According to the media, Chinese authorities have detained a number of Australians from Crown Resorts for gambling-related offenses and have launched a criminal investigation into their actions. According to the Australian Financial Review, it appears 18 Crown Resort staff have been detained, including three Australians, “as other foreign casino operators scramble to safeguard their China-based staff.” The Crown staff were detained in a series of overnight raids “in an apparent crackdown on illegal marketing by offshore casinos.”
This news is relevant to many foreign companies doing business in or with China. I say this because our firm constantly hears from companies with personnel in China that market some product or service (oftentimes an internet service) from China that is illegal in China. I repeat: many foreign companies have sales people and executives in China who market products or services in China that are illegal in China, with offshore and foreign casinos just one example.
There are many things illegal in China (either completely or just for foreign companies) that are widely legal elsewhere, with the following just those that quickly pop into my head:
- Certain types of education services
- Certain types of internet services
- Certain types of communication services
- Many publishing services
Many foreign companies get around China’s laws prohibiting their business by operating some or all of their business outside China. But if you have people working for you (either as employees or otherwise) in China or if you are marketing to China, your people may be at risk for getting “detained” in China.
Our China lawyers constantly provide legal risk assessments in connection with doing business in or with China. One of the most common questions we get is “should I go to China.” As attorneys, we are extremely cautious in answering this question because the last thing we want is for us to okay their going to China and then having that person detained.
We tend to be a bit more positive about our clients going to Hong Kong, but even going there is seldom risk free. The below is a brief excerpt from one of many memoranda we have written on the issue of going to Hong Kong:
This memorandum addresses the risks of _Mr. __________’s going to Hong Kong. Our conclusion is that we see __________’s going to Hong Kong as a low risk endeavor.
If _________ were to travel to China, there is a risk his presence would be reported to the police. If this happens, an arrest could occur. Though it is not possible to quantify this risk, the risk is not low. There is always a very slight chance of spillover risk from the PRC to Hong Kong. However it is important to note that to date, the Hong Kong authorities have not cooperated in China’s _______ crackdown and we have not seen anything to indicate that they will. Though we are not prepared to say that Mr. ________’s going to Hong Kong is wholly without risk, we do not believe the Hong Kong authorities are following the situation with _______ in the PRC and we do not believe that they would do anything to _______ in Hong Kong even if they were to become aware of _________’s situation in the PRC. We also do not believe the PRC would seek Hong Kong’s help against someone from a company like _______. So again, we do not see much risk in Mr. _________’s going to Hong Kong at this time.
We often are asked to give similar legal risk assessments for clients involved in legal disputes with Chinese companies and our advice in those situations is usually (but definitely not always) short and simple: it would be better if you can delay going to China until you have resolved your dispute.
The thing that gets to me about all of this though is how so many companies either have no clue about their risks or willfully choose to ignore them. One of our China lawyers loves to tell of how he met an expat bragging in a bar about his China business and when our lawyer told him what he was doing was flat out illegal, his response was that the Chinese government didn’t care and actually wanted this sort of business in China — the written laws be damned. And everyone else at that table joined in on this sentiment. Just a few years later this person was arrested and convicted and served three years in a Chinese prison.
China is cracking down hard on foreign companies that make money from China (especially those foreign companies that have “independent contractors in China) and do not pay their taxes in China. If you want to operate this way, at least recognize your risks and act accordingly. See China’s Tax Authorities are After You, an article I wrote for Forbes Magazine on how China is stepping up its tax collection efforts, especially against foreign companies with China-based “employees” but no China company.
If you or your company are doing anything remotely marginal in China, ask yourself whether what you are doing or about to do is really worth it. Hard-charging businesspeople too often fail to ask this question.
I love telling a story about a long-time client and friend. This person’s business empire stretches across at least four continents and his net worth is well North of twenty million dollars. Many years ago he mentioned he would be going to Iraq the next week to finalize the negotiations on some big construction deal. When he told me this, I immediately told him of how I had met a businessperson who went to Iraq and never came back. I basically asked my friend why with the entire world available to him (and with three kids) he was even considering going to Iraq. He poo-pooed my concerns but then called me back about a week later to tell me he had given my advice more thought and he had cancelled his plans.
I am not telling you to be afraid of the world, nor am I telling you not to take risks, but I am saying that before you jump you should familiarize yourself with where you will be landing.
For more on what can happen to you in China legal difficulties there, check out the following:
- China Hostage Situations With a New Twist
- China, We Have A Problem. A Mostly True Story.
- The Single Best Way To Avoid Being Taken Hostage In China
- How To Avoid Being Held Hostage In China (Forbes Magazine)
Bottom Line: Pause and think before you act and pause and think before you go.
What are your thoughts?