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

Video One Year After Thai Coup, No End in Sight for Military Rule

Since carrying out the May 22, 2014 coup, the general has retired from the military but is still firmly in charge More

Goodbye, New York

This is what the fastest-growing big cities in America have in common More

Job-Seeking Bangladeshis Risk Lives to Find Work

The number of Bangladeshi migrants on smugglers’ boats bound for Southeast Asian countries has soared in the past two years 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.
Turkey's Main Opposition Party Hopes for Election Breakthroughi
X
May 22, 2015 10:23 AM
Turkey’s main opposition Republican People’s Party has sought an image change ahead of the June 7 general election. The move comes after suffering successive defeats at the hands of the Islamist-rooted AK Party, which has portrayed it as hostile to religion. Dorian Jones reports from the western city of Izmir.
Video

Video Turkey's Main Opposition Party Hopes for Election Breakthrough

Turkey’s main opposition Republican People’s Party has sought an image change ahead of the June 7 general election. The move comes after suffering successive defeats at the hands of the Islamist-rooted AK Party, which has portrayed it as hostile to religion. Dorian Jones reports from the western city of Izmir.
Video

Video Europe Follows US Lead in Tackling ‘Conflict Minerals’

Metals mined from conflict zones in places like the Democratic Republic of Congo are often sold by warlords to buy weapons. This week European lawmakers voted to force manufacturers to prove that their supply chains are not inadvertently fueling conflicts and human rights abuses. Henry Ridgwell reports from London.
Video

Video Class Tackles Questions of Race, Discrimination

Unrest in some U.S. cities is more than just a trending news item at Ladue Middle School in St. Louis, Missouri. As VOA’s Kane Farabaugh reports, it’s a focus of a multicultural studies class engaging students in wide-ranging discussions about racial tensions and police aggression.
Video

Video Mind-Controlled Prosthetics Are Getting Closer

Scientists and engineers are making substantial advances towards the ultimate goal in prosthetics – creation of limbs that can be controlled by the wearer’s mind. Thanks to sophisticated sensors capable of picking up the brain’s signals, an amputee in Iceland is literally bringing us one step closer to that goal. VOA’s George Putic reports.
Video

Video Afghan Economy Sinks As Foreign Troops Depart

As international troops prepare to leave Afghanistan, and many foreign aid groups follow, Afghans are grappling with how the exodus will affect the country's fragile economy. Ayesha Tanzeem reports from the Afghan capital, Kabul.
Video

Video Poverty, Ignorance Force Underage Girls Into Marriage

The recent marriage of a 17-year old Chechen girl to a local police chief who was 30 years older and already had a wife caused an outcry in Russia and beyond. The bride was reportedly forced to marry and her parents were intimidated into giving their consent. The union spotlighted yet again the plight of many underage girls in developing countries. Zlatica Hoke reports poverty, ignorance and fear are behind the practice, especially in Asia and Africa.
Video

Video South Korea Marks Gwangju Uprising Anniversary

South Korea this week marked the 35th anniversary of a protest that turned deadly. The Gwangju Uprising is credited with starting the country’s democratic revolution after it was violently quelled by South Korea’s former military rulers. But as Jason Strother reports, some observers worry that democracy has recently been eroded.
Video

Video California’s Water System Not Created To Handle Current Drought

The drought in California is moving into its fourth year. While the state's governor is mandating a reduction in urban water use, most of the water used in California is for agriculture. But both city dwellers and farmers are feeling the impact of the drought. Some experts say the state’s water system was not created to handle long periods of drought. Elizabeth Lee reports from Ventura County, an agricultural region just northwest of Los Angeles.
Video

Video How to Clone a Mammoth: The Science of De-Extinction

An international team of scientists has sequenced the complete genome of the woolly mammoth. Led by the Swedish Museum of Natural History in Stockholm, the work opens the door to recreate the huge herbivore, which last roamed the Earth 4,000 years ago. VOA’s Rosanne Skirble considers the science of de-extinction and its place on the planet
Video

Video Blind Boy Defines His Life with Music

Cole Moran was born blind. He also has cognitive delays and other birth defects. He has to learn everything by ear. Nevertheless, the 12-year-old has had an insatiable love for music since he was born. VOA’s June Soh introduces us to the young phenomenal harmonica player.

VOA Blogs