News / Asia

Consultants' Trial in China Highlights Perils of Business Investigations

FILE - A Chinese flag is hoisted in front of a GlaxoSmithKline building in Shanghai, China. Police accused Peter Humphrey, a British executive of drug maker GlaxoSmithKline, on May 14, 2014, of leading a sprawling scheme to bribe doctors and hospitals to
FILE - A Chinese flag is hoisted in front of a GlaxoSmithKline building in Shanghai, China. Police accused Peter Humphrey, a British executive of drug maker GlaxoSmithKline, on May 14, 2014, of leading a sprawling scheme to bribe doctors and hospitals to

Next week a court in China will hear a high-profile case against two foreign business consultants, each charged with illegally obtaining personal information on Chinese citizens.

Shanghai No.1 Intermediate People's Court said on Tuesday Briton Peter Humphrey and his American wife and business partner, Yu Yingzeng, would go to trial on Aug. 8.

The couple is charged with having illegally obtained private information on Chinese citizens through their risk consultancy firm, ChinaWhys.

The case highlights how Chinese authorities are increasing enforcement of the country’s privacy protections, making it difficult for companies to research potential business partners and investments.

Background checks

According to its website, ChinaWhys helped foreign companies “avoid landmines” in the Chinese market. That included background checks on business partners and employees, as well as anti-fraud investigations.

Prosecutors allege that a lot of the information the firm gathered over the years was illegally obtained: bought from Chinese investigators or through "secret photography, infiltration or tailing after someone.”

But there is also speculation that their prosecution has political undertones.

One of ChinaWhys' most recent clients, pharmaceutical firm GlaxoSmithKline (GSK), had hired them to investigate a former employee, someone rumored to have powerful political connections.

The British pharmaceutical giant wanted to know whether the employee had reported to senior management - and to Chinese authorities - evidence of widespread corruption at the firm.

In an interview broadcast on state TV, Humphrey confessed to the charges and referenced the GSK job.

"They requested me to investigate the background of their suspected informer and make an assessment of the informer. I offered to investigate GSK China's internal businesses to determine if the alleged corruption did exist, but they turned me down,” Humphrey said.

Yearlong investigation

Chinese authorities started investigating the pharmaceutical company’s practices in China last year, around the time Humphrey agreed to investigate the company’s concerns over the alleged leak.

In May, GlaxoSmithKline China executive Mark Reilly was formally accused of overseeing a network that bribed doctors to boost sales of the company’s products.

Instead of focusing only on the GSK job, Chinese prosecutors have charged Humphrey and Yu for information breaches that span many years.

The charges include illegally obtaining and re-selling phone, bank and real estate records, business and vehicle registrations, and other private documents.

Attorney Steve Dickinson, an attorney at law firm Harris Moure in Tianjin and co-author of the China Law Blog, advises foreign companies about the Chinese market.

“Various people in China they want to know things about their potential business partners, they want to know things about their commercial opponents. They want to know things about government officials," Dickinson said.

"Well, great, but it is illegal to obtain that information. Should it be illegal? That is a different question," he added.

In recent years, authorities have updated provisions on privacy protections in an effort to avoid serious information breaches, said Liu Deliang, professor of law at Beijing Normal University.

“In December 2012 there has been a decision by the National People's Congress [which showed] the importance that the new government in China put on information safety online,” Liu said. “Obviously there has also been more awareness on the part of the public about the protection of their rights. I believe that in the future there will be more cases like this being discovered and prosecuted.”

But the breadth of some provisions have raised concerns the laws might be used arbitrarily and could curb due diligence investigations - such as the ones ChinaWhys worked on.

'Dark day for due diligence'

In an article Humphrey wrote months before he was detained last year, Humphrey described a U-turn in his field.

Companies' filings at local business bureaus were no longer accessible, and authorities had started arresting hundreds of investigators and their sources.

“I find this a very dark day for due diligence and forensics work,” he wrote.

Some analysts, including Humphrey, connected the clamp down on public records with foreign media investigations detailing the wealth of some of China's top leaders.

Dickinson said five foreign consulting firms he was familiar with got out of the business because of the apparent danger.
 
“They saw all their contacts going to prison. They said 'We are next if we don't stop,' so they stopped,” he said.

Daniel Roules, a mergers and acquisition lawyer at the law firm Squire Sanders in Shanghai, said that for years he advised potential foreign buyers to buy detailed reports on Chinese companies from a local firm.
 
"It was a tremendous wealth of information available at a quite reasonable price, that company today is still in service but it provides only the minimum information that is provided by the company registered, the kind of information that any of us could get,” Roules said.

That, Roules said, is an example of how the playing field has been changing in China.

If found guilty, Humphrey and Yu face up to three years in prison.

You May Like

Karzai's Legacy: Missed Opportunities?

