Administrative Settlements and Compliance Oversight

Corporate compliance was originally designed as an internal risk control mechanism aimed at addressing unlawful or improper conduct within enterprises. Over time, it has evolved into a core component of modern corporate governance. For an extended period, compliance either functioned as a means of self-regulation adopted voluntarily by enterprises to strengthen internal management or as a sector-specific tool of industry governance intended to promote self-monitoring and prevent destructive market competition. However, as enterprises have grown in scale, complexity, and specialization, traditional enforcement approaches—predicated on harsh punitive measures such as substantial fines, license revocations, and criminal penalties—have increasingly proven inadequate in addressing corporate misconduct. This is particularly evident in such areas as securities and futures, anti-unfair competition, anti-money laundering, and anti-commercial bribery. In these domains, administrative enforcement faces deeply entrenched and systemic challenges. Regulatory agencies often struggle to address the structural and cultural causes of widespread violations within large corporations. As a result, they frequently fail to detect or prevent structural illegality, and in some cases, even encounter regulatory failure. To enhance corporate supervision and compel enterprises to manage legal risks more effectively, governments across jurisdictions have gradually embraced the construction of compliance programs as a key strategy for regulatory oversight. Within administrative enforcement, this has led to the emergence of a dual-track model that combines traditional “deterrence-based” approaches with an “incentive-based” logic. Under this emerging model, regulators may offer leniency in exchange for demonstrable compliance efforts. For enterprises that establish effective compliance programs, regulators may refrain from initiating enforcement actions, consider the existence of a compliance framework as a mitigating factor in administrative penalties, or treat compliance commitments as a precondition for concluding an administrative settlement agreement. Through this process, compliance-based regulatory mechanisms have been progressively integrated into the administrative enforcement system in China.