The Chinese government is investigating deals involving two US law firms in a wider corruption probe which saw the detention of officials responsible for approving foreign investment deals into the country.
According to Chinese media, special government investigators are reviewing investments cases in which two US-based law firms are involved. Media sources did not name the firms but revealed they had offices in Hong Kong and Beijing.
Richard Cassin, from US-based firm Cassin Law, said that American law firms embroiled in the corruption probe may risk criminal prosecution at home under the Foreign Corrupt Practices Act (FCPA). He also said that these problems may emerge when law firms are not careful enough in complying with the Act.
"Foreign lawyers practising with American firms in non-US offices sometimes know little or nothing about the FCPA, and may be reluctant to ask for help in understanding it," he said. "Yet those same lawyers are frequently called upon to help clients secure business and investment licences in high-risk countries such as China. The work requires daily contact with regulators, either directly or through intermediaries, and many of the regulators openly expect illegal gifts and payments."
Regulators have also been implicated in the probe. In August and September, Ministry of Commerce officials Guo Jingyi, director of treaty and law, and Deng Zhan, deputy head of foreign investment, were detained by government investigators. Both held positions crucial to the approval of FDI deals into China.
Two other lawyers, from Beijing-based law firm Si Feng (also known as Seafront), were also detained in connection to the probe, said Chinese media. According to reports, Deng Zhan had accepted bribes from a Si Feng lawyer to approve FDI deals.
Reuters sources said that the crackdowns are likely to stifle current and future foreign investment deals.
"This thing makes people get nervous and will naturally slow down or even tighten deal approvals involving foreign investments before the government gets the full story," said the source, who asked to be unnamed.