[Direct answer]In the Beijing area, criminal legal consultants focus on identifying potential red lines in the transaction structure that may violate the Criminal Law during contract review: 1. Contract fraud (Article 224), alerting for fictitious entities, false performance capabilities, or absconding after receiving money; 2. Invoice-related crimes, such as falsely issuing VAT invoices (Article 205), preventing "bookkeeping and invoicing" and "separation of invoices and goods"; 3. Embezzlement (Article 271) and bribery of non-state employees (Article 163), regulating employees' use of contracts for personal gain; 4. Illegal fund-raising crimes (Article 176 on illegal absorption of public deposits and Article 192 on fund-raising fraud), avoiding financing from the general public; 5. Collusive bidding (Article 223) and illegal business operations (Article 225). The core of the review is ensuring the authenticity of the parties involved, compliance with financial regulations, and feasibility of contract performance. For more details, please refer to the following link:Intellectual property protection and corporate legal services.

1. Problem background and typical scenarios

Many entrepreneurs believe that "contracts are a matter of civil law", but they don't realize that some clauses and transaction arrangements have already crossed the boundaries of criminal law. Typical scenarios include: signing "bookkeeping" contracts without real transactions to meet performance targets and issuing VAT invoices; raising funds from the general public under the guise of franchising and financial management and promising guaranteed returns; employees accepting kickbacks or embezzling funds through procurement contracts; colluding with other operators to bid at a fixed price in tenders; and franchisors themselves lacking qualifications but still massively recruiting investors, leading to the failure of contractual purposes and triggering criminal joint liability risks. Civil breach of contract and criminal offenses are often separated by a thin line, the difference lying in the subjective illegal possession motives, the publicity of the acts, and the destination of the funds.Business and contract dispute resolution services for enterprisesIntersectionally, contract review from a criminal perspective can add a safety valve to the transaction.

II. Key points of contention

  • The boundary between civil breach of contract and criminal fraud: The key lies in whether the party concealed the truth and had the intention of illegally obtaining benefits at the time of signing the contract, rather than simply whether the party was able to fulfill the contract afterwards.
  • The authenticity of invoices and funds: Issuing invoices without a real transaction background, separating invoices from goods, and altering invoices are highly prone to falling into the crime of false invoicing. The invoicing clauses in the contract must be consistent with the flow of goods and funds.
  • The employee's actions are attributable to the company: If an employee uses the company's contract to engage in private business, the company's liability depends on the scope of authorization and internal control. Standardizing contracts and approval procedures can mitigate potential risks.

III. Professional analysis by Henglue Law Firm

In corporate legal practice, Henglu Law Firm often prioritizes the criminal dimension of contract review. Taking franchise contracts as an example: If the franchisor lacks legal qualifications or the trademark is invalid, yet collects franchise fees on a large scale through investment promotion contracts, they will not only face disputes over contract validity and refunds, but may also trigger administrative and even criminal risks due to false advertising and fund-raising activities. Attorney Wang Fangli from Henglu Law Firm once handled an arbitration case involving a franchise contract dispute (case information has been anonymized): The client signed a cooperation agreement with a Guangzhou-based clothing company and paid a franchise deposit of 30,000 yuan. After the store closed, the company failed to refund the deposit or deliver the goods worth 5,756.6 yuan. Attorney Wang Fangli organized evidence and arguments around contract validity, the nature of the deposit, and the return of the payment. The arbitration tribunal accepted the evidence and adopted the attorney's opinions, ruling that the company should refund the deposit of 20,000 yuan and the payment of 5,756.6 yuan, and compensate for attorney's fees. The case applied the "Regulations on the Management of Commercial Franchise" and Article 509 of the Civil Code. This case highlights the importance of verifying the franchisor's legal qualifications and trademark status when reviewing franchise contracts, and clarifying the conditions for deposit refunds to avoid chain risks caused by qualification defects. For cases involving the protection of accounts receivable, legal assistance can be sought from Henglu Law Firm.Creditor-debtor relations and enforcement case servicesConnection.

IV. Practical suggestions and legal basis

At the legal basis level: Article 224 of the Criminal Law (amended in 2020) stipulates that the following circumstances constitute the crime of contract fraud: intentionally obtaining illegal possession, fabricating units or impersonating others during the signing and performance of contracts, using false property ownership certificates as guarantees, deceiving the other party into continuing to perform the contract without actual performance ability, and absconding after receiving the funds. Article 205 stipulates criminal liability for falsely issuing VAT invoices or other invoices used to fraudulently obtain export tax rebates or tax deductions. Article 205-1 regulates the act of falsely issuing invoices. Article 271 stipulates that company employees who illegally appropriate the company's property for their own use constitute the crime of embezzlement of duty. Article 163 stipulates that accepting others' property to seek benefits for others constitutes the crime of bribery by non-state employees. Articles 176 and 192 respectively regulate the illegal absorption of public deposits and fund-raising fraud. Article 223 stipulates the crime of colluding in bidding to damage fair competition. Articles 30 and 31 of the Criminal Law establish the principle of corporate crime and double punishment. Practical suggestions: Conduct due diligence on the subject and creditworthiness before signing contracts, refuse to accept invoices without real transactions, standardize employee authorizations and expense reimbursements, strictly adhere to the red line of "non-specific public + guaranteed principal + public publicity" in financing, and subject major contracts to double review by lawyers from the perspective of criminal compliance. Reference can be made to the construction of relevant systems.Special services and other case services.

