Nearly every time I write on this topic, I get at least one email from someone accusing me of fear mongering. I used to dispute that accusation, now I heartily embrace it. I embrace it because the overwhelming majority of foreign companies doing business in China make no allowance even for the possibility of one of their people going to jail or being held hostage.?
For previous posts on this subject, please check out the following:
Ignoring this possibility is a mistake.
I know this because my small law firm has been involved in at least a half a dozen incidents where someone held on "bizarre" charges. We have also been called countless additional times when people have been arrested for less bizarre things like fraud, theft, etc. ?
Two things have converged to make me want to write on this topic today. The first was that I am in the midst of taking Typhoid pills for upcoming foreign travel. I need to take four of them every other day, at proscribed times, and they need to be kept refrigerated. This has not been that easy because I have been travelling like a mad man of late and I don't feel like carrying a refrigerator with me. So I keep thinking about stopping the regimen, but I haven't and I am sure I won't. It just makes sense for me to plan in advance to protect my health on my trip.
I have been going to the same travel medicine physician for years and every time I go, she engages in the same routine. She pulls out a map and we discuss every single place I will be going and we talk about what sorts of things I will be doing while there. She now knows I am a pretty low risk guy because my travel life basically consists of my staying in nice hotels and eating good food and engaging in business meetings and very very little else. Yet, every time I try to bag off on some shot or some horrible pill, she will tell me about how someone she knew got in a car accident requiring a blood transfusion.... Invariably, I end up taking every shot and pill on offer. Does she know too much and I too little?
I guess I am the lawyer to her being the doctor.?
The other thing is the recent arrest of yet another Chinese-Australian on criminal charges. Now before I go any further in talking about this particular case, let me stress two things. One, I know absolutely nothing about this case other than what I have read about it on the internet. Two, I have no idea whether the person involved is guilty or not and I have no idea whether he was arrested based on legitimate evidence of guilt or if he is being railroaded for business reasons, as his people are claiming. I do know, however, that these sort of cases go on all the time (usually on a much lower level and with much less publicity) and they scare the hell out of me.
The cases my firm has handled typically involve a foreign company owing money or a foreign company getting into the cross-hairs of someone. Then, the police start holding someone from the foreign company. We typically handle these situations by negotiating the amount of the debt and/or the fine and advising our client to get the arrested person out of China post-haste and, in many cases, to think long and hard about the company remaining on in China as well.
The second thing causing me to write on this topic today is an article John Garnaut (someone who has consistently done a good job of covering China) article in Australia's Business Day, entitled "China's Straight Shooters." ?This article posits that the threat of criminal prosecution is always there for those doing business in China and things are only getting worse:
Law, politics and corruption are tangled so tightly together in China that it is impossible to invest faith in any given legal outcome. Criminal proceedings are commonly used as leverage in commercial disputes.
This is a growing problem for foreign businesses and especially their ethnic Chinese executives, such as Australian Matthew Ng, who has been arrested for ‘‘embezzlement’’ in Guangzhou in the context of a dispute with a locally powerful state-owned firm. If he is convicted, then that fact alone will not be enough to convince many observers that he is guilty.
The Chinese legal system can be a tool of unexpected tragedy to foreign business people, but it is an everyday migraine for home-grown entrepreneurs. There are so many laws and regulations in China it is almost impossible to avoid bending some of them.
These rules are designed to be sufficiently ambiguous to place huge administrative discretion in the hands of officials.
They can be bent at a price or avoided at some risk. And that’s where entrepreneurs are expected to discreetly bribe their way to opportunities and insurance in case things go wrong.
And you think I am a fear monger? ?Yet, I find myself agreeing with Garnaut on how it is hugely difficult for even the most law abiding company to remain in full compliance and, worst of all, the penalties for non-compliance are all over the map. ?Just this morning, a company asked me whether it should reveal to investors what it has already done in China when there is a chance that what it has already done in China should not have been done without first forming a Chinese WFOE. My response was essentially that the risk of China ever finding out is probably very low and the risk of China doing anything if it did find out is probably very low too, but that if China should find out it might do anything ranging from imposing some taxes and penalties to never letting that company and its people do anything in China again. It is just this sort of range of punishments that can be so effective at keeping everyone constantly on their toes and forever beholden to the powers that be.
Is criminal prosecution always lurking in China? Have things only gotten worse? I answer a weak "no" to both those questions, but I do hope my even asking them has scared at least a few of you. Oh, and for those who think you have nothing to worry about because you never do anything wrong, let me tell you that I have seen enough legal car accidents to know that you are wrong to think that way. ?
What do you think?
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