Supply Chain Compliance and Crisis Response for Food Series (Part 2): It's never too late to mend the fold after the sheep are lost, don't wait for empty flowers and broken branches

LABEL： Agriculture and food , Compliance business , Corporate and M&A ,

The recent joint investigation report on food safety incidents during transportation has attracted widespread attention and profound reflection from all sectors of society. Multiple parties have been held accountable and fined accordingly, and some individuals have entered criminal investigation procedures. This incident once again highlights the importance and urgency of food safety issues.

In history, food safety accidents caused by intermediate links in the supply chain are not uncommon. The intermediate links in the food supply chain often involve multiple parties, including upstream and downstream companies, as well as multiple suppliers in the intermediate chain. In reality, various situations may vary greatly. This article takes food safety incidents that occur during the transportation process of third-party logistics transportation enterprises as an example, focusing on the responsibility content, responsibility boundary identification, response measures, and risk prevention suggestions of relevant parties. It is divided into two parts. In the first part, we explore the obligation boundaries, responsibility identification risk factors, and crisis response of each party from the perspective of the roles of various entities in the food supply chain; This article will mainly focus on the legal responsibilities and risk prevention suggestions of all parties involved in transportation safety incidents.

           

(Brief diagram: Typical parties and relationships involved in the intermediate links of the food supply chain)
1、 What is the responsibility for pollution in the intermediate stage?

A serious food safety incident in the supply chain may lead to complex responsibility allocation, involving both breach of contract responsibilities between various parties and consumer claims, as well as investigations and penalties by administrative agencies. It is common for relevant parties to be investigated for criminal responsibility or even face criminal penalties in the end. These responsibilities may seem parallel, but in essence they may intersect, drive and cause and effect each other, and require a global perspective and careful handling.

Civil liability. The pollution in the intermediate links inevitably involves the transportation service contracts of intermediate suppliers, and may also involve procurement agreements between upstream and downstream enterprises. Whether responsibilities are clearly defined in these agreements and accompanied by detailed provisions on food safety obligations plays a key role in holding parties accountable for breach of contract. These clauses not only involve the question of whether and how parties can pursue liability for breach of contract, but also relate to the subsequent administrative and even criminal responsibilities, as well as the dual legal responsibilities of breach of contract and infringement. At this point, it often tests the value of the company's early-stage contracts.

On the other hand, from the perspective of consumer protection, upstream and downstream food companies also need to pay attention to the following two special provisions: (1) punitive damages, which refers to the possibility that the relevant companies, in addition to compensating for losses, may also bear ten times the price paid by consumers or three times the loss [1]. (2) The "first responsibility system" refers to the consumer's right to claim compensation from the operator or producer for damages caused by food that does not meet food safety standards. The party receiving the consumer's compensation request should first compensate, and after compensation, has the right to recover from the actual responsible party.

Administrative responsibility. Food safety incidents inevitably involve corresponding administrative investigations, which may result in various administrative responsibilities depending on the specific circumstances, including warnings, blacklists, orders to suspend operations for rectification, and fines of up to 30 times the maximum value of the goods.

Unlike other administrative violations, the field of food safety places particular emphasis on "administrative penalties to individuals". In addition to assuming the above-mentioned responsibilities, the legal representative, directly responsible supervisor, and other directly responsible persons of the enterprise may also face personal administrative liability risks, including employment restrictions or lifetime employment bans [2], administrative detention [3], and fines of less than ten times the previous year's income [4]: In fact, food safety is not only the responsibility of the enterprise, but also the responsibility of every relevant personnel of the enterprise.

Criminal responsibility. With the increasingly strict criminal law network for food safety crimes, over 45000 cases of food safety crimes were handled by judicial authorities from 2013 to 2022, and more than 62000 people were held criminally responsible. The handling of criminal liability in the field of food safety often involves detailed legal provisions and complex legal practices. Once a food safety incident occurs, the issue of criminal charges can easily become a focus. In actual judicial practice, especially in food safety incidents caused by third parties in the supply chain, all parties involved face significant criminal risks from multiple perspectives.

The threshold for constituting a crime is relatively low. There are two specialized charges in the field of food safety: the crime of producing and selling toxic and harmful food [6] and the crime of producing and selling food that does not meet food safety standards [7], supplemented by the crime of producing and selling counterfeit and inferior products [8] as a fallback. Overall, criminalization does not necessarily require the occurrence of dangerous consequences. Even in situations where the toxicity of food cannot be determined and food safety standards cannot be applied, a sales revenue of 50000 yuan can reach the threshold for criminalization. Passive inaction can also constitute a crime.