Afghanistan's president leaves behind a much different nation than the one he inherited, yet his legacy from 13 years in power is getting mixed reviews More

Video Secret Service Chief Under Fire for White House Security Breach

Julia Pierson faces tough questions from lawmakers after recent intrusion at White House, says: 'It is clear that our security plan was not executed properly' More

Frustrated, Liberian Students Want Ebola Fight Role

Thousands have volunteered to go to counties, rural villages to talk to people in their language about deadly virus More

This forum has been closed.
Comment Sorting
Comments
     
by: Frankie Fook-lun Leung from: Los Angeles
August 01, 2014 1:33 AM
This case gives out warning signals to professionals who are foreigners hired to do due diligence investigations in China. Any one who has done this kind of work in China has many horror stories to tell.


by: Frankie Fook-lun Leung from: Los Angeles
July 30, 2014 7:21 PM
Foreign consultants operating in Mainland China face a lot of issues. First, if you don't stay close to some locals, you won't know much about what is going on. However, if you stay too close, when the party got into trouble, you are incriminated. Secondly, if you choose to operate off-shore, say in Hong Kong or Sinagpore to distance yourself, you are far from the heart of the dragon. Thirdly, do you trust the Mainland agents you hire? Fourthly, even foreign nationals not to say Hong Kong compatriots have much leverage when they got into trouble. Lastly, Chinese law and its enforcement is unreliable.


by: Frankie Fook-lun Leung from: Los Angeles
July 30, 2014 1:22 PM
In china, if you were a lawyer, accountant, analyst, investigator, journalist or researcher for hire. You run into the predicament of doing an ethical job of protecting your client's interest or stepping on the toes of some big-shots who will come back to make life difficulty for you. If you are a foreigner, so what.

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Malaysia Struggles to Stop People Joining Jihadi
X
Mahi Ramakrishnan
September 30, 2014 2:16 PM
Malaysian authorities say militant groups like the so-called "Islamic State" have used social media to entice at least three dozen Malaysian Muslims to fight in what they call "jihad" in Syria and Iraq. As Mahi Ramkrishnan reports from Kuala Lumpur, counterterrorism police are deeply worried about what could happen when these militants return home.
Video

Video Malaysia Struggles to Stop People Joining Jihad

Malaysian authorities say militant groups like the so-called "Islamic State" have used social media to entice at least three dozen Malaysian Muslims to fight in what they call "jihad" in Syria and Iraq. As Mahi Ramkrishnan reports from Kuala Lumpur, counterterrorism police are deeply worried about what could happen when these militants return home.
Video

Video Could US Have Done More to Stop Rise of Islamic State?

President Obama says airstrikes against Islamic State militants in Syria will likely continue for some time because, in his words, "there is a cancer that has grown for too long." So what if President Obama had acted sooner in Syria to arm more-moderate opponents of both the Islamic State and the Syrian government? VOA State Department Correspondent Scott Stearns reports from the United Nations.
Video

Video Treasure Hunters Seek 'Hidden Treasure' in Central Kenya

Could a cave in a small village in central Kenya be the site of buried treasure? A rumor of riches, left behind by colonialists, has some residents dreaming of wealth, while others see it as a dangerous hoax. VOA's Gabe Joselow has the story.
Video

Video Iran's Rouhani Skeptical on Syria Strikes

Iranian President Hassan Rouhani expressed skepticism Friday that U.S.-led airstrikes in Iraq and Syria could crush Islamic State militants. From New York, VOA’s Margaret Besheer reports the president was also hopeful that questions about Iran’s nuclear program could be resolved soon.
Video

Video US House Speaker: Congress Should Debate Authorization Against IS

As wave after wave of U.S. airstrikes target Islamic State militants, the speaker of the Republican-controlled House of Representatives says he would be willing to call Congress back into session to debate a formal, broad authorization for the use of military force. VOA’s Michael Bowman reports from Washington, where legislators left town 10 days ago for a seven-week recess.
Video

Video Ebola Patients Find No Treatment at Sierra Leone Holding Center

At a holding facility in Makeni, central Sierra Leone, dozens of sick people sit on the floor in an empty university building. They wait in filthy conditions. It's a 16-hour drive by ambulance to Kailahun Ebola treatment center. Adam Bailes was there and reports on what he says are some of the worst situations he has seen since the beginning of this Ebola outbreak. And he says it appears case numbers may already be far worse than authorities acknowledge.
Video

Video Identifying Bodies Found in Texas Border Region

Thousands of immigrants have died after crossing the border from Mexico into remote areas of the southwestern United States in recent years. Local officials in south Texas alone have found hundreds of unidentified bodies and buried them in mass graves in local cemeteries. Now an anthropologist and her students at Baylor University have been exhuming bodies and looking for clues to identify them. VOA’s Greg Flakus has more from Waco, Texas.
Video

Video Ebola Robs Liberians of Chance to Say Good-Bye to Loved Ones

In Liberia, where Ebola has killed more than 1,500 people, authorities have worked hard to convince people to allow specialized burial teams to take away dead bodies. But these safety measures, while necessary, make it hard for people to say good bye to their loved ones. VOA's Anne Look reports on the tragedy from Liberia.
Colonel Steve ‘Spiros’ Pisanos left Greece and came to the U.S. to learn to fly. He flew fighters for the Allies in World War II, narrowly escaping death multiple times.Colonel Steve ‘Spiros’ Pisanos left Greece and came to the U.S. to learn to fly. He flew fighters for the Allies in World War II, narrowly escaping death multiple times.

AppleAndroid