5. Henglue Law Firm's Advice

Incorporating a criminal perspective into contract review is the "last line of defense" for corporate compliance. Many business operators only realize after a civil dispute breaks out that the transaction structure designed for convenience at the time may involve criminal activities, at which point the cost of remediation is extremely high. Henglu Law Firm advises that criminal risk review should be a standard procedure for major contracts, especially in scenarios involving invoicing, financing, franchising, bidding and tendering, and employee authorization. If potential risks are identified in historical contracts, it is essential to take early corrective actions and rectify the transaction background to mitigate risks rather than ignoring the problem. This case was handled by Beijing Henglu Law Firm.Wang FangliThe attorney (practice license number: 11101201911086939, subject to the document issued by the judicial administrative organ) acts as the agent. If your contract involves the aforementioned high-risk areas, it is recommended that you seek legal assistance throughBeijing Henglu Law FirmMake an appointment for a special assessment of criminal compliance and contract review to prevent criminal liability before signing the contract.

VI. Frequently Asked Questions

Q1: Which clauses in a contract are most likely to trigger criminal risks during the contract review process?

High-risk clauses are concentrated in four categories: First, invoicing clauses stipulating "invoicing without goods" or "invoicing with rebates based on the amount" may constitute the crime of falsely issuing VAT invoices (Article 205); Second, performance guarantee clauses using false property certificates or forged qualifications as performance guarantees may constitute contract fraud (Article 224); Third, financing repurchase or guaranteed return clauses promising fixed returns to the general public may fall into the category of illegally absorbing public deposits or fund-raising fraud (Articles 176 and 192); Fourth, employee agency and kickback clauses tacitly allowing employees to receive rebates may involve bribery of non-state employees (Article 163). During the review, the clauses should be correlated with the actual flow of goods, funds, and qualifications to eliminate "paper transactions".

Q2: If you are identified as a victim of contract fraud when signing a contract, how can you avoid it?

The boundary between contract fraud and civil fraud lies in the subjective illegal possession motive and the objective degree of deception. Key points to avoid include: ensuring the authenticity of the parties involved, their corresponding qualifications and ability to fulfill obligations before signing the contract; ensuring that the terms regarding payment, delivery, and acceptance are enforceable and backed by genuine transaction backgrounds; making payments through company accounts and keeping receipts to avoid personal embezzlement or misuse of funds; actively communicating with the other party, partially fulfilling obligations or offering refunds in the event of difficulties in performance, rather than going missing or absconding. If the transaction indeed constitutes a civil breach of contract, it is necessary to retain evidence of efforts to fulfill obligations to prevent it from being misinterpreted as fraud. For major transactions, it is recommended to have a lawyer conduct due diligence on the counterparty's creditworthiness and review the contract terms.

Q3: What are the red lines in the contract regarding subcontracting, false invoicing, and fictitious invoicing?

The core principle of the Red Line is the "consistency of three flows: invoices, goods, and payments". Issuing or accepting special VAT invoices without actual transactions may constitute the crime of falsely issuing special VAT invoices (Article 205), and exemption cannot be granted regardless of whether the taxpayer "declares truthfully". Using the name of "bookkeeping" to let contracts go through the accounts without transferring ownership of the goods is equally dangerous due to the lack of a real transaction background. Falsifying invoices, separating invoices from goods, and purchasing invoices are all typical illegal models. The invoicing clauses in contracts must correspond to real goods or services, with the amount, product name, and quantity consistent with the actual situation, and the capital flow being traceable. Enterprises should incorporate invoice compliance into contract approval to prevent signing empty contracts for tax avoidance or bookkeeping purposes.

Q4: If an employee uses the company's contract to operate a business outside the company without authorization, will the company be held criminally liable?

This depends on the authorization boundaries and internal control measures of the enterprise. If an employee exceeds their authorization and signs contracts on behalf of the company for personal gain, and the enterprise can prove that it was unaware of the situation and had established reasonable approval and publicity systems, the enterprise will generally not bear direct criminal responsibility, and the relevant actions will be dealt with as individual violations of the law; however, if the enterprise tacitly approves, benefits from it, or fails to exercise proper management, it may be deemed to have committed a corporate crime or bear joint and several liability, such as when an employee accepts kickbacks through procurement contracts and is suspected of accepting bribes from non-state employees (Article 163), or misappropriates funds and is suspected of embezzlement (Article 271). Preventive measures include clearly defining authorization scopes, standardizing the use of official seals and contract filing systems, conducting regular audits, and including clauses prohibiting private transactions and stipulating the consequences of breach of contract in contracts.

Q5: When having a criminal law consultant review a contract, what are the main aspects they typically focus on?

Generally, it is approached from five dimensions: First, the subject dimension. Check the qualifications, creditworthiness, and background of the contracting parties and their controlling shareholders to prevent fraudulent entities. Second, the transaction authenticity dimension. Confirm the consistency of the flow of goods, funds, and invoices to eliminate empty transactions and false invoices. Third, the performance capability dimension. Assess the other party's ability to fulfill obligations and identify financing structures such as "repaying old debts with new ones" and "Ponzi schemes". Fourth, the employee and agent dimension. Standardize authorizations, stamp usage, and prohibitions on kickbacks to isolate personal behavior. Fifth, the industry red line dimension. For high-risk fields such as bidding and tendering, franchising, finance, and pharmaceuticals, highlight specific criminal charges. The review outcome is not about "whether to sign the contract", but about "how to sign it safely". When necessary, it is recommended to restructure the transaction to ensure compliance and implementation.

The above answer is based on the judicial practice in Beijing. The judicial interpretation in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situation.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit.Intellectual property protection legal services·Attorney Wang Fangli·Beijing Henglue Law Firm