Newsletter
Criminal Risks of False Labeling Should Be Highly Concerned by Enterprise Representatives
I. Introduction
Merchandise that is improperly or falsely labeled with regard to the country of origin, manufacturer(s), production date, expiry date, merchandise permit number or inspection number is likely to violate the law of making false marks under the offenses against agriculture, industry and commerce, or even other criminal offenses such as fraud. Most enterprises are unaware or not cognizant of the said criminal liability risk. However, such criminal cases have been becoming increasingly frequent under the judicial practice. Over the years, our law firm has accumulated vast experience in handling related affairs. The following is our brief analysis of the criminal cases related to false labeling on merchandise.
II. Observation on Relevant Judicial Practices and Cases
(i) Relevant regulations
Paragraph 1 of Article 255 in the chapter of offenses against agriculture, industry, and commerce of the Criminal Code provides that "a person who intends to defraud another makes a false mark or indication on merchandise describing its country of origin or quality shall be sentenced to imprisonment for not more than one year, short-term imprisonment, or a fine of not more than thirty thousand dollars." Paragraph 2 of the same Article provides that "a person who knowingly sells a thing specified in the preceding paragraph, or intends to sell or imports a thing specified in the preceding paragraph shall be subject to the same punishment."
Paragraph 1 of Article 339 of the Criminal Code provides that "a person who by fraud causes another to deliver to him property belonging to such other or to a third person for purpose to exercise unlawful control over other’s property for himself or for a fourth person shall be sentenced to imprisonment for not more than five years or short-term imprisonment; in lieu thereof, or in addition thereto, a fine of not more than five hundred thousand dollars may be imposed."
(ii) Judicial Practices' Opinions
There are various sorts of cases that violate the Article 255 of the Criminal Code. Cases of the following nature are likely to face considerable criminal liability risks: (1) Merchandise that should have been submitted to the inspection authority for inspection was not properly inspected as a result of any act of negligence, but the relevant inspection number is still printed on the merchandise; (2) Merchandise of which the place of origin is mislabeled; (3) Merchandise printed with permit number is not in accordance with the permit number specified for the authorized merchandise.
Elsewhere, there are mixed views on whether the cases against Article 255 of the Criminal Code also constitutes the offense of fraud. Some judgments rule that the same conduct transgresses the aforesaid two statutes. Meantime, other judgments render that the nature of the offense of Article 255 of the Criminal Code entails fraud, and can be viewed as the special regulation of fraud; it accordingly should have precedence over the fraud related provisions. Thus, the transgression should not be deemed as a simultaneous offense of fraud. Still, other judgments rule that if the defendant does not proactively "pass off counterfeit merchandise as genuine one" or "pass off inferior goods as premium ones," or does not sell the merchandise at the price of genuine merchandise in order to rake in excessive gains, shall not constitute fraud accordingly.
(iii) Observation on the Criminal Cases
If there is a likelihood of violating Article 255 of the Criminal Code for false labeling of merchandise, the case may go to the District Prosecutors Office for prosecutors to investigate. Generally, the enterprise representative, who is likely to be listed as a defendant, is required to cooperate by explaining in person during interrogation with the police, investigation bureau or prosecutors office. The unsettling legal procedures of a criminal case might cause qualms and uneasiness for the enterprise representative, who is unaware of the details regarding the relevant merchandise. It is worth noting that even if the false marking of merchandise results from personal negligence of an enterprise employee, the enterprise representative usually is still liable to explain the case during criminal proceedings, should the case be under investigation. Moreover, if the administrative competent authority finds inappropriate labeling of the merchandise sold by the enterprise during routine sampling inspection, the authority may has internal regulations which requires the relevant case to be officially reported by the authority to the prosecutors office or investigation unit for criminal investigation.
Nonetheless, generally speaking, if the mislabeling of merchandise is due to a singular contingency, the likelihood to constitute "intention to defraud another" pursuant to Paragraph 1 of Article 255 of the Criminal Code should be relatively low. The enterprise may submit relevant evidence to explain that the process of selling or importing of merchandise is in compliance with laws and regulations, and thus the false labeling is no more than a single case caused by omission or errors in paper works. In addition, the enterprise representative, if listed as a defendant, who does not know the labeling process or is not the undertaker of merchandise labeling, can submit evidence to explain that due to hierarchical authorization, the said process has been delegated to staff and falls under the purview of other professionals in the enterprise. As such, the enterprise representative does not intend to "defraud another makes a false mark or indication on merchandise" as stipulated in Paragraph 1 of Article 255 of the Criminal Code. Furthermore, the defendant can elaborate that he/she does not have the motive to intentionally and mistakenly label if the merchandise being wrongly labeled in the single case has extremely low monetary value or are just giveaways.
If after the internal investigation by the enterprise, the case of false marking of merchandise does exist, and there is a high risk of constitution of violating Article 255 of the Criminal Code, the enterprise can still strive for a deferred prosecution order by actively collaborating with investigation and exhibiting good attitude, or strive for nolle prosequi (a non-indictment order) for specific member based on the evidence.
The enterprise representative is likely to be listed as a defendant as a result of mislabeling of merchandise and is required to cooperate with criminal investigation. A surprising receipt of relative criminal notice might cause the enterprise representative or the legal team to feel ambushed. However, given that the labeling of merchandise is meticulous and cumbersome work, from a cost perspective, an enterprise is less likely to request every labeling of merchandise to be reviewed by the legal team. In light of the foregoing, an enterprise is suggested engaging in regular legal training by lawyers, namely, to delegate a team of lawyers to offer training courses for the enterprise's marketing or trading specialists, in order to remind them of such criminal risk and is advisable to establish internal auditing standards. The above should be able to significantly lower the enterprise's operational risk.
III. Conclusion
To sum up, mislabeling of merchandise can potentially violate Article 255 under the offenses against agriculture, industry and commerce of the Criminal Code, on top of fraud offense pursuant to Paragraph 1 of Article 339 of the same Code. There are multiple details worth paying attention to under judicial practice. Negligence of auditing relevant labeling of merchandise or failure of educating and training employees on a regular basis is likely to result in the enterprise representative to accidentally be involved in the relevant criminal cases. An enterprise should particularly take the potential risk of business administration seriously as this can involve criminal responsibility. Thus, an enterprise is recommended delegating lawyers to provide relevant legal education training for the enterprise's directors, supervisors and its employees, to avoid criminal risk and maintain healthy development of the enterprise.