, in one pilot province, the "Opinions on the Compliance Review System" stipulates that "the compliance review period for enterprises involved in crimes shall be no less than three months but no more than five months, calculated from the date the procuratorate makes its decision on the review." Meanwhile, in a different pilot area, the local procuratorate’s "Criminal Compliance Procedures" specify that "during the prosecution review phase, the compliance remediation period should generally range from six months to two years, with possible extensions depending on factors such as the nature, circumstances, and consequences of the crime." Even the "Guiding Opinions" do not provide a definitive answer, leaving room for further exploration and discussion.

Suggestion: The compliance review period should neither be too short nor excessively long, but the overall duration must fall within the statutory timeframe for prosecution review—ideally ranging from three to six months. In special circumstances, a reasonable extension may be granted. Only then can we ensure full compliance with legal regulations while giving businesses sufficient time to achieve meaningful and effective compliance improvements.

4. Is it necessary to introduce a "Compliance Advisor"?

Before the issuance of the "Guiding Opinions," many local pilot programs indeed faced a situation where third-party supervisors ended up acting as both referees and players. For instance, in certain pilot regions, the compliance-based non-prosecution procedure guidelines already specified that these third-party supervisors were not only tasked with helping companies conduct internal self-checks and design remediation plans but also required to oversee externally—assessing how the companies implement and improve their compliance systems—and reporting their findings directly to the procuratorial authorities. However, this scenario has changed following the implementation of the "Guiding Opinions." Article 11 of the document explicitly states that third-party supervisors are no longer involved in drafting compliance plans for companies under investigation. In other words, the dual role of third-party supervisors—as both referees and players—is now eliminated. Although the "Guiding Opinions" do not explicitly introduce the role of a "compliance consultant," relying solely on the companies themselves to develop their compliance plans may fall short of meeting the professional standards required by such initiatives. Therefore, engaging external "compliance consultants" becomes increasingly essential to ensure that the companies’ efforts align with the rigorous benchmarks set forth in the compliance framework.

Recommendation: Compliance advisors and third-party supervisors should be distinct, independent professionals. Specifically, the compliance advisor’s role is to conduct thorough due diligence on the company under investigation, analyze potential issues in its business operations, and develop a tailored, accurate compliance plan. This plan should focus primarily on identifying and addressing compliance risk factors—such as determining corrective actions, setting clear compliance review periods, establishing mechanisms for self-assessment and remediation of violations, and strengthening internal compliance training and assessment programs. Once the compliance plan is finalized, the advisor will submit it to the procuratorate and the third-party supervisor for evaluation, making necessary adjustments based on feedback and real-world circumstances. By entrusting the development of the compliance plan to a dedicated compliance advisor, impartiality can be ensured. Meanwhile, the third-party supervisor will concentrate on effectively overseeing compliance efforts, preparing detailed monitoring reports on the company’s progress in implementing corrective measures, and promptly reporting findings back to the procuratorate, ultimately holding themselves accountable to the procuratorate.

As a defense attorney hired by the company involved in the case, one may only participate in the criminal compliance process as a compliance advisor, not as a third-party monitor. Otherwise, it would violate the principle of neutrality inherent in third-party oversight, as well as the legal profession’s ethical guideline prioritizing the client’s best interests.

V. Allocation and Payment of Fees for Third-Party Supervisors and Compliance Advisors.

1. Cost and Payment of the Third-Party Supervisor

Take, for instance, the provisions outlined in the "Provisional Regulations on the Selection, Appointment, and Management of Third-Party Compliance Supervisors" (hereafter referred to as the "Third-Party Supervisor Provisional Regulations") from a pilot region. Under these regulations, the fees for third-party supervisors are borne by the companies involved in the case. The procuratorate then notifies the implicated enterprises to make the corresponding payments, based on the supervisor’s application and the progress of compliance efforts. However, this arrangement raises a key issue: within the current institutional framework, third-party supervisors are required to maintain their own impartiality and neutrality, meaning that excessive financial or other vested interests between the companies involved and the supervisors must be avoided.

Recommendation: To ensure the neutrality of third-party supervisors and effectively reduce the burden on businesses, it is suggested that this fee be included in local government budgets and paid on behalf of companies by federations of industry and commerce at various levels. For cases where inclusion in the local budget is not feasible, the companies involved may directly pay the local federation of industry and commerce, which will then disburse the funds to the relevant parties in stages, as recommended by the procuratorate.

2. Responsibility and Payment for Compliance Consultant Fees

As previously mentioned, compliance consultants are accountable to the companies involved and are hired directly by those companies; therefore, it would be difficult for the procuratorate to bear the associated costs. Under this arrangement, the procuratorial authorities naturally cannot afford to pay compliance consultants excessively high fees without placing an undue burden on the public finances. For lawyers, investing the same amount of time and effort into compliance projects may yield far lower returns compared to handling criminal cases, potentially discouraging them from pursuing compliance work altogether. Hence, it would be more reasonable for the companies themselves to assume responsibility for and directly cover the costs of their compliance consultants.

