Criminal risk of professional embezzlement in M&A

In a market-oriented economy, resources can be optimally allocated through mergers and acquisitions (M&A). An M&A is a complex process, harbouring large legal risks. How to avoid such legal risks is one of the most important matters in M&A activities. However, criminal risk is an area that draws relatively little attention in M&A legal services.

An M&A involves the reallocation of different companies’ assets. As for companies with less sound financial systems, the company’s property can be easily confused with the property of the company’s shareholders or senior officers. If, at the M&A segment, the disentangling of the confused property is difficult, the problem of the company’s shareholders or senior officers possessing the company’s property may arise, which could easily trigger criminal risk. The entry point for the discussion in this article will be the identification of “taking advantage of one’s position” in the crime of professional embezzlement.

Pursuant to article 271 of the Criminal Law of China, the term “crime of professional embezzlement” means that any employee of a company, enterprise or any other unit who, taking advantage of his position, unlawfully takes possession of the money or property of one’s own unit, with the amount being relatively large. From this definition, it can be concluded that the crime of professional embezzlement has two major components: “taking advantage of one’s position”; and “unlawfully taking possession of the money or property of one’s own unit”. The former is the most controversial issue in the constitution of this crime and has become the core of the identification of the crime of professional embezzlement.

Liu Zhaojun is a partner and Peng Fu is an associate at East & Concord Partners in Wuhan