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The Sentencing Of Matthew Ng. A Very Long “No Comment.”

By Dan Harris on Posted in China Business, Events, Legal News

We have many times written of the risks foreigners face of being found on the wrong side of China’s criminal laws. I cannot emphasize enough the need for foreigners to take China’s criminal laws seriously. My firm has helped oversee a number of criminal cases in China involving foreigners in China and I cannot tell you how tired I am of hearing our clients confidently (at least initially) seek to assure us that they will be fine because what they were doing helped bring jobs and money to China.

We are always emphasizing that China will, with little or no compunction, jail foreigners who violate China’s criminal laws, even if the offending action is not a crime back in the home country.  And forget about getting much help from your embassy beyond maybe some help in finding your lawyers and seeking to monitor your case for procedural fairness.

I am writing of criminal law today because I was contacted by a couple journalists seeking my views on the recent 13 year jail sentence given to Australian Matthew Ng by a Chongqing judge. Both reporters wanted my views on whether the sentence was fair or not and my response was that I didn’t know. They seemed puzzled. “Are you not familiar with the case,” they asked. “I actually am very familiar with the case,” I replied, “but that means I know anywhere from 1 to 40% of what actually happened and without having sat through the entire trial (or even one second of it), I simply cannot opine as to its fairness.”

Almost exactly one year ago, I wrote on this same case, in a post entitled, “China Business. China Jails. China Hostages,” wherein I embraced the moniker of fear monger:

Nearly every time I write on this topic, I get at least one email from someone accusing me of fear mongering. I used to dispute that accusation, now I heartily embrace it. I embrace it because the overwhelming majority of foreign companies doing business in China make no allowance even for the possibility of one of their people going to jail or being held hostage.

For previous posts on this subject, please check out the following:

In that post from a year ago, I talked of the two things that spurred the post and one was Matthew Ng:

Two things have converged to make me want to write on this topic today. The first was that I am in the midst of taking Typhoid pills for upcoming foreign travel. I need to take four of them every other day, at proscribed times, and they need to be kept refrigerated. This has not been that easy because I have been travelling like a mad man of late and I don’t feel like carrying a refrigerator with me. So I keep thinking about stopping the regimen, but I haven’t and I am sure I won’t. It just makes sense for me to plan in advance to protect my health on my trip.

I have been going to the same travel medicine physician for years and every time I go, she engages in the same routine. She pulls out a map and we discuss every single place I will be going and we talk about what sorts of things I will be doing while there. She now knows I am a pretty low risk guy because my travel life basically consists of my staying in nice hotels and eating good food and engaging in business meetings and very very little else. Yet, every time I try to bag off on some shot or some horrible pill, she will tell me about how someone she knew got in a car accident requiring a blood transfusion…. Invariably, I end up taking every shot and pill on offer. Does she know too much and I too little?

I guess I am the lawyer to her being the doctor.

The other thing is the recent arrest of yet another Chinese-Australian on criminal charges. Now before I go any further in talking about this particular case, let me stress two things. One, I know absolutely nothing about this case other than what I have read about it on the internet. Two, I have no idea whether the person involved is guilty or not and I have no idea whether he was arrested based on legitimate evidence of guilt or if he is being railroaded for business reasons, as his people are claiming. I do know, however, that these sort of cases go on all the time (usually on a much lower level and with much less publicity) and they scare the hell out of me.

The cases my firm has handled typically involve a foreign company owing money or a foreign company getting into the cross-hairs of someone. Then, the police start holding someone from the foreign company. We typically handle these situations by negotiating the amount of the debt and/or the fine and advising our client to get the arrested person out of China post-haste and, in many cases, to think long and hard about the company remaining on in China as well.

The second thing causing me to write on this topic today is an article John Garnaut (someone who has consistently done a good job of covering China) article in Australia’s Business Day, entitled “China’s Straight Shooters.”  This article posits that the threat of criminal prosecution is always there for those doing business in China and things are only getting worse:

Law, politics and corruption are tangled so tightly together in China that it is impossible to invest faith in any given legal outcome. Criminal proceedings are commonly used as leverage in commercial disputes.