6. During the compliance remediation process, if the third-party supervisor or compliance consultant identifies any previously concealed or newly emerged illegal or criminal activities within the company involved, what should they do?

1. The third-party supervisor shall promptly report to the procuratorate and oversee the implementation of corrective measures.

Since the third-party supervisor is expected to play a neutral role within the criminal compliance system, carrying out their regulatory duties impartially and independently, they are appointed by the procuratorate and accountable directly to it. Therefore, the third-party supervisor has a mandatory oversight obligation regarding any previously concealed or newly discovered illegal and criminal activities uncovered during the compliance remediation process. As such, Article 12 of the "Guiding Opinions" stipulates: "If the third-party organization identifies criminal facts involving the company or its personnel that have not yet been discovered by the investigating authorities, or uncovers newly committed criminal acts, it shall immediately suspend the third-party supervision and assessment procedure and promptly report the findings to the People's Procuratorate handling the case." Additionally, the "Provisional Regulations on Third-Party Supervisors" adopted in a pilot region emphasize that third-party supervisors must promptly inform the procuratorate of relevant developments and actively urge the companies involved to implement necessary corrective measures.

2. The compliance advisor has no obligation to report any previously concealed or newly discovered illegal and criminal activities involving the company in question.

Recommendation: Compliance advisors are commissioned by the companies involved and are accountable to those same companies. They should adhere to Article 38 of the Lawyers Law, which stipulates that "lawyers must maintain confidentiality regarding any information or circumstances related to their clients or other individuals that the clients or these individuals do not wish to disclose during their professional practice. However, this obligation does not apply to facts or information about crimes—whether planned or underway—that pose threats to national security, public safety, or seriously endanger the physical safety of others." Additionally, in accordance with Article 48 of the Criminal Procedure Law, "if a defense lawyer becomes aware during their practice that either the client or another individual is planning or has already begun committing a crime that endangers national security, public safety, or poses a severe risk to the physical safety of others, they must promptly inform the judicial authorities." Therefore, when acting as compliance advisors and providing legal services to companies under investigation, lawyers must immediately report to the procuratorate if they discover that the company or its personnel are preparing to commit, or are already engaged in, crimes that threaten national security, public safety, or severely endanger the physical well-being of others.

Additionally, the "Guiding Opinions" only outline the prohibited behaviors of third-party supervisors, while stipulating that companies and individuals involved in the case have the right to raise objections, file appeals, or lodge complaints against any improper or illegal actions by these supervisors. It is recommended that the document clearly define the specific legal responsibilities third-party supervisors should bear when their intentional misconduct or gross negligence during the performance of their regulatory duties leads to severe consequences.

7. Should third-party supervisors and compliance advisors be granted access to review case files?

Opinions within the practical field differ on this issue. We believe that third-party supervisors are entitled to review case files under the authorization and guidance of the procuratorate. The rationale is that by examining these documents, third-party supervisors can gain a comprehensive understanding of the involved company’s motives for committing the offense, the full sequence of events in the case, the performance of duties by company personnel, and the subjective perceptions of those involved—key insights that enable supervisors to effectively identify vulnerabilities and risks in the company’s management practices. This knowledge also facilitates meaningful communication with the individuals implicated in the case, ultimately helping the supervisors oversee and guide the company toward effective compliance improvements. As compliance consultants play a crucial role in assisting companies with remediation efforts, the procuratorate could, by analogy to how defense attorneys request access to case files, conditionally grant them the right to review documents—empowering them to address the specific challenges at hand more effectively.

8. How can we enhance the enthusiasm of procuratorial organs and prosecutors in applying corporate compliance reforms?

For prosecutors, there are two main factors influencing their willingness to actively adopt corporate compliance reforms: First, due to case closure rates and the need for swift resolution of cases, prosecutors generally prefer to wrap up matters quickly—yet corporate compliance-based non-prosecution reforms typically demand more time, as well as increased financial and manpower resources. Second, prosecutors aren’t experts in areas like a company’s internal governance or its market-related business practices, meaning they may lack the specialized knowledge and practical experience required in these fields.

Suggestion: For prosecutors, a performance evaluation system should be established that aligns with the compliance efforts of companies involved in cases. Prosecutors who successfully guide enterprises toward criminal compliance reforms should receive appropriate incentives. At the same time, greater emphasis should be placed on building up talent and specialized knowledge in non-criminal prosecution areas.

Given the time constraints, that's all I'll say—thank you, everyone.