Got an email the other day from a client attaching a couple of articles about the recent arrest of Peter Humphrey and Yu Yingzeng of ChinaWhys. The client asked what he should make of that arrest. I immediately responded by saying the following:
Not sure yet, but clearly something. Give me a few days and I’ll get back to you.
I’m getting back to him with this post, setting forth three lessons from the ChinaWhys arrests.
First though, let me again make clear that I have no inside information on any of this. Zero. None. I once met Peter Humphrey in Beijing but to say that I know him would probably be an overstatement. To say though that many in China think very highly of him would not be.
Anyway, in looking at what has happened to him, I have essentially three explanation as to why the arrest occurred:
- HIs arrest is tied into the bribery allegations being made against GlaxoSmithKline, for whom ChinaWhys apparently served as a consultant.
- His arrest stems from his allegedly having engaged in illegal investigations of companies/businesses in China, which investigations may have been illegal.
- His arrest stems from ChinaWhys being an allegedly illegal business in that the private investigation business is prohibited to foreign companies via a WFOE.
- If he was arrested for his alleged connection to bribery, the thing to be learned is that China is cracking down on corruption (of this there is no doubt) and the smart thing to do is not to get involved in anything that even smells like bribery.
- If he was arrested for allegedly having engaged in one or more illegal investigations, the takeaway is not to engage in any illegal investigations.
- If he was arrested for allegedly having operated a business in China that is prohibited to foreigners, the takeaway is not to do this.
It is this one that may end up being most important to our readers in that I am aware of a number of people who operate illegal businesses in China either because they are not registered at all or because they are engaged in business beyond the scope of their WFOE’s mandate, or because they got their WFOE registration to do something legal for foreign companies doing business in China, but ended up (sometimes as part of their original plan) engaging in business not legal for WFOEs in China. If you or your company are in this situation, I would suggest you take a good look at your various options, which will range from getting legal to ending the illegalities. I cannot speak for the whys behind this arrest, but I can speak to the fact that in every area China is getting tougher on foreigners who are not obeying its laws. In most cases my law firm has confronted, the result has been fines and expulsion, but maybe prison is the new thing. Does anyone know? Does anyone think it a good idea to test this?