Controversy over the Misappropriation of Public Funds by State-Owned Enterprise Cadres

Introduction to the controversy over the misappropriation of public funds by state-owned enterprise cadres

In judicial practice, there have been effective precedents: due to the restrictions of state-owned enterprise policies, a platform company was set up in the name of a natural person, and the funds were used for the unit's project. After the superior unit confirmed and formed a debt relationship with the unit, even if the industrial and commercial registration showed that it was a natural person shareholder, it did not constitute the crime of misappropriating public funds. The experience of 72-year-old state-owned enterprise cadre Ren Yuquan is highly similar to this publicly tried case. Similarly, the state-owned enterprise was in a difficult operating situation, and due to policy restrictions, it could only be registered in the name of a natural person, and public funds were used for verification and circulation. However, the outcomes of the two cases were vastly different.

What is the real misappropriation of public funds? It's not just about whether the funds have passed through a personal account, nor is it just about whose name is written on the industrial and commercial registration. The Supreme People's Court's Memorandum on Economic Crime Trials clearly states: "If the unit's person in charge disposes of public funds for the benefit of the unit without seeking personal gain, it shall not be convicted of the crime of misappropriating public funds." The effective acquittal judgment of the Guizhou Higher People's Court (2001) Qian Gao Xing Er Zhong Zi No. 175 is a typical representation of this judicial spirit.

A case of misappropriation of public funds: the leader of a state-owned enterprise instructed others to set up a company to obtain a loan of 1 million yuan, and there was a debt relationship, so it was not guilty.

First, let's look at this publicly tried case: in this case in Guizhou, the provincial government's Green Production Office planned to set up a "Green Industry Beijing-Tianjin Window" project in Tianjin, and allocated 1 million yuan in fiscal funds. Originally, the project was to be undertaken by Zhongxing Company, but Zhongxing Company could not meet the guarantee conditions, and the project was stalled. In order to keep the government's Beijing-Tianjin Window project, the parties involved, Shen and Cai, discussed and decided to set up a company called Longsun in the name of a natural person to undertake the government project, and the funds were used for the project's operation. The case-handling authorities initially accused the two of misappropriating public funds and made a guilty verdict in the first trial. The Guizhou Higher People's Court reversed the verdict and ruled that the two were not guilty in the second trial. The core reason for the judgment is worth considering:

Although Longsun Company was registered as a natural person, the company actually undertook the government's Beijing-Tianjin Window project; after the provincial Green Production Office meeting confirmed that Longsun Company undertook the project and undertook the obligation to return the 1 million yuan in funds, a debt relationship was formed with the superior unit. The purpose of the behavior was to promote the unit's project, not for personal gain, so it did not constitute the crime of misappropriating public funds.

The key logic of the judgment in this case is: it cannot be mechanically applied to the surface information of the industrial and commercial registration to determine the nature of the case; it must penetrate the form and look at the substantial purpose; the funds were used for the unit's project, and after the superior unit confirmed the undertaking entity and confirmed the repayment obligation, a debt relationship was formed between the units; there was no evidence to prove that the behavior was for personal gain, so it did not meet the core constituent elements of the crime of misappropriating public funds, which is "public funds for personal use".

Back to the case of Ren Yuquan: the background of the two cases is highly similar. A labor model's 12-year ups and downs: after insisting on principles, he hopes for a fair response from the law. Let's take a look at Ren Yuquan again. The two cases have a striking similarity in their background. In 2007, Ren Yuquan took over the state-owned Dazhong Company, which had been out of business for four years. The company's business license was invalid, and it could not obtain a coal operating permit, leaving hundreds of employees without a guarantee of livelihood, and the pressure to maintain stability was huge. Due to policy constraints at the time, the threshold for state-owned enterprises to set up new companies in other locations was extremely high, and it was impossible to directly register a new state-owned entity. In order to revitalize state-owned assets and solve the employment problem of 131 employees, Ren Yuquan and others discussed a detour: registering a company called Jinhua Energy Co., Ltd. in the name of a natural person as a platform for Dazhong Company's external operations, in an attempt to obtain a coal operating permit.

To complete the verification, 5.5 million yuan was transferred from Dazhong Company's account to Jinhua Company for registration and verification. The funds were temporarily circulated, and 5.4 million yuan was returned within 10 days, with the remaining 100,000 yuan fully returned during the trial. Ren Yuquan did not take any personal benefits from it.

Afterwards, the Shanxi Energy Group Company issued several formal documents, confirming that Jinhua Company belonged to the group company's directly affiliated enterprise; the case-handling authorities also transferred all the certificates and procedures of Jinhua Company to the Shanxi Energy Group Company for management in 2009.

However, the outcome of the case was different from the Guizhou acquittal case: the final trial judgment only relied on the industrial and commercial registration showing that Jinhua Company belonged to a natural person shareholder, and determined that the funds belonged to misappropriated public funds for personal use, and ruled that Ren Yuquan constituted the crime of misappropriating public funds.

