Prevention of crimes in the sphere of entrepreneurial activity in modern China

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PREVENTION OF CRIMES IN THE SPHERE OF ENTREPRENEURIAL ACTIVITY IN MODERN CHINA

Pang Dongmei, Nikolay Olkhovik

Annotation

This article is devoted to crimes in sphere of entrepreneurial activities in modern China. The authors propose to define notion of criminality of entrepreneurs as complex of crimes, related to entrepreneurial production and management, committed by individuals, who are seized of certain resources, and have certain powers in business and rights to make decisions at certain level at the enterprise, committed within specific territory during certain period of time. It is defined the situation and structure of criminality of entrepreneurs from 2014 to 2018, it is exposed its reasons and the authors suggest precise measures of its prevention.

Keywords: entrepreneur, criminality of entrepreneurs, criminal risks, prevention of crimes.

Аннотация

Dongmei Pang, Henan University (Kaifeng, China), Olkhovik Nikolay V., Tomsk State University (Tomsk, Russian Federation)

Пан Дунмэй, Н.В. Ольховик

ПРЕДУПРЕЖДЕНИЕ ПРЕСТУПНОСТИ, СВЯЗАННОЙ С ОСУЩЕСТВЛЕНИЕМ ПРЕДПРИНИМАТЕЛЬСКОЙ ДЕЯТЕЛЬНОСТИ, В СОВРЕМЕННОМ КИТАЕ

Ключевые слова: предприниматель; преступность предпринимателей; криминальные риски; предупреждение преступности.

Преступность предпринимателей включает в себя преступления, связанные с предпринимательским производством и хозяйствованием, совершенные лицами, владеющими некоторыми ресурсами, обладающими полномочиями в бизнесе и правом принимать решения определенного масштаба на предприятии, совершенные на определенной территории за определенный промежуток времени. Более половины всех преступлений, совершенных предпринимателями в Китае за последние 5 лет, составляют незаконное привлечение средств в форме вкладов от населения, фиктивная выписка специальных счетов-фактур по налогу на добавленную стоимость для получения обманным путем возвращаемой экспортной пошлины на экспорт, налога, покрывающего задолженности по налогам, незаконное присвоение с использованием служебного положения, договорное мошенничество, получение взятки. За последние 5 лет в структуре преступлений, совершенных государственными предпринимателями, преобладают получение взятки, коррупция, использование не по назначению общественных средств, самовольный раздел государственного имущества и незаконное присвоение с использованием служебного положения, что составляет более 70% от общего числа преступлений, совершенных государственными предпринимателями. Структура преступности частных предпринимателей представлена незаконным привлечением средств в форме вкладов от населения, фиктивной выпиской специальных счетов-фактур по налогу на добавленную стоимость для получения обманными путем возвращаемой экспортной пошлины на экспорт, налога, покрывающего задолженности по налогам, незаконным присвоением с использованием служебного положения, договорным мошенничеством и дачей взятки организацией, что составляет более половины от общего числа преступлений частных предпринимателей.

Преступность предпринимателей как негативное социальное явление обусловлена институциональными недостатками предприятий в функционировании, управлении, контроле и других звеньях.

Предупреждение преступности предпринимателей должно начинаться на самых ранних стадиях. Для преодоления криминальных рисков следует органически сочетать совершенствование концепции, механизма, организации и методов управления правовыми рисками с производством и управлением предприятия, чтобы сформировать систему эффективного предупреждения преступлений в сфере предпринимательской деятельности. В частности, внедрять в предпринимательскую деятельность положительные корпоративные культурные ценности, поощрять предпринимателей сообщать о негласных отраслевых правилах и практиках, осуществляемых другими, создать систему доступа к определенным отраслям и запретить предприятиям входить в эти отрасли после установления применения ими отраслевых негласных правил, продолжать трансформацию государственных функций, совершенствовать механизмы регулирования государственных предприятий.

Definition of notions

criminality entrepreneur prevention criminal

In sphere of criminology entrepreneurial crimes are attributed to the sphere of “white - collar” crimes, which have particular mechanism, it distinguishes them from other offences. The level of criminality of entrepreneurs is impartial mirror, which reflects advantages and unsatisfactory features of market and legal environments, as well as imperfection of cultural environment. [1. P. 11]. Nowadays, when China develops dynamically socialistic market system, the increase of entrepreneurial crimes invokes focused attention of the community. Nevertheless criminality of entrepreneurs is not a clear specific crime, it represents a complex of a range of crimes, which gives raise to concern a concrete identity of criminal. Definition of the notion of entrepreneurial criminality has common, controversial and approximate character. For a systematic and profound study of this negative phenomenon it is necessary to give a scientific definition of its content according to particular principles.

1. The notion of enterprise. Enterprise is not a permanent conception, which as a functional organization in a social system is constantly changing with de- 'This article was prepared within project of the National fund of social sciences of the People's Republic of China “Institute of the general part of Russian criminal law” (project' number: 16AFX008), and program of main projects in sphere of philosophy and social science in Henan University (project's number: 2019ZDXM005).

velopment of the community, especially in social and economic life. In modem China, where it is paid great attention to the development of socialistic market system with deep penetration of economic factors into all spheres of social life and economic activity, field and form of enterprise become more and more different, what makes us to review the conception of “enterprise”. However, main characteristic of enterprise, purpose of which is gaining profit and its economic quality, is permanent. According to real position of enterprises in social life, we can conclude that enterprise is socio-economic organization, which met the requirements, established by law, and carries out entrepreneurial activities aimed to profit extraction.

2. The notion of entrepreneur. Entrepreneur is a person, who influences greatly on business of an enterprise, whereas he has certain resources, definite powers in business and right to make decisions. This person can be identified as entrepreneur precisely because he has certain resources of enterprise, powers to make decisions and definite executive rights. It should be noted that it is necessary to distinguish an owner of enterprise and entrepreneur: in a state enterprise, where the state is an owner of an enterprise, all state entrepreneurs are high- ranking executives of enterprises, they run the business under state authority, although they control important state resources actually. Private companies can be resided to one or several owners, for example, there can be thousands of shareholders in a corporation (a company), but each of them cannot influence on administration or management of this company, it is obvious that they cannot be identified as entrepreneurs (such situations can be in a state enterprise as well). That is why possession of certain resources, definite powers in business and rights to make decisions should be specific feature of entrepreneur, represented by chairman, director, senior manager, etc. It seems that an entrepreneur with studying of mentioned crimes should be defined as a person, possessing certain resources, definite powers in business and rights to make certain decisions at enterprise.

3. The notion of entrepreneurial crimes. Crime of entrepreneur is characterized with subject of specific person, who has certain resources, definite powers in business and rights to make certain decisions at enterprise. Enterprise is an economic organization, consequently, entrepreneurial activity belongs to sphere of economic activity, and crimes of entrepreneurs are crimes, based on business and related to operation of this enterprise. Consequently, entrepreneurial crimes should be considered as economic crimes. Therefore, crimes of entrepreneurs don't include “all crimes, committed by entrepreneurs”, but just crimes, related to business activity, administration and management, committed by persons, possessing certain resources, definite powers in business and rights to make certain decisions at enterprise, committed on the premises of enterprise during certain period of time.

4. Situation and structure of entrepreneurial crimes Statistics of “Report on analysis of criminal risk of Chinese entrepreneurs” [2. P. 20-29] show that during 2014-2018 in China it was registered 8965 crimes, committed by entrepreneurs. Among them 1375 (15.34%) crimes were committed by state entrepreneurs, 7590 (84.66%) crimes - by private entrepreneurs. For the last 5 years number of entrepreneurs, who participated in entrepreneurial crimes, is 8412, among them 1197 are state entrepreneurs (about 14%) and 7215 are private entrepreneurs (about 86%).

Table 1

Structure of crimes, committed by entrepreneurs in China (2014-2018)

In 2014-2018 in structure of the most prevailing crimes, committed by entrepreneurs on the territory of P.R. China, 1527 (17.77%) crimes are Illegal raising funds as bank deposits from population; 971 (11.3%) crimes are fancy orders of particular invoices on value-added tax to receive by fraud refundable export tax on export, tax covering tax liabilities; 792 (9.22%) crimes are misappropriation by using official position; 538 (6.26%) are contract fraud; 530 (6.17%) are bribery. These mentioned 5 elements of crime constitute more than a half of all crimes, committed by entrepreneurs in the last 5 years. (table 1).

For 2014-2018 in structure of crimes, committed by state entrepreneurs, it is prevailed such crimes as bribery (481 or 35.01%), corruption (338 or 24.6%), inappropriate use of public funds (146 or 10.63%), unauthorized division of state property (67 or 4.88%), misappropriation by using official position (48 or 3.49%), what consists more 70% of common number of crimes, committed by state entrepreneurs for the last 5 years (diagram 1).

Diagram 1 Structure of crimes of state entrepreneurs in China in 2014-2018.

Statistics of “Report on analysis of criminal risk of Chinese entrepreneurs”

Diagram 2 The structure of crimes of private entrepreneurs in China in 2014-2018

Statistics of “Report on analysis of criminal risk of Chinese entrepreneurs”

In 2014-2018 the structure of crimes of private entrepreneurs is presented with illegal raising funds as bank deposits from population (1494 or 19.71%), fancy orders of particular invoices on value-added tax to receive by fraud refundable export tax on export, tax covering tax liabilities (955 or 12.60%), misappropriation by using official position (744 or 9.82%), contract fraud (520 or 6.68%) and bribery of organization (488 or 6.44%), which consists more than a

Analysis of situation and structure of the entrepreneurial crimes in China allows to come to the following conclusions:

1. Statistics for the period of 2014-2018 show that private entrepreneurs commit more crimes and its range is wider, than state entrepreneurs do.

2. Illegal raising funds as bank deposits from population and corruption are the most popular crimes in this structure.

3. Crimes, committed by state entrepreneurs for the last 5 years, are related to corruption.

4. Crimes, committed by private entrepreneurs for the last 5 years, can be divided on financial offences, corruption-related crimes and tax crimes. However in 2018, the number of tax crimes has been declined. At the same time private entrepreneurs are faced with increased criminal risk of bribery. In 2018, private entrepreneurs committed 166 crimes as “bribery”, what consists 46.5% of all committed entrepreneurial crimes for the last five years (166/357).

Comparative study suggests that even the number and variety of crimes of state entrepreneurs are significantly fewer than crimes of private entrepreneurs. Nevertheless, index of corruption-related crimes, committed by state entrepreneurs, has been always bigger than index of corruption-related crimes, committed by private entrepreneurs, in comparison with total number of committed crimes. The number of corruption- related crimes is increasing constantly every year. At the same time percent of corruption and bribery, committed by private entrepreneurs, is increasing quickly during just one year. Moreover, number and percent of bribery by organization and bribery in its subdivisions are extremely high, what constitutes majority of crimes, committed by private entrepreneurs, related to corruption and bribery. In addition, bribery of non-state employees is also at relatively high level. It proves that profit disposition and bribery have become the most important form of corruption-related crimes.

Determinants of committing of crimes by entrepreneurs

1. Negative company culture, based on profit seeking. The main purpose of creation of enterprise is receiving profit, that is why enterprises are faced with temptation of profit seeking from the very beginning of the company. In some branches there is a possibility to make a profit on breaches or even on criminal actions. As a result some entrepreneurs commit crimes under temptation of gaining profit during business dealing to get their commercial goals [3. P. 28]. If at the beginning of company it is created negative corporative culture, fully- based on profit, with no regard for corporate social responsibility, it is inevitable that entrepreneurs will choose criminal way. Particularly under the influence of negative corporate culture and after gaining profit by means of criminal actions, entrepreneurs were heavily supported by employees of their companies. It seems that corporate culture as a single intention to profit leads inevitably enterprises and its employees to profit and unfairness.

2. Dissolution of unspoken trade rules. Market-based economy is developing in particular legal conditions, and important fair trade rules demand observance of national rules and laws. When trade rules are recognized and applied within the law, they become “evident rules” of competition at the market [4. P. 278-279]. “Evident rules are legal norms, which should be observed under market relation, and only directed by “evident rules” market competition can be fair and regulated. Nevertheless, some market participants get competitive advantages and more opportunities in business by means of provision of relevant persons some discounts or by means of other tools, it forms gradually some unspoken trade rules. These rules destroy not only fair order of business competition, but they lead to the situation, when some entrepreneurs, who observe the rules, cannot succeed in business and they choose unspoken trade rules to get competitive advantages, and consequently, they choose criminal way.

3. Inadequate control mechanism over state-owned enterprises. According to special aspects of existed system of China, as usual, executives of state- owned enterprises have duel identity, in other words, they are managers of enterprise and at the same time they have status of state officials, and even some of them are members of CPPCC CPPCC - (Chinese people's Political Consultative Conference) is united patriotic front, it is a significant authority of multiparty cooperation and political consultations, headed by the Communist Party of China (CPC), it is an important form of the development of socialistic democracy in politics of China. Its activity is guided by principle “Consolidation and democracy”., deputies of National People's Congress¹ and so on, it allows to receive an access to tight resources, inaccessible to other subjects of the market. It leads to increasing of possibility of corruption among executives of state-owned enterprises. Absence of more severe control over them inevitably leads to corruption. Nowadays in China there is no effective regulative control over executives of state-owned enterprises. State-owned enterprises differ from private ones with the fact that owners of private companies can carry out a direct control over the person they engage, it allows to divide powers. Managerial functions of state enterprises come out of multilevel agent delegation, specifically: people ^ NPC ^ government ^ SASAC National People's Congress (NPC) is the highest organ of state power and the national legislature of China. State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC) - is a special commission of the People's Republic of China, which was founded in 2003 through the consolidation of other industry-specific ministries, in order to reform managing of state-owned enterprises. ^ state group of companies ^ state-owned enterprises ^ executives of state-owned enterprises. [5. P. 1-5]. Multilevel delegation can lead to absence of direct control, it means that people cannot control directly activity of executives of state-owned enterprises. The system of internal control of these enterprises won't be able to create effective restrictions to “superiority”, it leads to corruption among executives of state-owned enterprises.

4. Severe conditions of financing facilities. Crimes, related to illegal crowd funding and fraud by means of funding, are the most popular crimes, committed by private entrepreneurs in China. This is due to the fact that some entrepreneurs find difficult to get financing by legal means, and there is a lot of money, which the population doesn't know where to invest. Particularly these facts lead private entrepreneurs to committing of crimes.

Criminal-law measures of prevention crimes of entrepreneurs

In the opinion of several Chinese scientists during transition period of the development of business activity the government should correct its policy, directed to the priority of effectiveness, it should decide the problem of failure at market, which is associated to irrational institutional mechanism, it should help on creation of social credit system to restore gradually and to develop trusting relations between market subjects and this system, it should guarantee favorable functioning of market economic order [6. P. 71-77; 7. P. 28-29]. The government should take responsibility for creation and support of qualitative market order, in particular, for “massive reaction” of entrepreneurial crimes, today it is emergently necessary to change excessive criminal focus regarding economic management.

For the last decades Chinese criminal law in sphere of economic control shows apparently some elements of criminalization: firstly, after putting into effect the Criminal Code of the People's amount of which is related to financial crime; secondly, during publication of existed Criminal Code (the Criminal Code of the People's Republic of China of 1997) there were amended 283 elements of crimes: aside from around 180 elements of crimes, which were originally fixed in previous separate criminal-law acts and accessory criminal-law acts, there were added approximately 100 new elements of crimes, where about 40% are financial crimes; thirdly, following amendments were concerned to financial crimes as well. Despite of the fact that introduction of great number of new elements of financial crimes into the Criminal Code of the People's Republic of China has social reasons, there is a problem of excessive interference into economic life [8. P. 48-56]. Crimes of private entrepreneurs in general are unveiled by means of reports of complainants on crimes or according to the findings of proper authorities. Besides, during investigation of cases, related to private entrepreneurs, there arose frequently problems, concerned with changing of elements of crimes [9. P. 59]. Within this context, following the economic development, based on supremacy of law, it is necessary to deal with the problem of interference of criminal law into economy. Prevention of crimes in sphere of entrepreneurial activity should provide well functioning of market order at the level of criminal legislation and justice, and also it should avoid unnecessary interference on behalf of criminal law, which becomes obstacle to the development of market system.

According to new standards of business, based on supremacy of law, form of government control of market system should lie in the fact that government establishes rules and restrictions for more effective functioning of market, improvement of social welfare and protection of public interests. Therefore, it is necessary to follow “principle of responsibility” and “principle of crime reduction” in order to build or maintain fair order during defining economic sphere, where criminal law interferes.

Prevention of crimes of entrepreneurs should begin at earlier stages. In other words, it is essential to use measures of economic and administrative regulation to prevent crimes of entrepreneurs. Criminal law should not interfere until other branches of law and economic rules react [10. P. 22]. Hereby the government can remove criminal risks only if it provides a good institutional system and its fair administration.

