COMPLIANCE NEWSLETTER IN 2016

February 2016

IN THIS ISSUE ZHONG LUN NEWS

SPECIAL REPORT Zhong Lun Receives Global ☆ Primary Exploration regarding the Expert Consultation System of Arbitration Review Award as

Complicated Legal Issues under the Professional Working Division “Chinese International Arbitration Practice that COMPLIANCE EVENTS Impressed in the Past Year” ☆ The New Standard of Travel Expenses for Civil Servants will be (read more. . . .)

effective from New Year’s Day of 2016 Serious Consequences will be Occurred by Exceeding the Standard Zhong Lun takes the Lead in

☆ The General Counsel has to Attend the Board meeting if the Legal Chambers Rankings and

Concerned Issues are under Deliberation Maintains Its Position as the

Law Firm with Most Band One ☆ Supreme People’s Procuratorate has intensified the effort on pursuing Rankings for the Fifth Year in a corruption persons Row (read more. . . .)

☆ CPC Central Commission for Discipline Inspection: Pierce the Camouflage of Disguised Bribery On April 24, 2014, the 11th annual ALB China Law Awards ☆ US Strengthen the Investigation to Enterprise Bribery Overseas was held at the Park Hyatt, . Zhong Lun Law Firm CASE EXPRESS was nominated for 20 awards ☆ A US Software Company has been fined USD1.45 million because of and won five awards including

suspected bribery to Chinese Officials Beijing Law Firm of the Year. (read more. . . .)

The first FT Asia-Pacific FEBRUARY 2016 Innovative Lawyers Awards recently shortlisted Zhong Lun SPECIAL REPORT Law Firm in the Innovation in Corporate Strategy (Asia-Pacific

Primary Exploration regarding the Expert Consultation System Headquartered Law Firms) of Complicated Legal Issues under the Professional Working category for co-founding the new Division outbound investment information platform for Chinese enterprises by Guangwei Wang of Beijing Zhong Lun Law Firm, Shanghai Office - China Going Global Think Tank

(“CGG”). (read more. . . .) With the trend of internationalization is more and more obvious in the

high-tech fields, the legal demand in the cross-border technical cooperation CONTACT US have been increased gradually. For this trend, the Intellectual Property Email: [email protected] Team of Beijing Zhong Lun Law Firm Shanghai Office (hereinafter referred as “IP Team”) has significant experience. During the past two years, the IP Team has dealt with multiple legal consultations regarding the cross-border cooperation in Genes, Biological Medicine, Tele-communication and Chip areas etc. At the same time, accompanied with the vigorous development of internationalization in high-tech industry, the compliance issues related to high-tech have been more and

more popular. For example, the wide concerned case that a staff of a multinational company has been arrested by FBI because illegal purchased About Zhong Lun the important technical information of IBM, a Chinese American scientist Zhong Lun is a leading Chinese was arrested because of the export of some sensitive technologies and etc. full-service business law firm. In recent two years, the Compliance Team of Beijing Zhong Lun Law Firm Shanghai Office has dealt with quite a few similar legal issues. The firm has more than 240 partners and a thousand lawyers Generally, the above-mentioned legal issues can be divided into two and professionals in thirteen offices: Beijing, Shanghai, categories: the compliance issues in the IP cross-border cooperation and IP Shenzhen, , issues in the compliance legal issue. Those two categories not only refer , Qingdao, Tokyo, to quite professional legal issues but also technical issues to some extent. Wuhan, Hong Kong, Chengdu, Thus, it will be rather comprehensive and higher demanding to the attorney London, New York, Los Angeles and San Francisco. who is dealing with such issues. Zhong Lun has always carried on the

attorney specialized division in its practice. Not only to the Partners but Practice areas include: also the attorneys, Zhong Lun has promoted them to cultivate intensively Regulatory/Anti-bribery in a certain area. Therefore, if the legal issue is only related to IP or Real Estate Private Equity & Investment Funds compliance, Zhong Lun is more able to manage handily. To this point, Mergers & Acquisitions Dispute Resolution the clients have more direct experiences. However, if IP and compliance Construction & are involved in a same legal issue, although IP Team or Compliance Team Infrastructure can handle alone, it cannot ensure to provide the legal service with expert WTO/International Trade level to the client. This is obviously inconformity to Zhong Lun’s own Labor and Employment Securitization & Financial position and requirements. Products