This is a growing problem for foreign businesses and especially their ethnic Chinese executives, such as Australian Matthew Ng, who has been arrested for ‘‘embezzlement’’ in Guangzhou in the context of a dispute with a locally powerful state-owned firm. If he is convicted, then that fact alone will not be enough to convince many observers that he is guilty.

The Chinese legal system can be a tool of unexpected tragedy to foreign business people, but it is an everyday migraine for home-grown entrepreneurs. There are so many laws and regulations in China it is almost impossible to avoid bending some of them.

These rules are designed to be sufficiently ambiguous to place huge administrative discretion in the hands of officials.

They can be bent at a price or avoided at some risk. And that’s where entrepreneurs are expected to discreetly bribe their way to opportunities and insurance in case things go wrong.

A year ago and even more so today, I find myself agreeing with Garnaut on how hugely difficult it is for even the most law abiding company to remain in full compliance with China’s myriad laws and of how the penalties for non-compliance are all over the map.  In my original post, I talked of the advise I gave a U.S. company that had been operating illegally in China:

Just this morning, a company asked me whether it should reveal to investors what it has already done in China when there is a chance that what it has already done in China should not have been done without first forming a Chinese WFOE. My response was essentially that the risk of China ever finding out is probably very low and the risk of China doing anything if it did find out is probably very low too, but that if China should find out it might do anything ranging from imposing some taxes and penalties to never letting that company and its people do anything in China again. It is just this sort of range of punishments that can be so effective at keeping everyone constantly on their toes and forever beholden to the powers that be.

I concluded that post by positing that at least things are not getting any worse in China, but that is not good cause to relax:

Is criminal prosecution always lurking in China? Have things only gotten worse? I answer a weak “no” to both those questions, but I do hope my even asking them has scared at least a few of you. Oh, and for those who think you have nothing to worry about because you never do anything wrong, let me tell you that I have seen enough legal car accidents to know that you are wrong to think that way.

One of the reporters with whom I spoke today asked me if Matthew Ng’s sentence means that it is “open season” on foreigners. My response was that “one case does not a season make.” He then asked if I thought foreigners can get a fair trial in China and, much to his surprise, I said, “yes.” I then added that it, of course, depends on the specific case and on the judge. I then stressed again that as troubled as I am about Mr. Ng’s case, I do not know enough about its underlying facts to let it influence my opinion one way or the other as to how foreigners are treated in China’s courts. But I then added that the fact that the media and others were allowed so few views of the proceedings in that case is absolutely cause for concern and it forces us to think the worst of what transpired.

Nonetheless, I guess in the end, we all are going to have no choice but to see this as an isolated incident involving a defendant who very well may be guilty of all charges. If we think of it in any other way, we would never cross the street. Most of us would prefer to get our shots and leave the house than remain “safe” but cooped up all day.

What do you think? Will any of this impact you at all?

  • Aaron

    This is the CLB kind of writing we need and the it has been appearing less frequently than in the past. Please stop trying to be nice and middle of the road. I, and a bunch of others, read you every day for posts just like this one where you let it all go (maybe even ramble a bit), but really just slay us with your deep knowledge of the law and of China and of the way things are as compared to the way they should be. I know you fear this blog becoming inaccessible but with the demise of so many of the other really good China blogs we need this sort of writing from you more than ever.

  • William

    It seems like the foreign citizens who get locked up in these high-profile criminal cases tend to be ethnic Chinese, or even former PRC citizens. Does that simply reflect the high concentration of ethnic Chinese among expat businessmen, or is it a craven calculation that wrongfully imprisoning a white guy would stir up more unwanted international attention?