The accumulation of more than a decade of expectations: why is an old state-owned enterprise cadre insisting on appealing for a retrial and exoneration?

Combining Ren Yuquan's submitted appeal materials and comparing them with the Guizhou Higher People's Court's acquittal case, this case has raised multiple legal controversies:

Controversy 1: Is it ignoring the substantial background of the case by only looking at the industrial and commercial registration? The Guizhou Higher People's Court's judgment has already suggested that industrial and commercial registration is only a form of external publicity, and judicial convictions should penetrate the form and examine the true purpose of the behavior. Ren Yuquan's side submitted evidence showing that the establishment of Jinhua was aimed at solving the difficulties of the state-owned enterprise and arranging employment for employees; the opening expenses were reimbursed by Dazhong State-owned Enterprise, and all certificates and procedures were transferred to the state-owned group company for management afterwards, and the superior unit issued documents confirming its status as a directly affiliated enterprise. So, is Jinhua Company a company for Ren Yuquan's personal gain, or is it an operating platform set up for the self-rescue of the state-owned enterprise? This is the first pass for determining whether the case is a crime or not.

Controversy 2: Is the fund circulation a personal misappropriation or an allocation within the state-owned system? The core element for the crime of misappropriating public funds to be established is "for personal use", which requires the behavior to have the subjective intention of seeking personal gain. In the Guizhou case, although the funds entered the newly established company's account, because the project belonged to the unit's project, and the superior unit confirmed the repayment obligation, forming a debt relationship between the units, it was not recognized as misappropriation. In Ren Yuquan's case, the 5.5 million yuan in funds was only used for verification and circulation, and was fully returned without causing any loss to state-owned assets; after the working group was dissolved, Dazhong Company even transferred an additional 5.6 million yuan to Jinhua Company. The appeal materials believe that this fund further proves that Jinhua is a state-owned enterprise operating platform, but the original trial did not include it in the trial.

Controversy 3: How to evaluate the effectiveness of key evidence? A core piece of evidence in this case is a written report submitted by Dazhong Company to the group company on April 3, 2008, which was certified by the group company's archivist as "consistent with the original" and stamped with the official seal, and was submitted to the Cangzhou Intermediate Court at the time, and the handling judge even called the enterprise responsible person to verify the source of the materials. The original trial denied the effectiveness of this photocopy because the original archival document could not be found. However, it is not uncommon for state-owned enterprises to move and archive management to be lax in reality. When the core facts are in doubt, should the principle of "doubt to exclude guilt" be followed?

Controversy 4: The same case handling standard raises reasonable doubts. Cao Xing, who actually operated the funds, was arrested at the same time as Ren Yuquan, and later the procuratorial organ withdrew the prosecution due to changes in the evidence. However, Ren Yuquan, who dominated the self-rescue of the state-owned enterprise, was convicted. The different outcomes of the same fund event raise questions about whether the case facts have reached the "beyond a reasonable doubt" standard of criminal trials.

In addition, the Huanghua City People's Procuratorate's response to the petition in 2023 confirmed the authenticity of multiple exonerating evidence and revealed that the original case-handling procurator had disciplinary action taken against him by the Commission for Discipline Inspection, and suggested that the accepting organ conduct a comprehensive review of the case. This official document has also become an important basis for Ren Yuquan's appeal.

The scale of the law: distinguishing between operational violations and criminal offenses. The Supreme Court's Memorandum on the Trial of Economic Crime Cases clearly states: "If the unit's person in charge disposes of public funds for the benefit of the unit without seeking personal gain, it shall not be convicted of the crime of misappropriating public funds." If the behavior causes losses, it can be handled as a violation of discipline, but it shall not be elevated to a criminal offense.

In the era of state-owned enterprise reform, many state-owned enterprises will encounter policy barriers, and in practice, there are "forms of personal ownership, but substantial unit operations". Such behavior often belongs to the category of operational violations at the enterprise level, and it is not necessarily necessary to use the crime of misappropriating public funds for criminal evaluation. The Guizhou Higher People's Court's acquittal judgment reflects the judicial thinking of "penetrating the form, examining the substantial purpose, and distinguishing between violations and crimes".

Today, 72-year-old Ren Yuquan is still on the road of appeal. He does not seek compensation, but only hopes that the judicial authorities can comprehensively review all the evidence in the case, refer to the spirit of similar effective judgments, and re-clarify the boundaries between crime and non-crime.

Effective judgments are not the end of justice, and the establishment of trial supervision procedures is to leave a channel for correcting mistakes in cases with doubts. A judgment not only concerns the late-life integrity of an old man but will also set a value benchmark for similar historical legacy cases of state-owned enterprises. We look forward to the judicial authorities conducting a comprehensive review of all the evidence and providing a response that can withstand the test of facts, law, and history.