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China is building Social Credit System (“SCS”) which is to promote the integrity and credibility of the whole society by establishing a credit record infrastructure network in accordance with laws, regulations, and standards. China’s State Council for the first time introduced a concept of credit-based supervision in its annual working report to National People’s Congress on March 5, 2019. After that the State Council issued the Guiding Opinion on Accelerating the Establishment of the Social Credit System and Building up a Credit-based Supervision Mechanism on July 9, 2019. Among others, Ministry of Human Resources and Social Security has issued a series of regulations and rules, alone or jointly with other ministries, to push forward the establishment of the credit-based supervision mechanism in the sector of social insurance.
1. Public Announcement of Significant Violations of Labor and Social Insurance Laws
From January 1, 2017, human resources and social security authorities started to publicly announce significant violations of labor and social insurance laws that have been panelized. Those significant violations include:
(1) improper deduction of wages or delinquency in payment of wages without valid cause, and the amount is relatively large; refusal to pay wages, leading to criminal liability;
(2) failure to participate in social insurance or make contributions to social insurance, which is serious;
(3) violation of provisions on working time and rest and vacation, which is serious;
(4) violation of protections for female employees and minors, which is serious;
(5) violation of prohibition of use of child labor;
(6) violation of human resources and social insurance laws which has serious adverse social impact; and
(7) any other significant violations.
Specifically, employers who have the above significant violations will face the following:
● public announcement of such significant violations at websites of human resources and social security authorities;
● public announcement of such significant violations at local media;
● inclusion of significant violations and their public announcements into employers’ records;
● inclusion of significant violations and their public announcements into SCS;
● joint sanctions (please refer to Section 2 for details).
2. Joint Sanctions
SCS adopts a principle of “Misconduct Somewhere, Restrictions Everywhere”. Therefore, the credit-based supervision mechanism aims to build up cross-region and cross-industry joint sanctions to deal with repeated illegal or untrustworthy conducts in the sector of social insurance. On November 22, 2018, Ministry of Human Resources and Social Security, together with other ministries and departments, jointly issued a Memorandum on Joint Sanctions (the “Memorandum on Joint Sanctions”), pursuant to which the concerned employers, employees and other related parties would not only receive penalties from the human resources and social security authority that is responsible for enforcement of their illegal or untrustworthy conducts, but also should expect restrictions and negative treatment from other government authorities.
2.1 Illegal or untrustworthy conducts subject to joint sanctions include:
(1) an employer’s failure to participate in social insurance and refusal to make correction;
(2) an employer’s failure to declare authentic social insurance contribution base and refusal to make correction;
(3) refusal to pay any social insurance premium payable;
(4) concealment, transfer, embezzlement or misappropriation of social insurance premiums and funds, or use of social insurance premiums and funds for illegal investments;
(5) participation in social insurance, declaration of social insurance and obtainment of social insurance fund expenses or social insurance benefits by fraud, falsified documents or other ways;
(6) Illegal obtainment, sale or trading of personal data of social insurance;
(7) Social insurance service agencies’ breaches of service agreements or relevant regulations;
(8) refusal to assist investigation and verification of accidents and problems by social insurance authorities and service agents; refusal to accept or assist supervision and inspection of social insurance by taxation authorities and failure to provide authentic materials and information;
(9) other violations of laws and regulations.
2.2 Information Sharing
Ministry of Human Resources and Social Security, General Administration for Taxation and National Healthcare Security Administration now share information with other ministries and departments through various ways including the following:
● National information sharing platform;
● Credit China（https://www.creditchina.gov.cn/）；
● National Enterprise Credit Information Publicity System （http://www.gsxt.gov.cn/index.html）；
● Websites of Ministry of Human Resources and Social Security, General Administration for Taxation and National Healthcare Security Administration
2.3 Joint Sanctions
According to the Memorandum on Joint Sanctions, joint sanctions include, without limitation, the followings:
● restrictions on recruiting people who have illegal or untrustworthy conducts to be civil servants or staff member of public institutions;
● increased frequency of inspection and audit;
● restrictions on application for financial subsidies and social insurance funds;
● restrictions on or exclusion from land purchase from government;
● restrictions on participating in government procurement and bidding activities.
3. Unified National Social Insurance Public Service Platform
Ministry of Human Resources and Social Security issued on September 24, 2019 a Guiding Opinion on Building a Unified National Social Insurance Public Service Platform, with a purpose to create a cross-region, cross-ministry and cross-level social insurance public service platform for pension, unemployment insurance and work-related injury insurance. The platform is to provide one-stop, collaborative and information sharing public services.
The platform consists of national social insurance public service platform and local social insurance public service platform.
The platform will share with other ministries and departments the credit records of employers, employees, social insurance service agencies and their staff it collects in the process of provision of public services. Relying on the credit records shared, other ministries and department will be able to impose joint sanctions.
The most recent effort in establishment of credit-based supervision mechanism is to blacklist those employers, employees and social insurance service agencies who have serious untrustworthy conducts in the fields of pension, unemployment insurance and work-related injury insurance in accordance with an Interim Provisions released on October 28, 2019.
4.1 Serious Untrustworthy Conducts
Serous untrustworthy conducts include, without limitation, the following:
(1) An employer fails to make social insurance registration even after receiving administrative penalty;
(2) An employer, an employee or a social insurance service agency participates in social insurance by fraud, falsified documents and other illegal ways, leading to more than 20 person-time operations or making a profit exceeding RMB 20,000;
(3) An employer, an employee or a social insurance service agency receives social insurance benefit by fraud, provision of falsified documents or other ways, exceeding RMB 10,000 or, even if not exceeding RMB 10,000, it refuses to refund the benefit as ordered;
(4) An employee or other persons, after the employee becomes ineligible, continue to receive social insurance benefit for a period exceeding 6 months, or amounting to RMB 10,000 under the circumstance of which he/she refuses to refund it as ordered or he/she fails to duly perform a signed refund agreement.
Once those employers, employees and social insurance service agencies who have serious untrustworthy conducts are blacklisted,
● Human resources and social security authority will publicly announce the blacklist on its website, Credit China and through other medias;
● Human resources and social security authority will share the blacklist with other national credit information platforms and all other ministries and departments will impose joint sanctions pursuant to the Memorandum on Joint Sanctions.
5.1 Right to Raise Objection and Defend
For example, employers may raise objections to public announcement of significant violations of labor and social insurance laws and upon receiving such objections, the relevant human resources and social security authority shall review the public announcement decision; the Interim Provisions on blacklisting requires human resources and social security authority to give prior notification and the involved parties have the right to present its case before blacklisting.
5.2 Credit Repair
Credit repair allows anyone who has illegal or untrustworthy conducts to correct its untrustworthy conduct and eliminate adverse effect within a time limit through various ways including, without limitation, making credit commitment, completing credit rectification, passing credit check, accepting credit trainings, submitting credit reports, participating in public welfare activities. Once credit is repaired, all related ministries and departments shall immediately cease public announcement of credit records and joint sanctions.
Depending on specific situation, anyone who has illegal or untrustworthy conducts has the right to appeal to the higher-level administrative authorities or the court when it receives the ruling from the relevant human resources and social security authority.
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