  • Harrison Moore

    “He then asked if I thought foreigners can get a fair trial in China and, much to his surprise, I said, ‘yes.’ I then added that it, of course, depends on the specific case and on the judge.”
    Your reporter friend asked a poorly worded question. What he meant to ask is probably something more like: “Generally speaking, can a foreigner caught up in China’s legal system expect to get a fair (e.g. law- and fact-based) trial?” That would have been a more interesting question. Would your answer have been different?
    “Nonetheless, I guess in the end, we all are going to have no choice but to see this as an isolated incident involving a defendant who very well may be guilty of all charges.”
    *Puts Blinders on* You know, I think you are completely right. There is no other way that anybody could possibly analyze this case! That was easy. Who’s up for KTV!
    “If we think of it in any other way, we would never cross the street.”
    Fair enough, but who in their right mind would cross a street where drunk drivers are routinely flying around blind corners at 90mph?

  • http://www.joyceyland.com Joyce Lau

    On paper, court proceedings in China are supposed to be open to the public.
    The only exceptions are those concerning sensitive materials like state secrets. (Of course, Chinese officials sometimes bend the definition of “state secret” to mean whatever the heck they want it to mean, but that’s a different topic).
    Also on paper, the final judgments of any court case — even “closed cases” — should be made open to the public.
    As we all know, the letter of the law — and its actual application — can be very different.
    In cases involving writers or political issues, families can be barred from “open” proceedings, or told that “all the seats are taken.” Meanwhile, lawyers and relatives can be warned not to go to the media with final judgments, even though they are supposed to be made public.
    In your experience, how open are Chinese business court cases involving foreigners? Can lawyers go in and do their jobs un-impeded?

  • Andeli

    I think the lesson best learned here is 1) always do a WOFE as no one in the Chinese political system can gain anything personal from a WOFE. 2) do not invest too far away from Beijing or Shanghai as the strength of the law is reduced the more south or west you move.

  • http://www.bourguignonlaw.com George E. Bourguignon, Jr.

    Congrats on making the top 100 law blogs in the ABA Journal’s annual survey!

  • Twofish

    Moore: “Generally speaking, can a foreigner caught up in China’s legal system expect to get a fair (e.g. law- and fact-based) trial?”
    That’s not how the Chinese legal system works. The Chinese authorities will only hold a trial once they are sure that there is going to be a conviction. The really important parts of the Chinese legal system happen pre-trial as authorities in discussion with the defense lawyers figure out if there is enough evidence to hold a trial. If there isn’t, then the defendant is released.
    One other difference between the Chinese system (which copies the French and German systems) is that all convictions require a trial. In the US/British system there is no trial if the defendant pleads guilty. In the Continental European system, there is no such thing as “pleading guilty” so there is a short trial even if the defendant does not contest the charges.
    Another difference between the Chinese/German/French and US/British systems is that in the Chinese/German/French system, the defendant is entitled to make a statement which is not under oath and not subject to cross-examination, so sometimes if the defendant knows that he is going to lose, it’s a chance for them to scream at the court. The fact that the defendant has the right to make a statement in court can keep the authorities from holding a trial (and therefore releasing the defendant) if it’s likely that the defendant will say something embarrassing (i.e. if I go down, I’ll take you all with me.)
    So the important question is now “will people get a fair trial but rather will people get a fair pre-trial?” Also often you don’t want a fair pre-trial. You want an unfair pre-trial that is biased toward you. There are a lot of situations in which the law is clear and the defendant is doomed if they get a “fair trial” and then only way out is to convince the authorities that it is somehow in their interests to forget about the facts and the law and to release you.

  • Twofish

    William: Does that simply reflect the high concentration of ethnic Chinese among expat businessmen, or is it a craven calculation that wrongfully imprisoning a white guy would stir up more unwanted international attention?
    It’s usually has to do with the fact that ethnic Chinese business people tend to have a lot of informal connections with local people whereas non-ethnic Chinese business people don’t. Most of these situations seem to happen when relationships go bad and the knives come out.
    One other thing is that I’ve noticed that ethnic Chinese often tend to care more about “face” and “justice.” If some government official tells a non-ethnic Chinese business person to give them their money or else go to jail, most non-ethnic Chinese business people will hand over the money, leave China and never come back rather than to “fight for justice.” Ethnic Chinese tend to get more emotional about these things.