Hospitality How to keep up with the requirements of our client’s development and Shipping provide our clients with all-weather and expert legal service? Regarded Capital Markets/Securities those problems as entry points, after seriously research, considering and Corporate/Foreign Direct Investment exploration, Zhong Lun has proposed and carried out the “Expert Banking and Finance Consultation System” regarding complicated legal issues. Currently, the Intellectual Property "Expert Consultation System" is limited to the legal issues involved IP and Antitrust/Competition compliance. I.e.: if there is any service which involved both IP Overseas Investments Taxation & Wealth cross-border cooperation in technology (especially in hi-tech) and Planning compliance, IP Team and Compliance Team will attend and cooperate in Bankruptcy & order to give full play to their professional advantage respectively to Reorganization improve the service quality and efficiency and consider risk control in the Technology, Media and Telecoms and same time so that Zhong Lun can provide the most expert legal service to Entertainment the client on the basis of cost saving for the client at the same time. The Environmental, Energy and specifics are as below: Natural Resources

I. Primary Estimation

For potential business crossed IP and compliance (e.g.: legal services regarding cross-border technology transfer and etc.), before conduct the specific legal service, we will arrange the attorneys who practice in those areas to jointly estimate whether that business will encounter the crossed legal issue in IP and compliance and to determine whether to initiate the “Expert Consultation System” or not. For instance, according to the Foreign Trade Law, the Regulation on Administration of Technology Import and Export and other rules and regulations, the technology import and export transaction shall get the license or conduct the registration of the contract according to the nature of the import and export transaction. And most countries have the similar regulations and rules in technology export, especially for military technology, nuclear technology, "dual-use" technology and other sensitive technologies, have set up some more stringent regulatory measures. Regarding those technologies which are regulated by governments, we think they all belongs to the legal service crossed IP and compliance and shall be pay attention specially.

For another example, the protect objects of US Economic Espionage Act is quietly wide which have included various information from commercial, science, technology, economy, engineering and etc. No matter tangible or intangible, no matter the methods of collection, storage and editing are text, graphics, photos, electronic or physical format, as long as the information meets the requirements of commercial secrets stipulated by the Act, the information shall be protected by the Act. So, in the commercial cooperation and technical cooperation with US company, the legitimacy of commercial secret source (including operation information and technical secret) shall be paid high attention in order to avoid the embarrassing that commit the crime in US although never go there. Therefore, in the commercial cooperation with US company, it’s quite popular that IP cross compliance, which shall be concerned specially.

The key point for this stage is to confirm the usage, nature of the involved object of the transaction, whether the object will be deemed as commercial secret and whether the legal service will cross IP and compliance etc. so that to estimate whether it needs to initiate the “Expert Consultation System”.

II. Jointly Discussion

Jointly Discussion is the core and key of “Expert Consultation System”. It shall be divided into three steps, i.e. splitting the issues → respective analysis → conclusions collection. The 1st and 3rd steps shall be completed by IP Team and Compliance Team jointly and the 2nd step be completed respectively by two Teams. For example, in the negotiation related to foreign technology transaction, IP Team is responsible to clear the type of the transaction object (such as to confirm whether the object is commercial secret and which kind of the commercial secret), deal structure, risk control and etc. while Compliance Team is responsible to ensure the legitimacy of the negotiation contents and transaction to avoid the serious legal risk caused by compliance issues. Additionally, because it is inevitably to disclose the whole or part content of the transaction object in the negotiation, during the negotiation, both Teams shall cooperate to record the send-receive of related materials in order to fix the evidence for the possible claim of contracting fault liability to protect the client’s commercial interests and rights.

