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

Israelis Quietly Expand Enclave in Palestinian District of Jerusalem

Estimated 500 settlers, armed or protected by paramilitary police, live in Silwan among 50,000 Palestinians More

Video US, Iran Face Similar Challenges in Syrian Fight Against IS

Both Washington, Tehran back fighters battling Islamic State militants in Iraq -- but in Syria they support opposing sides in country’s civil war More

China Boosts Efforts to Help Afghan, Regional Stability

Observers say China’s increased regional involvement are due to concerns that Afghan instability and the presence of anti-China militants in Pakistani border areas could fuel Xinjiang troubles 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.
After Decades of Pressure, Luxembourg Drops Bank Secrecy Rulesi
X
October 21, 2014 12:20 AM
European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video US ‘Death Cafes’ Put Focus on the Finale

In contemporary America, death usually is a topic to be avoided. But the growing “death café” movement encourages people to discuss their fears and desires about their final moments. VOA’s Jerome Socolovsky reports.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.
Video

Video Young Nairobi Tech Innovator on 'Track' in Security Business

A 24-year-old technology innovator in Nairobi has invented a tracking device that monitors and secures cars. He has also come up with what he claims is the most robust audio-visual surveillance system yet. As Lenny Ruvaga reports from the Kenyan capital, his innovations are offering alternative security solutions.
Video

Video Latinas Converting to Islam for Identity, Structure

Latinos are one of the fastest growing groups in the Muslim religion. According to the Pew Research Center, about 6 percent of American Muslims are Latino. And a little more than half of new converts are female. VOA’s Carolyn Presutti travelled to Miami, Florida -- where two out of every three residents is Hispanic -- to learn more.
Video

Video Exclusive: American Joins Kurds' Anti-IS Fight

The United States and other Western nations have expressed alarm about their citizens joining Islamic State forces in Syria and Iraq. In a rare counterpoint to the phenomenon, an American has taken up arms with the militants' Syrian Kurdish opponents. Elizabeth Arrott has more in this exclusive profile by VOA Kurdish reporter Zana Omer in Ras al Ayn, Syria.
Video

Video South Korea Confronts Violence Within Military Ranks

Every able-bodied South Korean male between 18 and 35 must serve for 21 to 36 months in the country’s armed forces, depending upon the specific branch. For many, service is a rite of passage to manhood. But there are growing concerns that bullying and violence come along with the tradition. Reporter Jason Strother has more from Seoul.
Video

Video North Carolina Emerges as Key Election Battleground

U.S. congressional midterm elections will be held on November 4th and most political analysts give Republicans an excellent chance to win a majority in the U.S. Senate, which Democrats now control. So what are the issues driving voters in this congressional election year? VOA National Correspondent Jim Malone traveled to North Carolina, one of the most politically competitive states in the country, to find out.
Video

Video Comanche People Maintain Pride in Their Heritage

The Comanche (Indian nation) once were called the “Lords of the Plains,” with an empire that included half the land area of current day Texas, large parts of Oklahoma, New Mexico, Kansas and Colorado.The fierceness and battle prowess of these warriors on horseback delayed the settlement of most of West Texas for four decades. VOA’s Greg Flakus reports from Lawton, Oklahoma, that while their warrior days are over, the 15,000 members of the Comanche Nation remain a proud people.
Video

Video Turkey Campus Attacks Raise Islamic Radicalization Fears

Concerns are growing in Turkey of Islamic radicalization at some universities, after clashes between supporters of the jihadist group Islamic State (IS) or ISIS, and those opposed to the extremists. Pro-jihadist literature is on sale openly on the streets of Istanbul. Critics accuse the government of turning a blind eye to radicalism at home, while Kurds accuse the president of supporting IS - a charge strongly denied. Henry Ridgwell reports from London.

All About America

AppleAndroid