From the perspective of constitutive subjects: often involving multiple subjects. Traditionally, food companies that directly participate in food production and operation are obviously prone to being suspected of the "production and sales" behaviors mentioned above. It is particularly important to note that third-party companies that only provide "transportation", "storage" and other services to upstream and downstream enterprises may also bear criminal responsibility (as shown in the figure below).

           

The resilience of 'knowing' tests whether a company actively manages. In most scenarios, once one party in the food supply chain is suspected of any of the above-mentioned charges, it is difficult for other parties to completely stay out of the matter. Especially, if one party has been engaged in the industry for a long time and is also deemed to have "failed to fulfill the obligation to ensure food safety in accordance with the law", it may be deemed to have "knowingly" [11]. According to the Judicial Interpretation on Food Safety Criminal Cases, those who knowingly produce or sell food that does not meet food safety standards or toxic or harmful food and provide relevant convenience conditions will be treated as accomplices. Therefore, all enterprises in the food supply chain must strictly control and closely monitor their partners in order to prevent problems before they occur.

From the perspective of unit crime: dual punishment for both units and individuals [13]. Once the above-mentioned criminal acts constitute a unit crime at the same time, in addition to imposing fines on the unit, the directly responsible supervisors and other directly responsible personnel will also be held criminally responsible, up to the death penalty and confiscation of property. In judicial practice, the determination of unit crimes mainly considers the following factors: (1) whether it is for the benefit of the unit or the majority of the unit's people [14], (2) whether it has gone through the unit's decision-making process and represents the unit's will [15], and (3) whether the act was committed in the name of the unit or an individual [16]. For example, in a criminal case involving the production of toxic and harmful food [17], the legal representative of the unit, knowing that the relevant criminal behavior had occurred, not only refused to stop it, but also allowed the behavior to occur in order to allow the company to profit from it. Based on this, it is "sufficient to determine that the criminal behavior was carried out under the will of the unit". Combined with the unit's fund classification account, accounting vouchers and other behaviors, it is further confirmed that the illegal gains were used for the unit's daily production and operation activities, and the interests belong to the unit. Finally, the court determined that the behavior constituted a unit crime.

Based on the individual circumstances, the involved companies may face the three major responsibilities mentioned earlier either individually or simultaneously, and food safety issues often involve cross supervision by multiple government departments, making case handling more complex. Especially serious food safety incidents may escalate into criminal cases during the administrative investigation process. The food industry has a specialized execution linkage process, but of course, execution linkage itself is not an independent responsibility, but an investigation process. According to the "Measures for the Connection between Food and Drug Administrative Law Enforcement and Criminal Justice" [18], in the process of investigating and handling illegal cases, if the market supervision department discovers suspected crimes, it will promptly transfer the case to the public security organs and copy the procuratorate; The procuratorial organs may submit procuratorial opinions to the market supervision department. In order to effectively respond to the situation of administrative conversion to criminal law, it is recommended that companies make early judgments based on the circumstances of the case, prepare relevant favorable evidence and key points, and strive to avoid administrative investigations from being transferred to criminal investigation procedures as much as possible during the execution process.
2、 Specific suggestions for daily compliance management

In response to the food safety incidents that occurred during the transportation process of third-party logistics transportation enterprises mentioned above, we provide the following specific suggestions for the daily compliance management of third-party enterprises and upstream and downstream enterprises.

For third-party enterprises responsible for transporting food:

Inspect containers and equipment: Ensure that all containers, tools, and equipment used for storing, transporting, and loading/unloading food meet safe and harmless standards, and maintain a high level of cleanliness to prevent food contamination. Regularly inspect and maintain containers and equipment to ensure compliance with relevant hygiene requirements.

Prevent cross contamination: Avoid storing and transporting food together with toxic, harmful, or odorous items. Ensure that transportation vehicles and containers do not cause food contamination or affect their quality.

Meet special transportation conditions: Ensure that the transportation process meets specific temperature, humidity, and other requirements based on the characteristics of the food. When necessary, facilities such as insulation, refrigeration, and preservation should be equipped to ensure the quality and safety of food during transportation.

Transportation requirements for special foods: Pay attention to the specialized laws and regulations, mandatory standards, etc. of certain foods such as grains, to ensure that they meet the stricter requirements in these regulations.

Employee training and management: Provide food safety related training to employees engaged in transportation business to enhance their understanding of food transportation safety requirements. Establish sound internal management systems and operational standards to ensure that all transportation operations comply with food safety standards.

Establish a stricter food safety management system. Laws, regulations, and national standards often only set minimum threshold requirements, and many requirements are even principled provisions. Only by establishing more detailed, specific, and strict requirements can enterprises reduce related risks and establish risk isolation zones for enterprises in responsibility investigations.

