China attorneys

In the second half of every year for at least the past decade (not sure why this is the timing) my law firm gets an onslaught of calls from foreign companies being criminally investigated by the Chinese authorities. Well over half the time, the foreign company under investigation will seek to justify its actions by saying that everything it did it did on the advice of their Chinese partners Chinese accountant or Chinese employees. So what?

If anyone in your home country were to suggest you issue a fake receipt, forge a contract or commit fraud, you would almost certainly say “no” and terminate your relationship. So why believe things are any different in China?

Couple things you should know. One, China loves going after foreigners criminally. It always has and it probably always will. See Criminal Law And Business In China: Too Often the Twain do Meet. Two, China has become damn good at rooting out crimes and prosecuting them. China’s customs and tax police strike me as particularly competent.

Your Chinese partner or employee may try to entice you to engage in illegalities by telling you that “everyone does this” or that
“to succeed in China you sometimes must cut corners” or that “nobody in China does the paperwork,” or that (my favorite) “don’t worry, you will never get caught.”  Well guess what. When it comes to foreign companies, few actually engage in illegalities and it seems like many that do engage in illegal acts end up getting caught.

The big thing you MUST understand though is that just because you see your Chinese competitors engaging in illegal activities or cutting corners does not mean you should. You need to realize there is a big difference between those companies and you: they are Chinese and you are not. What this means is that even if your local Chinese lawyer or accountant or employee or partner insists that they have seen company after company do XY and Z illegal acts and get away with it, does not mean that you will. Read the news, people. Read how foreigners are being treated in China these days. Read Foreigners in China in the Time of Coronavirus: “See the Whole as Well as the Parts. Look around you. The Chinese government is very sensitive about foreigners it perceives to be exploiting China or taking advantage of the Chinese people. Breaking business laws will put you in this category.

It is far too common for a Western company to come to our China lawyers planning to do something illegal in China, solely on the instructions of and with assurances from one of its Chinese partners or employees. Often, the Western company does not fully grasp that what it is proposing to do is illegal. I have a stock response, which is, “what makes you think so and so is an expert in Chinese law as it applies to foreigners?” I then ask whether it would make sense for their assistant plant manager here in the United States to be the one giving legal advice to foreign companies doing business in the United States. You should not be taking legal advice regarding China from anyone other than a China lawyer experienced in working with foreign companies doing business in China. You especially should not be taking legal advice from anyone who will benefit from your actions but not go to jail for them.

This all brings up another issue about which we frequently write on here. Getting money out of China. See e.g., Getting Money Out of China: It’s Complicated, Part 6. You may be able to get away with illegally buying the property or product. You may even be able to get away with illegally selling the property the product or product. You may also get away with “fudging” on your China taxes. But, selling your business or getting the money you earned in China out of China are two very different things. You will see the same Chinese bureaucrats on the way out that you saw on the way in and they will be even less hospitable this second time. So you had better have all your paperwork in good order.

Reminds me of a call I got a few years ago from a European businessperson who wanted our China lawyers to help get money out of China. This person insisted that his multi-million dollar China investment had been “completely legal” because the local government knew about it and had done nothing to stop it.  My explanation that governments in China (particularly the local ones) tend to be very liberal in allowing money to come into China but very strict (particularly Beijing) when it comes time for that money to leave China seemed to stun him. This dichotomy between wanting money to come into the country and not wanting money to leave the country seemed never to have occurred to him.

We have said it before (countless times) and we will say it again. China has essentially two legal systems; one for foreign companies and one for domestic companies. In most respects, figuring out what is legal and what is illegal is fairly easy for foreign companies because those companies need know only one thing:  they must follow the law as it is written and they must do this no matter who tries to sway them otherwise. 

Simple, right?

Print:
EmailTweetLikeLinkedIn
Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.