  • Twofish

    Also criminal convictions are not the end of the story. One the appeals are done, the logical thing for Ng’s lawyers to do is to petition for medical parole or early release for good behavior. The problem is that in order to be released for this Ng has to make an abject and humilating statement that he is sorry and the beg for freedom.
    One reason that ethnic Chinese tend to get caught up in these situations has to do with social dynamics. I know someone who was white that got in trouble with the police, and he was released after a month writing a self-criticism saying that all the charges were true, that he was very sorry for what he did, and how great and wonderful the Party was for showing him the error of his ways. Of course he didn’t mean any of it, but he was prepared to beg and plead for mercy to get out of jail since once he left China no one cared that he didn’t mean it, and he thought it was a sort of a funny story that he had to go through several drafts of his essay.
    On the other hand, if you are ethnic Chinese and you beg and plead for mercy, and then you get out and they you say “ha ha!! I didn’t mean any of it” then people will consider you unreliable and a liar.

  • William

    Thanks for your explanation, Twofish!

  • Volker Müller

    As a general rule, China is still very friendly to foreigners, especially in comparison with countries in the “Western” world. There is a good chance, that foreigners are not punished or punished not as severely as locals.
    However the “foreigner bonus” is diminishing, not like in the “good old times” when foreigners could do almost everything. No reason to complain, equal treatment is one fundamental principles of the rule of law.
    However there is one inequality in China as in all (?) other countries of the world: Foreigners may be deported, even for minor offences. For people living outside China this may seem like a light form of punishment, but if you live here, have your house and family here, then deportation is a very severe form of punishment.

  • Aussie in China

    quote: “while he was the Et-China chairman and general manager from September 2009 to June 2010, Ng borrowed 83 million yuan ($12.83 million) from GZL and then loaned it to Et-China to get the company listed in the London Stock Exchange, the China News Service reported.”
    (actually it made him the major share holder)
    quote: “From August 2008 to August 2010, he authorized Et-China to give 1.45 million yuan in bribes to Zheng Hong, former board chairman of GZL, who succeeded in getting Et-China listed, the report said. ”
    There are four prominant cases (2 pending) involving criminal charges brought about by shady dealings and all are Australian passport holders and John Garnaut has written much in the Australian press about them. However, Garnaut usually jumps the gun with some very one-sided reporting which more often than not comes un-stuck when the real details of the shady activities are released.
    Thousands of foreign business people operate successfully every day in China without ending up in the criminal courts.

  • gregorylent

    there is law …… and there is ego .. nationalistic or local … china seems like a kid upon whom reverse psychology is a most effective technique

  • Jerome Cole

    @Twofish: You are totally and utterly ignorant of economics but your explanations of Chinese society, law, and business norms are extremely learned and useful on a practical level.

  • Ethan

    @Jerome Cole: You are completely ignorant about anything remotely Chinese, but your input about Twofish is appreciated.

  • Jerome Cole

    Yes. After a decade of living in China and even attending university here I am definitely an ignoramus with respect to all things Chinese.

