24h-payday

Posts Tagged ‘China’

For Westerners Seeking Discovery From China, Fortune Cookie Reads: Discovery is Uncertain, and Will Likely Be Hard

Monday, January 7th, 2013

In a recent Inside Counsel article, we explored the eDiscovery climate in China and some of the most important differences between the Chinese and U.S. legal systems. There is an increased interest in China and the legal considerations surrounding doing business with Chinese organizations, which we also covered on this Inside Counsel webcast.

 Five highlights from this series include:

1.  Conflicting Corporate Cultures- In general, business in China is done in a way that relies heavily on relationships. This can easily cause a conflict of interest for organizations and put them at risk for violations under the FCPA and UK Bribery Act. The concept that “relationships are gold” or Guanxi is crucial to conducting successful business in China. However, a fine line exists for organizations, necessitating a need for strong local counsel and guidance. Moreover, Chinese businesses don’t share the same definitions the Western world does for concepts like: information governance, legal hold or privacy.

 2.   FCPA and the UK Bribery Act- Both of these regulations are very troublesome for those doing business in China, yet necessary for regulating white-collar crime. In order to do business in China one must walk a fine line developing close relationships, without going too far and participating in bribery or other illegal acts. There are increased levels of prosecution under both of these statutes as businesses globalize.

3.  Drastically Different Legal Systems- The Chinese legal system is very different than those of common law jurisdictions. China’s legal system is based on civil law and there is no requirement for formal pre-litigation discovery. For this reason, litigants may find it very difficult to successfully procure discovery from Chinese parties. Chinese companies have been historically slow to cooperate with U.S. regulatory bodies and many discovery requests in civil litigation can take up to a year for a response. A copy of our eDiscovery passport on China can be found here, along with other important countries.

4.  State Secrets- In addition to the differences between common and civil law jurisdictions, China has strict laws protecting state secrets. Anything deemed a state secret would not be discoverable, and an attempt to remove state secrets from China could result in criminal prosecution. The definition of a state secret under People’s Republic of China law includes a wide range of information and is more ambiguous than Western definitions about national security (for example, the Chinese definitions are less defined than those in the U.S. Patriot Act). Politically sensitive data is susceptible to the government’s scrutiny and protection, regardless of whether it is possessed by PRC citizens or officials working for foreign corporations- there is no distinction or exception for civil discovery.

5.  Globalization- Finally, it is no secret that the world has become one huge marketplace. The rapid proliferation of information creation as well as the clashing of disparate legal systems creates real discovery challenges. However, there are also abundant opportunities for lawyers that become specialized in the Asia Pacific region today. Lawyers that are particularly adept in eDiscovery and Asia will flourish for years to come.

For more, read here…

Foreign Corrupt Practices Act (FCPA) Drives Increased Electronic Discovery Overseas

Tuesday, May 5th, 2009

Ask a European about e-discovery, or e-disclosure as it is called in the UK, and you will often be met with a look of distaste. Much like SUVs or obesity, electronic discovery is viewed as an unpleasant, uniquely American phenomenon. But, in reality, there are fat people in Paris, Range Rovers all over London, and a lot of electronic discovery happening all across Continental Europe – whether people like to admit it or not.

One reason for that is the Foreign Corrupt Practices Act (FCPA). This US law, which has inspired similar legislation in other countries, prohibits companies from engaging in corruption, such as bribing government officials to win large contracts. That sounds simple enough, but it’s not always easy to do. For example, an American friend of mine runs a travel website in China. To advertise, he hired people to hand out flyers at all the major train stations. But after a few weeks, his employees began to get hassled by station officials who said they needed an official “permit”. So he did what anyone would do and paid the “permit fees” even though no paperwork for this “permit” was ever produced. When his US auditors looked at that, they immediately cried foul. He was then compelled to end the practice and bring in a law firm to conduct a full FCPA investigation. The result: lots of legal bills, no more advertising in train stations, and a more powerful Chinese-run competitor who has no such qualms about paying “permit fees”.

In speaking to Daniel Dorsky, Tyco’s Compliance Counsel and an expert in FCPA issues, I discovered that my friend’s experience is no longer the exception. From what Daniel described, enforcement of the FCPA has been stepped up dramatically in the past couple of years. Apparently, 2007 was the watershed. Prior to that, no one really worried about the FCPA too much. But two years ago, the Department of Justice (DoJ) under Mark Mendelsohn, began to take a different approach. First, the fines became much stiffer as, for example, Baker Hughes got hit with a $44 million penalty, by far the largest ever at the time. Second, the DoJ started to prosecute executives personally, bringing 15 criminal cases against individuals. Nothing focuses the mind like the threat of jail time, and FCPA compliance suddenly took on greater urgency.

The number of FCPA enforcement actions continued to increase in 2008, most notably with the infamous Siemens case. By the time the dust settled, the CEO of Siemens had been fired and the company was reeling from a $1.4 billion fine. Nor do things look like they are slowing down in 2009. In the first few months of this year, ABB took an $800 million accounting reserve for FCPA issues, Halliburton got fined $177 million, KBR $502 million, and the KBR CEO, Albert Stanley, got 7 years in jail to go along with his $11 million personal fine. These companies are also now vulnerable to civil suits. While there’s no private right of action under the FCPA, that does not stop securities fraud class actions or shareholder lawsuits, which charge that defendants either understated the risks or overstated the controls in their disclosures.

There are a number of reasons why FCPA enforcement actions will likely increase further in the coming months and years. The FBI recently created an FCPA taskforce of 8-12 agents, bringing all the standard law enforcement tools to FCPA compliance (e.g., wire-taps, subpoenas, informants, warrants, etc.). Many other countries are starting to enforce similar laws, with much encouragement from the US which does not want to see American businesses disadvantaged by doing the right thing. And international law enforcement agencies are cooperating more than ever before. For example, last summer in Paris, international agencies held their first FCPA conference to share information.

All of this is driving a boom in e-discovery as General Counsels and Compliance Officers regularly conduct investigations of their overseas subsidiaries to ensure FCPA compliance. These investigations often center on “red flag” countries like China, Brazil, or Russia, where compliance is most difficult. They almost always involve outside counsel, and require the processing, analysis and review of large volumes of electronic information. This applies to European companies as much as it does to American ones. Non-US nationals can be prosecuted if either communications or money goes via the US, and many European countries are following the DoJ’s lead (e.g., $600 million of Siemens’ $1.4 billion fine came from German authorities).

So no matter how Europeans feel about e-discovery, or e-disclosure, they will be doing more of it in the coming years, much like their American counterparts. It’s fair to say that, in this domain, as perhaps in others, Europeans and Americans have much more in common than they might think.