For upstream and downstream enterprises in the supply chain:

Establish standardized food entry and exit processes, develop detailed process specifications, such as specifying hygiene standards for transportation vehicles, temperature control during transportation, and other requirements; And clarify the operational standards and responsibility allocation for each link, such as assigning dedicated personnel to inspect key links.

Install video surveillance equipment in key scenarios such as food delivery and receiving areas. Real time monitoring and regular review of monitoring data to correct operator misconduct.

Conduct a visual inspection of the delivered food. Especially downstream enterprises should conduct detailed receiving inspections, such as whether the food packaging is intact and whether there is visible contamination or damage to the appearance of the food.

Improve record management. Maintain complete production and inspection records, storage and transportation records, as well as purchase and sales records for product batches. Regularly check the accuracy and completeness of records to ensure the feasibility of information traceability.

3、 Overall Approach to Food Supply Chain Compliance

In fact, in addition to the typical food safety incident mentioned earlier, various links including raw material supply, logistics transportation, finished product production, and end of pipe sales may pose food safety risks. The importance of supply chain compliance management cannot be underestimated.

In the supply chain of raw materials, food raw materials themselves may be contaminated with various pollutants, such as pesticides, fertilizers, heavy metals, etc., which may lead to food safety issues when entering the supply chain; During the production and processing of food products, if the enterprise lacks relevant qualifications, or if the hygiene management of the production environment, facilities, etc. is not in place, it may lead to cross contamination; In the logistics transportation process, the storage conditions for food are more stringent than those for ordinary consumer goods, with key factors such as temperature and humidity control and prevention of toxic substance contamination. These risk points require companies to strengthen management and monitoring throughout the entire supply chain to ensure that food safety and quality meet standards.

We suggest the following points as a reference for relevant food enterprises to adjust their overall compliance thinking.

From passive defense to active prevention in compliance thinking

In today's increasingly severe responsibility for food safety, enterprises, especially large food production enterprises, need to abandon the traditional thinking mode of "less is better than more". They should fully realize that: firstly, simple division of responsibilities in commercial relationships cannot exempt themselves from legal responsibilities; secondly, basic legal requirements cannot be equated with compliance requirements of enterprises. Enterprises need to reduce their own risks through more proactive means, establish higher and more detailed compliance requirements, and expand the risk firewall outward based on the division of responsibilities. It is dangerous to argue solely based on meeting the legal bottom line requirements. This shift in mindset is crucial for enterprises to establish a proactive compliance system.

Establish, regularly inspect, and implement a food safety system

Food safety crisis events are often closely related to implicit risks in the corporate system. Upstream and downstream enterprises should focus on the implementation of relevant institutional systems, such as factory inspection and recording systems, food safety traceability systems, procurement inspection systems, and so on. In practice, to ensure the completeness of the food safety system, enterprises can also take the following measures: such as establishing a video surveillance system, providing regular food safety training for key employees, inviting third-party organizations to inspect and evaluate the enterprise's food safety management system, and continuously improving it.

Clarify the boundaries of rights and responsibilities in the relevant party contract arrangements

The rights and responsibilities of enterprises in various links of food supply are intertwined, and the legal relationships are complex. Therefore, at the key nodes of the connection between upstream and downstream parties, it is recommended to clearly define the boundaries of rights and obligations of both parties through detailed and comprehensive contract agreements. This is extremely important for both parties' responsibility and potential administrative or criminal investigations in the future.

The contract should have clear basic responsibility sharing clauses, such as risk transfer and liability assumption, as well as specific and detailed technical clauses, such as various technical requirements for transportation and delivery, such as environmental hygiene requirements, environmental temperature and humidity management, specific container types, whether they are mixed, driver travel, etc. In addition, the corresponding contract should fully consider the handling clauses, liability clauses, audit clauses, and other contents in the event of a food safety incident, so that the enterprise has at least some legal operational space when a corresponding incident occurs.

Carefully select and regularly review upstream and downstream cooperative enterprises

In most food safety crisis events, whether under the scrutiny of regulatory authorities or facing media and public opinion pressure, companies often find it difficult to "stand alone". Therefore, it is recommended to carefully select and regularly review upstream and downstream cooperative enterprises in the supply chain to ensure that the qualifications and capabilities of all participants in the supply chain meet the standards and always comply with food quality and safety standards. Specific measures in practice include anonymous simulated procurement, strict enterprise background checks, regular on-site inspections and audits, strengthened contract management, and so on. Such strict selection and regular evaluation mechanisms can enhance the transparency and traceability of the entire supply chain to address potential food safety crises and maintain the trust of consumers and the market.