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Peter Humphrey is a former Reuters correspondent and spent over a decade as a fraud investigator in China for Western firms. He is currently an external research affiliate of Harvard University’s Fairbank Center for Chinese Studies and a mentor to families of foreigners wrongfully detained in China.
The recent raid against American due diligence firm Mintz in Beijing, and the arrest of all five of its Chinese employees there, carries echoes of the past.
Reminiscent of the raid against my own due diligence firm ChinaWhys almost 10 years ago, which led to my wrongful imprisonment for two years on cooked-up charges of illegal information gathering, the latest raid has sent a chilling warning to all foreign businesses operating in China — gather information at your own peril; you can become a target at any time.
Mintz is a respected United States-based global due diligence firm, and as an American firm, it is, of course, an obvious target for proxy reprisals over Washington’s growing pushback against Beijing’s campaigns of influence and interference in the West — especially in the U.S.
When China arrests foreigners, there’s often a tit-for-tat involved, in addition to false spy charges — as was the case with two Canadian consultants arrested in December 2018, in retaliation for Canada’s detention of Huawei Chief Financial Officer Meng Wanzhou on American fraud and sanction-busting charges. Similarly, my own arrest in Shanghai in 2013 coincided with a spat between the British government and China, after then Prime Minister David Cameron met the Dalai Lama in London, while also being triggered by work I’d done for a particular multinational client.
Some years before my arrest, another respected investigation and security consultant, Hill & Associates, had also been raided in Shanghai. The raid came after the company collided with a high-level corruption investigation tied to Chinese factional politics. Its staff were held and interrogated for days before their release.
Due diligence is about profiling prospective business counterparties and uncovering malpractices, such as fraud and technology theft. And until China’s dictatorial leader Xi Jinping took power in late 2012, the due diligence industry there developed unscathed and grew apace. But as soon as Xi stepped in with his hard-line authoritarian practices, a crackdown on information gathering quickly took off.
The foreign business community needs due diligence in order to conduct safe business, to pick the right partners and hire the right employees, to invest in the right companies without losing their shirt, and to ensure their business is compliant with home-country laws — like the U.S. Foreign Corrupt Practices Act and the fraud prevention provisions of the Sarbanes Oxley Act.
However, since my case in 2013, Beijing has made it impossible to do this work successfully. It has blocked access to essential data we would call “public records” in the West. And it has effectively outlawed all investigation activities into individuals, especially by foreign firms, with modifications to Chinese law in November 2015.
The result is that now nobody, and no business, is safe; no Chinese counterparty is transparent either. And this is at a time when Western companies need transparency more than ever. Anybody performing due diligence investigations in China nowadays is taking huge risks.
Many in the industry fled China after the arrest of me and my American wife in 2013 — they were all running scared. And after my case, other due diligence firms received warnings from the Chinese police, accompanied by a a clampdown on their activities, which severely restricted their business. Both former and prospective clients contacted me after my release, requesting service and assistance, which I could no longer provide. They asked, “Who, nowadays, does the kind of work you did, to the high standard you did?” I had to reply, “Nobody.”
The Chinese authorities’ biggest concern is that a due diligence investigation will expose officials involved in businesses or will disadvantage China in some way. The situation is exacerbated by the paranoia of Xi’s dictatorship.
The biggest risk is that you tread on the toes of someone you investigate by finding out things they don’t want to be known. And if they are connected to the Communist Party, they will then leverage their contacts to get you arrested.
The risks today are 10 times higher than during the 15 years I spent in China’s investigation industry from 1998 to 2013, after leaving journalism. Legal avenues for information gathering have also shrunk, as even harvesting information from open sources on the Internet can be termed illegal under the Chinese criminal code. It often comes down to who you are looking at, though. As one of my Chinese police interrogators said, it isn’t what personal information you acquire, but whose.
We don’t know for sure yet, but it’s possible that Mintz has been picked on because it is American, and relations are at the lowest nadir right now since China’s opening in1978 — although it’s more likely the investigators have offended somebody powerful, as I did. There was an element of that sort of diplomatic revenge in my own case, with China pitted against the British government. But so far, those they’ve arrested from Mintz are Chinese, not Americans.
In the meantime, I wouldn’t advise any Americans from Mintz to enter China right now, not until this matter is resolved, as they would probably be detained. In fact, all American business executives should wake up, and they should take heed of the risks.
