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Rising cyber fraud has prompted China¡¯s latest implementation of the joint punishment measures, which extend penalties to offender companies and restrict their operations

Statistics reveal that more than 34,000 individuals were prosecuted for telecoms and internet fraud nationwide from January to October 2023, a nearly 52% year-on-year increase.

To tackle the growing threat, the Ministry of Public Security, People¡¯s Bank of China and other authorities have introduced a rigorous and comprehensive framework to monitor, co-ordinate, restrict and penalise transactions involving bank and non-bank payment accounts.

The first explicit and comprehensive guidelines on punitive measures were unveiled on 1 December 2024 by the Ministry of Public Security ¡ª in collaboration with the National Development and Reform Commission, Ministry of Industry and Information Technology, and People¡¯s Bank of China ¡ª implementing the Joint Punishment Measures for Telecommunications and Internet Fraud and Related Crimes.

Compared to the Notice on Punishment of Individuals Involved in the Sale of Bank Cards or Accounts, issued by the People¡¯s Bank of China and Ministry of Public Security, the measures expand the punishment targets from individuals to entities. This means businesses, as entities, will face significant restrictions on their operations.

This article analyses the potential impact of the measures on penalised enterprises.

Punishment targets

In the first place, the measures target enterprises engaged in particular illegal activities including the misuse of phone cards, IoT cards, landlines, telecoms lines, SMS ports, bank accounts, payment accounts, e-CNY wallets and internet accounts.

Specifically, such violations involve: buying, selling, renting or lending these resources; opening accounts under false identities or fabricated agency entrustment; and performing real-name authentication for others for illegal purposes.

Penalties apply only if these actions are confirmed by a public security organ at municipal level or above.

The measures also set a minimum threshold for violations: (1) buying, renting, lending or assisting with real-name authentication for three or more above-mentioned cards or accounts; (2) buying, renting, lending or assisting with real-name authentication for above-mentioned cards or accounts three or more times; or (3) conducting such activities for more than three subjects.

Finally, enterprises meeting these criteria must be confirmed by a public security organ at municipal level or above. Those falling short of the quantitative thresholds may still be subject to penalties if approved by a public security organ at provincial level or above.

The measures

The measures classify penalties into three categories, namely: financial punishments; telecoms network punishments; and credit-related punishments. These punishments are likely to have a more profound impact on businesses than on individuals.

Financial punishments. There are three approaches: (1) restricting non-counter cash withdrawal functions of the offenders¡¯ bank accounts and e-CNY wallets, except for payment of withholding taxes and social security; (2) suspending services for the offenders¡¯ payment accounts; and (3) ceasing the opening of new payment accounts and real-name e-CNY wallets for the punishment targets.

Consequently, if a business faces financial punishments, payment accounts such as Alipay, Tenpay, UnionPay QuickPass and Lakala will be deactivated, leaving only counter-based withdrawals from bank accounts for operations, significantly reducing operational efficiency.

Telecoms network punishments. Punitive action adopted by telecoms operators and internet service providers against offenders features: (1) restricting functions and ownership transfer for phone cards, IoT cards, landlines, telecoms lines and SMS ports; (2) limiting functions and services of internet accounts involving fraud risks; and (3) ceasing new services for the above-mentioned cards and devices, as well as the distribution and release of websites and applications.

Credit-related punishments. Offenders will be included in the list of seriously dishonest entities for engaging in telecoms fraud and cyberfraud. Their information is added to the financial credit database, shared on the national credit information platform, and disclosed on the Credit China website.

Such penalties restrict businesses in activities like financial loans, credit approvals, bidding and government procurement, while also impacting operations such as business registration changes, tax invoicing and banking transactions.

Punishment durations

The measures implement a tiered punishment system. According to article 9, different punishments and targets are subject to durations of three years or two years, with a maximum continuous enforcement period of five years. Compared to the five-year term under the notice, the measures better reflect the principle of proportionality in punishment.

The measures also clarify the starting point for punishment durations. For enterprises held criminally liable, the duration begins from the date the judgment takes effect. For those not involving criminal liability, it starts from the date of determination by the municipal-level public security authority.

Remedies

Once a company finds its cards or accounts being restricted, it should promptly contact the issuing institution to gather details such as the enforcing authority, reasons, type and duration of the restriction. This allows the company to assess whether the restriction falls under joint punishment measures or if there are errors in the decision.

If the company disputes the decision or finds the restriction surviving the stipulated duration, it can appeal to the public security authority responsible for the decision. The authority must, within three working days of receiving the appeal, inform the appellant of the required materials to be submitted.

Further appeal procedures follow the guidelines outlined in the Notice on Establishing a Reporting and Transfer Mechanism for Telecommunication and Internet Fraudulent Account Transactions.