Five Chinese government officials knock on your company’s door with a search warrant. What do you do?
The Squire Sanders firm does a nice job answering this question in its article, “If Your Company is Investigated in China … Reacting to Dawn Raids” [link no longer exists]. The article (which I urge you to read) lists out ten things to do. I focus on the following four from that list:
- Inform senior management and seek legal advice. Notify the most senior management person on-site and establish a response team immediately. Contact your company’s legal department or outside counsel to arrange legal assistance if needed.
- Request a copy of the search warrant before allowing the search to begin. Review the search warrant immediately and ensure that the search is limited to the scope and the items specified in the warrant. In the event of any question concerning the warrant’s coverage, the investigators may seek your permission to proceed. Do not give it. As a general rule, you should not consent to the search of any area or seizure of any property that is not described in the warrant.
- Preserve evidence. Instruct employees to remain calm. Ensure that no one destroys documents or deletes emails, and instruct employees not to discuss the investigation with anyone outside the office. The search will likely disturb work, so consider sending home persons who are not essential and have not been requested by investigators for interviews.
- Do not volunteer information or documents. If you do not know the answer, say “no” You are not required under PRC law to answer any questions posed by the investigators if you do not know the answer.
I agree on all points.
1. You should hire the right lawyers to assist you. China lawyers with experience in handling Chinese government investigations.
2. You should review the search warrant so that you do not provide anything more than required. Is the warrant really for your company? Mistakes do happen. Is the warrant really for this particular address of your company? Again, mistakes do happen. Does the warrant allow for seizure of both written documents and computer files? Is the warrant still valid? You also need to know what the warrant says so that you can be sure to make all efforts to prevent the investigators from going beyond it.
3. You absolutely MUST preserve evidence. You absolutely MUST. Have I been clear? If anyone in your company destroys evidence you will likely face two major problems. The first is that someone may go to jail for having done so. The second is that the destroyed documents will be presumed to have contained facts harmful to your company. Don’t do it!
4.In China Customs Problem? Keep Your Mouth Shut! we sought (in the strongest terms possible) to emphasize the importance of not volunteering information to the government:
The point is that no matter how warm and fuzzy you want to get with China customs, they have zero desire to get all warm and fuzzy with you. Their goal is to fine you as much as they can and then maybe just toss you in jail for good measure. Their goal is to make their quotas and you are their quota. I am not kidding. If China customs comes gunning for you, seek help and fast.
We also discussed the importance of not revealing “anything to China customs as ‘anything can and would be used against them.'” Countless times people reveal information to governments thinking that by doing so they will be helping themselves or their companies, only to learn later that the information they provided works against them. It is even worse when there was no requirement to provide the information in the first place. Just because you think the information is good, does not mean that it is.
Our China customs post drew two comments reinforcing the importance of staying quiet. The first comment serves as a terrific reinforcement of the importance of not talking:
Though we have never spoken, your description is what happened to my company. We were approached by China customs with some questions relating to a potential small calculation error on some recent shipments. We had one of our Chinese employees gather up the documents we thought would show that nothing was wrong. Two years later and about $450,000 poorer in fines and attorney fees and threats that some of our people would be going to jail, we are finally done. Unbeknownst to us, one of our employees in China had been intentionally mislabeling incoming shipments and pocketing the difference. We didn’t know about that and if we hadn’t turned over documents that showed this, we would have been fine, since we had stopped doing that years ago and since we gave them way more documents than they needed. I like your advise to treat any requests from China customs as a criminal investigation because that is what they turn into so often. We have learned our lesson.
The second comment nails the point home:
About 5 years ago my employer in China was investigated not by Customs, but some other agency. Under guise of conducting a normal audit, the investigator and two assistants arrived to do the “audit” then used the information gained to extract a very large fine for violating some highly unusual law. The investigator later apologized for having lied to my employer. The source of the investigation was a ratting-out by a disgruntled former employee in a far away city. How he knew of this unusual law remains a mystery.
What do you think?