For another example, in the compliance issues authorized by clients, the main working of compliance shall be borne by Compliance Team because, depending on the plentiful experience, Compliance Team are able to not only control the risk efficiently but also enhance the working efficiency up to the hilt to save the client’s cost. However, if the compliance issues involve commercial secret, especially technical secret, IP Team can make the judgment of the nature of transaction object according to Anti-unfair Competition Law, Foreign Trade Law, the Regulation on Administration of Technology Import and Export, other PRC laws and regulations and IP laws of foreign counties in applicable law. Then, Compliance Team can research the related legal risk based on the IP Team’s judgment.

The key point for this stage is farm-out, which is the core to “Expert Consultation System”. The target is to confirm the workload of IP Team and Compliance Team based on the different legal service requirement in order to maximize the efficiency and quality of legal service.

III. System Improvement

The “Expert Consultation System” of IP Team and Compliance Team is still on exploration stage. The target is to enhance the working efficiency and quality via the cooperation between two Teams. The proposal of System meets the law business development but needs further exploration in practice, especially in division of work. Based on our previous experience, we think below working policies shall be followed in practice of the System:

Regarding the efficiency, according to the working slips of Zhong Lun Timesheet Administration System, we need to analyze the cooperation between IP Team and Compliance Team to pick out and classify the rehandling work in order to overcome one by one. Of course, the statistics of rehandling work shall be conducted before the bill sent out to avoid the client’s economic burden.

Regarding the quality, according to the requirement of Jointly Discussion, all the important documents which will be sent to the foreign part, such as legal opinion, contract, agreement and etc., shall be reviewed by the other Team before finalized and sent out in order to avoid the mistake or omission caused by the professional limitations. If there is any problem found in reviewing, the problem shall be classified and concluded and some frequent problems shall be overcome gradually during the system improvement as much as possible.

This stage is the conclusion and enhance for the “Expert Consultation System”. The target is to improve the system constantly in order to make the system mature and regular.

With the development of science and technology and the diversity of social, it will be more and more popular that several legal issues are involved in one legal matter. The advantage of Zhong Lun is there is no shortage of expert attorney in each legal practice area. If there is a platform for all the related attorneys to put heads together and complement each other’s advantages, all the complicated legal issues can be solved readily. The “Expert Consultation System” is only a preliminary exploration and attempt which we hope be benefit for related exploration.

COMPLIANCE EVENTS

The New Standard of Travel Expenses for Civil Servants will be effective from New Year’s Day of 2016 Serious Consequences will be Occurred by Exceeding the Standard

According to the website of Ministry of Finance, since January 1, 2016, the Central Government and State Organs will execute the new standard of travel expenses for Civil Servants. So far the red line of “eating, staying and transporting” of Civil Servants’ business travel has been re-delimited and the standard has been more and more detailed. From now on, Civil Servants shall pay more attention to avoid exceeding the new standard. Otherwise, serious consequences will be occurred – not only be requested to recover the irregular fee but also be punished by a notice of criticism.

 Learn more, please click:

http://www.ocn.com.cn/hongguan/201512/sgnrn20100703.shtml

The General Counsel has to Attend the Board meeting if the Legal Concerned Issues are under Deliberation

From now on, when the board meeting of State-owned Enterprises is held to deliberate some legal concerned issues, the General Counsel has to attend the meeting and provide the related legal opinions. Meanwhile, compliance operation and other running enterprises according to law will be incorporated into the evaluation system of the business leaders of State-owned Enterprise. That is stipulated by the Opinion of Boosting the Comprehensive Construction of Running State-owned Enterprise according to Law (“the Opinion”) promulgated by SASAC recently.

The Opinion request to strengthen the capability of running the enterprises, intensify the compliance operation nd standardize the management according to law. To 2020, according to the requirement of the Opinion, the capability of State-owned Enterprise to run the enterprise according to law shall reach the advanced level in the international same industry.

