Criminal Law Amendment Approved: Strong Linkage With Securities Law To Remove The "Cancer" Of Fraudulent Issuance And Letter Fraud

Criminal law and securities law are strongly linked to remove the "cancer" of fraudulent issuance and false credit in the capital market.

On December 26, the 24th Meeting of the Standing Committee of the 13th National People's Congress deliberated and passed the amendment (11) to the criminal law (hereinafter referred to as the "amendment"), which will come into force on March 1, 2021. The amendment greatly increases the punishment of fraud issuance, information disclosure and other crimes, strengthens the criminal responsibility investigation of "key minority" such as controlling shareholders, and clearly takes the sponsor as the subject of the crime to investigate the criminal responsibility.

The deliberation and approval of the amendment is another major legislative activity involving the capital market after the completion of the amendment of the securities law at the beginning of the year. The low cost of illegal financial fraud, which has been criticized by the market, will also be solved through the implementation of this amendment.

No ceiling for false letter

In March this year, the newly revised Securities Law was formally implemented. Among them, there are far more severe administrative penalties for financial fraud than before, with the maximum penalty amount increased to 10 million yuan. However, compared with the financial fraud income of hundreds of millions, the administrative penalty of 10 million level is still "understatement", which is not enough to form a deterrent to the market. Therefore, during the year, the market has been calling for strengthening the linkage between the securities law and criminal law to further increase the cost of illegal activities.

In the amendment passed this time, the penalty for fraud issuance and information disclosure fraud has been greatly increased.

"Fraudulent issuance, false information disclosure and other illegal and criminal acts are the" cancer "of the capital market, and the amendment has greatly strengthened the criminal crackdown on the above-mentioned crimes," the CSRC said.

Specifically, for fraudulent issuance, the amendment increases the upper limit of the sentence from 5 years to 15 years, and changes the fine for individuals from 1% - 5% of the illegally raised funds to "and also a fine", cancels the upper limit limit of 5%, and increases the fine of units from 1% - 5% to 20% - 1 times.

For information disclosure fraud, the amendment increases the upper limit of the prison term of the relevant responsible personnel from three years to 10 years, and the amount of fine is changed from 20000 yuan to 200000 yuan to "concurrently fine", and the upper limit limit of 200000 yuan is cancelled.

"The fines imposed by the persons responsible for fraudulent issuance and letter fraud are not capped, which is extremely deterrent." A senior investment bank official said that in addition, the punishment for fraudulent issuance and letter fraud in the amendment has been revised to "and a fine", and in the future, it will be "both imprisonment and fine".

Lawyer Li Jian, deputy director of Zhejiang Yufeng office, also pointed out that the implementation of the new securities law has a greater deterrent effect on securities violations and violations in terms of administrative liability and civil liability, and this amendment to the criminal law has made up for the "short board" of criminal liability for securities crimes.

"Under the new system of criminal, administrative and civil accountability, the cost of securities violations has risen to the level of" losing everything and getting through the bottom of the prison ", which has laid a solid foundation for the comprehensive implementation of the registration system reform." Li Jian said.

At the same time, whether the relevant fine can compensate investors who suffer from financial fraud has become the focus of market discussion.

Li Jian said that although Article 36 of the criminal law and Article 220 of the securities law stipulate that civil compensation takes precedence over fines and administrative fines for securities crimes, in judicial practice, there is a lack of operational rules. Therefore, he suggested that a special compensation fund should be set up, and the appropriate proportion of securities crime fines and administrative fines should be used to compensate the injured securities investors.

Song Yixin, a partner of Shanghai hanlian law firm, also said that he hoped to return the money from the investor loss compensation fund to the market and victims through financial transfer payment. "The specific operation can expand the function of the investment protection fund in the securities market."

Investigate the criminal responsibility of "key minority"

At the same time, the amendment also improves other key areas.

For example, in practice, controlling shareholders and actual controllers often play an important role in fraud issuance, information disclosure fraud and other cases. Therefore, the amendment also strengthens the criminal responsibility investigation of "key minority" such as controlling shareholders and actual controllers. Specifically, the controlling shareholders and actual controllers should organize, direct the implementation of fraudulent issuance, information disclosure fraud, as well as the controlling shareholders and actual controllers' concealment of relevant matters leading to the disclosure of false information of the company into the scope of criminal law.

In this regard, Li Jian believes that the criminal accountability for "key minority" has indeed played a role in bringing the "big fish out of the net" to justice. However, he still pointed out that, compared with the concept of information disclosure obligors stipulated in the new securities law, the scope of sanctions in this amendment is still slightly conservative.

In addition, compacting the "gatekeeper" responsibility of the sponsor and other intermediary agencies is also an important content of this amendment. The amendment makes it clear that the sponsor is the subject of the crime of providing false certification documents and the crime of issuing serious untrue documents, which is applicable to investigate the criminal responsibility.

At the same time, for lawyers, accountants and other intermediary agencies who issue false certificates in securities issuance and major asset trading activities, and the circumstances are particularly serious, a higher level of imprisonment shall be clearly applied, and the maximum penalty is 10 years' imprisonment.

"Basically, it deterred the intermediary agencies that intentionally assisted financial fraud. In practice, the negligence of intermediary work would not trigger such a high sentence." The senior investment bank said.

In addition, the amendment also keeps effective connection with the amendment of the securities law. On the one hand, it is necessary to bring the deposit receipt and other securities recognized by the State Council into the scope of regulation of fraudulent issuance crime, so as to provide sufficient legal basis for cracking down on fraudulent issuance of depository receipts and other securities in the future. On the other hand, referring to the provisions of the new securities law, in view of the new situation of market manipulation, it is further clarified that criminal responsibility should be investigated for such new market manipulation behaviors as "deception trading manipulation", "bewitching transaction manipulation", "grabbing hat manipulation".

Song Yixin concluded that the amendment to the criminal law has made great strides in the pace of criminal sanctions against securities crimes. It can be summarized into four aspects: one is to broaden the scope. The new situation of market manipulation is also regulated by the regulation of depository receipts and other securities recognized by the State Council according to law. The second is to enhance the strength. From the term of imprisonment to the fine, the penalty intensity of fraud distribution, information disclosure and other crimes has been greatly increased. Third, highlight the object. That is to strengthen the criminal responsibility investigation of controlling shareholders and actual controllers. The fourth is the accountability intermediary. The criminal consequences of the non diligence and due diligence of the sponsor and other intermediary agencies should be compacted.

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