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Foreign executives face severe legal constraints in China

  • Author:Max lin
  • Release on:2016-12-26

Two years ago, Singapore citizen Wu Yidian Eden was celebrating a promotion at the bank she worked at in China and preparing for her wedding.

Then, one of her rich clients vanished, apparently along with millions of dollars he had deposited with the bank. Chinese police soon traced his wealth to fraud, and, unable to find the man, detained Ms. Wu.

The 33-year-old Singapore banker's case exemplifies a rare experience but one that increasingly concerns foreign executives in China: an unexpected tumble into legal limbo. