Is Your Company Blacklisted?
Is Your Company Blacklisted?
Vincent Zhu, Executive Director and Senior Partner
Recently, one Shanghai company was told that it was blacklisted. The reason for which was unknown to the director of the company since nothing was done illegally.
The official department related expressed: “The company did not submit the annual report before the end of June which makes the department think it had abnormal business operations. What’s worse, it has not taken timely remedial measures. For this reason, we have added it in the ‘list of enterprises with serious breaches of law, and discredited enterprises’.”
Was there notice before the company was blacklisted? Yes!
In order to encourage every enterprise to submit the annual report on time, State and Local Administration for Industry and Commerce (AIC) departments are trying every possible way, including letters, messages, and official accounts of WeChat to remind companies. At the same time, major media has reported several times that enterprises could be included in the “list of enterprises with abnormal business operations”, even the “list of enterprises with serious breaches of law and discredited enterprises”, the so-called “blacklist” if they failed to submit the annual report in time.
In fact, many enterprises do not have a basic understanding of the “blacklist” meaning. We will introduce the “list of enterprises with serious breaches of law and discredited enterprises” below.
What is the “list of enterprises with serious breaches of law and discredited enterprises” or “blacklist”?
According to the <Interim Measures for the Administration of the List of Enterprises with Serious Breaches of Law and Discredited Enterprises> (“<the measure>”), the “blacklist” refers to those enterprises who violate laws or administrative regulations governing AIC, and the circumstances are serious. Those companies will be blacklisted and information will be made public available to everyone who searches for it. The list is recognised as a measure for the AIC to strengthen market supervision.
Every department has different types of lists, the list concerned in this article just involves supervision of the AIC. For instance, the company who publishes a false advertisement could be put in the “blacklist” while, at the same time, being included in the “list of dishonest person subject to execution” if it refuses to fulfil the obligations imposed by effective legal instruments.
In which circumstances will the enterprise be listed in the “blacklist”?
According to <the measure>, if an enterprise falls under any of the following circumstances, the AIC at the county level or above will include the said company in the scope of the administration of the list of enterprises with serious breaches of law and discredited enterprises:
a.The enterprise still fails to perform the relevant obligations within three years after being included in the list of enterprises with abnormal operations;
b.The enterprise gets its registration revoked due to obtaining alteration registration or de-registration by concealing important facts by way of submitting false materials or by other fraudulent means;
c.The enterprise organising and planning pyramid schemes, or receiving three or more administrative penalties within two years due to provision of convenient conditions for pyramid schemes;
d.The enterprise receiving three or more administrative penalties within two years due to illegal acts in direct selling;
e.The enterprise receiving three or more administrative penalties within two years due to unfair competition acts;
f.The enterprise receiving three or more administrative penalties within two years due to inconformity of commodities or services provided with the requirements of personal and property security, thus causing personal injury and other serious violations of consumers' rights and interests;
g.The enterprise receiving three or more administrative penalties within two years due to the release of false advertisements or releasing false advertisements for commodities or services related to consumers' life and health, thus causing personal injury or other serious harmful impacts on society;
h.The enterprise receiving two or more administrative penalties within five years due to trademark infringements;
i.The enterprise being subject to the decision of stopping the acceptance of trademark agency business; and
j.Other serious violations of AIC laws and other administrative regulations specified by the SAIC.
Key point to take away
Only the enterprise who remains incorrigible despite repeated admonition shall be punished severely!
At first, enterprises will be included in the “list of enterprises with abnormal business operations” if they do not submit annual reports in time. If they still refuse, or ignore, to take remedial actions to improve the abnormal business operation, what’s ahead of them is the “list of enterprises with serious breaches of law and discredited enterprises”. It is merciful to provide them with a long provision of time to change.
What are the consequences of being included in the “blacklist”?
There are two circumstances:
First, the direct negative effects in the AIC which are stipulated in <the measure>:
a.Such enterprises shall be listed as main targets for supervision and administration work (Routine inspections will be obviously frequent and the matters involving business registration may be harder.);
b.The legal representative or principal of any enterprise included in the “blacklist” shall not serve as the legal representative or principal of any other enterprise within three years;
c.They shall not let such companies pass the qualification review for the application to be publicised as "contract-abiding and creditable" enterprises;
d.They shall not grant any relevant titles of honour to such enterprises.
Second, enterprises will undergo other limitations because of the measures of sharing information and punishment of losing credibility.
To give a vivid example; when a person blacklists you due to some misbehaving, you will most probably be blacklisted by his/her friends too.
This refers to the idea that in order to regulate the enterprise's behaviours, the joint effort of different departments and affiliates are encouraged by the Chinese government to build a trustworthy system. Once an enterprise is included in the blacklist, the record will be received by other departments, financial institutions, and social credit information agencies which will lead to the company suffering other negative treatments. For example, they would be limited and banned in government procurement, project bidding, transfer of state-owned land, and honour granting activities. In addition, financial institutions would refuse to provide a loan. Even WeChat could refuse their application for official accounts.
Conclusion
The blacklisting of an enterprise means that the enterprise has had serious breaches of law, or has abnormal business operations with risks. We recommend that it is meaningful for you to check whether a counter-party is blacklisted in business.