  • Twofish

    Cole: Yes. After a decade of living in China and even attending university here I am definitely an ignoramus with respect to all things Chinese.
    Not sure whether this is serious or sarcastic, but one thing that’s true about China or the world economy is that they are just do big. No one understands China. No one understands the world economy. The most you can to understand bits of them.
    One thing about the Chinese legal and judicial system is that it does provide some protection. The thing that legal system is designed to prevent (and i think it in fact does prevent this) is what happened in Stalinist Russia in which the state would arrest random people, either torture them until the confess to something outrageous or just immediately shoot them. This in fact undermines the power of the government since if you are in trouble whatever you do, you don’t have any incentive to do what the government wants you to do.
    So if your defense against an accusation of theft from ABC corporation is “I have no idea what the ABC corporation is, I’ve never been to the city that the ABC corporation is, and I’ve never met these people. The person you are looking for must be someone with the same name.” Then this is likely to work. If you get your defense lawyer to explain this to the police, then what is likely to happen is that they’ll release you, rather than torture you until you confess which is what happened in the 1960′s. One thing about the Chinese criminal justice system is “face” is important, so if they arrest you and then quickly release you because they obviously made a mistake, then everyone can (and will) pretend that nothing happened, and the police don’t look like idiots. Now if they put you on trial, and then they have to admit to everyone that they made a mistake, then it’s embarrassing.
    Now if your defense is “I did transfer money from ABC corporation to my personal accounts, but …..” then you are in trouble. What happens in China is that there are a ton of business practices that everyone does but violate some written law. This happens with currency, tax, and business procedure. Just to name one, it’s very common for people to put corporate money in personal accounts, and it’s often unclear who owns what.
    There is a lot of corruption in China, but one thing that you have to remember is that taking a bribe is illegal, but so is *paying* a bribe. So if you have a payoff a government official to get something done, you have to realize that the government now has an excuse to put you in jail at some later time.
    Under normal situations, there is non-enforcement, but if they want to get you, then they can get you for this, and you are legally in a very weak position. The fact that you are a foreign national doesn’t help much. The diplomatic service can insure that you are treated humanely, but it’s unlikely that the foreign government will make a lot of noise, since it becomes extremely embarrassing if it turns out that the government has legal justification for what it does.
    But there are counter-tactics. You could have a factory in which you have a joint venture between government officials and private investors (all of whom who are ethnic Chinese) in which both groups *hate* each other, and would do anything to get rid of the other group if they could. It’s obvious to everyone that the government officials would stab the private investors in the back in anyway possible if they could get away with it, but they can’t because the private investors have kept extremely careful records of the behavior of said government officials, and so you have a stable “mutually assured destruction” situation. (i.e. if you put me in jail then you are going to jail too).
    Now you can ask whether the officials have enough power to keep the courts from tossing them into jail for corruption, but then you get into an “Alice in wonderland” situation. Suppose it was obvious to everyone that people that pay bribes would end up in jail, but government officials that receive bribes would never go to jail. In that case, what would happen is that people would stop paying bribes, which would be bad for corrupt officials. So you have the weird situation in which anti-corruption laws are essential for corruption to exist.
    Chinese law is interesting to study because you end up with all of these sorts of paradoxes.

  • Twofish

    Harris: . I embrace it because the overwhelming majority of foreign companies doing business in China make no allowance even for the possibility of one of their people going to jail or being held hostage.
    That’s not true (at least among large multinationals). Every large multinational that I’ve ever worked for has security departments that handle this stuff.
    It’s pretty simple. If you don’t release the executive right now, we pull our business out of your country. Once you have released the executive, then we are going to reevaluate what our next step is going to be, but there will be consequences.
    Also, most large corporations have contacts in the government that are much, much, much more powerful than whoever is taking the hostage. Multinationals also have huge amounts of money so that if you need to pay to get someone out, you can, and often the amounts are pocket change.
    Also, having to deal with “business hostages” is something that large corporations have to deal with surprisingly often, and China is not known in particular for this sort of thing. It’s standard in some countries for large corporations to take out “kidnap and ransom insurance” whereas this isn’t necessary in China.
    The reason it doesn’t make the news is that usually the situation gets resolved quickly and quietly, If the executive really didn’t do anything bad, he gets released quickly, and people generally don’t want to talk about the details, especially if money changed hands.
    If the executive really did something bad (i.e. offer a bribe without corporate approval or something that involves sex), then the company washes its hands of the situation, and then usually its embarrassing enough so that no one wants to make much noise.
    But none of this is new. What I think is different about China is that you have lots of SME’s operating in China and it’s unusual for this to happen in China, and the fact that you can operate in China without constantly thinking about whether or not your executives will get kidnapped (which is not true in parts of Latin America or sub-Saharan Africa or Russia) makes it big news when it does happen.

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