Other measures of prevention of crimes of entrepreneurs

1. Determination of positive corporate cultural values. There is nothing wrong with the main purpose of enterprises with positive corporate culture and active social responsibility, which is to gain maximum profit. However, if an enterprise considers it as a single purpose, it is more probable that this enterprise and its employees could do everything possible to gain profits, including by means of violation of law. Consequently, emphasis on corporate social responsibility and including it into corporate culture encourages crime prevention. It seems that corporate culture should be focused on future stable development of enterprise; it should accept its public position, consider public interests in business process, refuse “bloody profit” and run business legally. Besides corporate culture should develop right values of employees in that way that they understand that observance of laws and social morals, social responsibility is necessary conditions of the development of enterprise. It is essential to turn observance of laws, devotion to the society and other main values into responsible actions of employees.

2. Creation of fair and well-ordered market system. In the absence of fair market environment, when entrepreneurs cannot get fair trade possibilities by means of legal measures, definitely, they will use unspoken trade rules to rich commercial success. At the same time majority of these rules contradict to moral principles and law, it increases risks to be prosecuted. Consequently, in addition to inner control among entrepreneurs, fair and well-ordered market system plays an important role in prevention of entrepreneurial crimes. To make this activity real it should be used such measures as: firstly, addressing to entrepreneurs to stand up against unspoken trade rules and to encourage them to report about these rules to make the market environment clear; secondly, to create a system of access to related branches and to forbid to enterprises to enter corresponding branches after it is determined their application of unspoken trade rules; thirdly, to continue transformation of state functions, paying attention to macroeconomic regulation and control over state markets, reducing direct interference of the executive authorities into concrete types of economic activity and reducing possibilities to immediate participation of government officials in economic activity.

3. Improvement of mechanism of regulation of state-owned enterprises. In order to improve the control mechanism over state-owned enterprises it is necessary:

a) to increase external control over state-owned enterprises. State-owned Assets Supervision and Administration Commission of the State Council of China, as direct regulator of state-owned enterprises, should observe work of enterprises attentively, focusing on using state assets, its added value, its flows etc., to prevent abusing of authority on behalf of top-managers of state-owned enterprises;

b) to increase control within enterprise, to create modern system of its management, to use to the full extent all subdivisions inside the enterprise in order to form effective restrictions for its managers;

c) to improve the mechanism of appointment of executives and top managers of state-owned enterprises by means of performance evaluation, disclosure of property and accountability, to provide legal, effective and controlling activity over the authority;

d) improvement of financing terms. Difficulties of financing is one of the main reasons, that crimes on fund-raising have high level among private entrepreneurs, that is why improvement of financing terms for private entrepreneurs plays an important role in prevention of crimes. Problems of financing of private entrepreneurs can be solved in following three directions: firstly, it is necessary to give support to companies, concerning micro-credits, and to improve conditions of business, encouraging them to loan small and mid-sized enterprises;

secondly, it is essential to encourage large banks to loan small and mid-sized enterprises in order to change current situation, when they finance only state- owned enterprises, large or global corporations, it can allow to get more possibilities for financing small and mid-sized enterprises; thirdly, it is necessary to reduce expenses on financing enterprises. For example, nowadays deposit-taking resources of large Chinese banks consist 16,5%, deposit-taking resources of small and mid-sized enterprises consist 13%. If the whole sum of reserved assets is reduced to approximately 10%, rate of financing of Chinese enterprises can be reduced at three positions. [11].

Summing up, modern Chinese entrepreneurs face with criminal risks, as temptation of profit and negative corporate culture, market chaos and unspoken trade rules, absolute authority without restrictions, insufficient financing and illegal fund-raising, what then leads entrepreneurs to crimes. In order to prevent these crimes it is necessary to promote positive corporate culture, considering social responsibility, to establish fair and well market order, to improve control mechanism over state-owned enterprises and to refine financing terms.

References

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3. Yan Shenly. (2018) Main criminal risks for entrepreneurs and preventive measures. News of the University of Technology of Huanghai. 9. pp. 28.

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7. Yan Shenly. (2018) Main criminal risks for entrepreneurs and preventive measures. News of the University of Technology of Huanghai. 9. pp. 28-29.

8. He Jungun. (2014) Economic freedom and efficiency of criminal law: defining limits of economic criminal law. Research on supremacy of law. 3. pp. 48-56.

9. Zhang Yuanhuang & Chen Chenun. (2013) Report on analysis of entrepreneurial crimes and prevention of criminal risks (vol. 2012-2013). Beijing: Beijing University.

10. Zhang Yuanhuang. (2015) Report on Chinese entrepreneurial crimes. News of Henan Police Academy. 1. p. 22.

11. SOHU. [Online] Available form: https://www.sohu.com/a/228136328_99932307 (Accessed: 3rd May 2019).

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