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Navigating Investigations in China

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On this episode of The Bracewell Sidebar, hosts Matthew Nielsen and Seth DuCharme are joined by Beth Jones to discuss the challenges of conducting investigations in China as viewed through the lens of a western model. Beth leads FTI Consulting’s risk and investigations team in Dallas, as well as FTI’s Asia risk and investigation practice which has teams in China, Korea, India and Singapore.

What kind of investigations do you see in mainland China, and how do they start?

They are very similar to the types of investigations that we see western companies dealing with, and there are a few reasons for that. First, you have a lot of companies in China that are listed on a foreign exchange outside of China, and so there's some nexus for that reason to a western government. You also have global organizations that are doing business all over the world that make them subject to various laws around the world. Therefore, western jurisdictions or government authorities also think that they have some authority over the company to do an investigation or some sort of enforcement.

From your standpoint, is there really that self-reporting mechanism of Chinese companies doing that to the Chinese government? Are they encouraged to? Are there benefits for doing that?

Yes, but not like it is in the western world. I think the one area in China, if you're dealing with the Chinese authorities where that might happen, is if you're dealing with the corruption laws that they have there. There is a corruption issue, and you need to report it to authorities, and companies would do that. If there is a violation of the state secret law or their data security or personal information protection laws, that is something that they would be dealing with the Chinese authorities on. It's not the same pressure from Chinese authorities that you have from western authorities.

If you are doing investigation in China, but you know eventually you may also have to be reporting to western regulators or investigative agencies, how exaggerated do you think that perception is, or are there ways to meet the expectations of authorities on both sides, and how do you navigate that?

I think there are ways that you can navigate it. What I have seen is the engagement of local counsel. If you are a firm that doesn't have an office and actual Chinese nationals who are working in your office in China, then engaging with local counsel so that you have access to people who really understand how to deal with the local authorities and can help you to navigate the interest of both the Chinese authorities and the western authorities is challenging, but it can be done.

What's it like to operate as a westerner in China? What are some of the attributes that you developed along the way that you think gave you an advantage or at least the ability to be effective?

I have had some interesting experiences as a kid too that make me accept the fact that people are different around the world, which is the great thing about the world and great thing about human society, but it can cause culture shock if you've never experienced it before in some of these places. The first time you go, it can cause culture shock. I guess if I'm going to call anywhere in the world home, it's Dallas. I lived here for 20 years but didn't really feel like I lived here and then I moved away. But when I was living in Dallas previously, I was traveling all over the world, so I had the opportunity to work on some of the FCPA cases when Americans were traveling all over the world to go do those investigations. I did a lot of that work, and I always found myself in a position of really trying to help the foreigners to get through the cultural nuances and challenges that were there. I think it gives me a unique perspective on dealing with people that are of a different culture in an investigation.

Let's talk a little bit about actually getting documents and data from a Chinese company, because if anything, that's probably going to be one of the biggest things you're going to have to deal with in an investigation, wouldn't you agree?

Yes I do, and we'll talk a little bit about the notion of complying with the Chinese state secret law. And that used to be the main law that we were worried about. Today, they have a data security and a personal information protection law which we also have to worry about. I think those two laws are more common. A lot of those are based on the General Data Protection Regulation (GDPR), for example, so they are more understandable and expected to have to deal with those if you're coming at it from a western viewpoint. The state secret law has a little bit of a different nuance, and it's very real.  Over the years, my experience in dealing with that, in particular dealing with foreign government regulators, is that they understand now that it's very real and it's not companies trying to hide behind the state secret law to not produce information.

Have questions about investigations in China or elsewhere in the world? Email Matthew Nielsen or Seth DuCharme.

The opinions expressed in this podcast are those of the speakers and do not necessarily reflect the viewpoint of their institutions or clients.