Regarding compliance operation, the Opinion requests to perfect the legal decision-making mechanism, strictly implement the procedure requirements, such as employee’s participation, expert argumentation, risk evaluation, legal audit, group decision and etc., improve the legitimate approval mechanism for serious decision-making to ensure that any legal concerned issue which hasn’t passed or failed the legitimate approval cannot be submitted to the board meeting for deliberation.

 Learn more, please click:

http://news.xinhuanet.com/legal/2016‐01/19/c_128641689.htm

Supreme People’s Procuratorate has intensified the effort on pursuing corruption persons

Mr. Cao Jianming, the Chief Procurator of Supreme People’s Procuratorate, has delineated the main tasks for nationawide Procureur de la Republique to complete in 2016 which include: strictly strike the crimes of endangering food and drug, set up the normalization mechanism for international pursuit and recover the booties, perfect the reporting mechanism for finding false and mishandled cases and plan and promote 4 reforms.

 Learn more, please click:

http://www.nmg.xinhuanet.com/home/fz/fznmg/2016‐02/17/c_1118070438.htm

CPC Central Commission for Discipline Inspection: Pierce the Camouflage of Disguised Bribery

The attitude construction is related to people’s feelings and survival of our Party. Since the 18th Congress, our Party has strictly implemented the 8 stipulations of the central government and continuously boosted the activity against “four customs” with unprecedented efforts and got obvious effects so far. However, “four customs” has strong refractoriness and repeatability, especially, although it seems improved of some “four customs” problems ostensibly, actually, because of the high pressure, “four customs” has been retrofitted, hidden and transformed. Therefore, the workload to avoid rebound is still arduous.

Construction of working style is always on the road. The 6th plenary session of the 18th CPC has raised pay close attention to the new trends and performance of the unhealthy tendency to find the invisible variation of “four customs”. It shall be more restrict along the time being. Recently, based on the investigation report of typical “four customs” cases and statistics of the local, the Disciplinary Committee of Hangzhou in Zhejiang Province has appointed out the various smoke screen of “four customs” so that no matter how variation of those who conducted unhealthy tendency activities, it cannot be escape from the eyes of disciplinary executors.

 Learn more, please click:

http://www.ccdi.gov.cn/yw/201602/t20160217_74381.html

US Strengthen the Investigation to Enterprise Bribery Overseas

After a more depressing year of overseas anti-bribery, US Prosecution has amplified its effort to adopt the Carrot and Stick method to the investigation of overseas anti-bribery cases.

The Department of Justice of US has urged the companies to submit the evidence regarding the illegal activities of senior managements. At the same time, it has enhanced the human power for the investigation and prosecute departments which are related to the violation to FCPA.

 Learn more, please click:

http://www.chinadaily.com.cn/hqgj/jryw/2016‐02‐12/content_14543003.html

CASE EXPRESS

A US Software Company has been fined USD1.45 million because of suspected bribery to Chinese Officials

PTC, one of the manufacturers of software in US has entered a settlement agreement with the Department of Justice and SEC of USA that PTC shall surrender USD28,000,000 as the settlement fee to end the investigation regarding issue that PTC has provided the travel and entertainment to some Chinese officials.

According to the agreement, PTC shall pay the fine with amount USD14,500,000 to the Department of Justice of US so that it can get the immunity from prosecution. Meanwhile, PTC shall return the illegal profits with amount USD11,900,000 together with the interests of USD1,800,000 to SEC. Both the Department of Justice of US and SEC have expressed that, according to FCPA, both authorities have entered the settlement agreements with PTC.

Further, SEC has declared that SEC has entered an agreement to postpone the prosecution with Kaiyuan Yu, the former employee of PTC’s subsidiary in China. According to the agreement, SEC will postpone the prosecution regarding his suspected violations to FCPA for 3 years. The reason is Kaiyuan Yu has provided great cooperation during the case investigation.

This is the first time that SEC has entered a postpone prosecution agreement with an individual in an overseas anti-bribery case.

 Learn more, please click:

http://business.sohu.com/20160217/n437621262.shtml

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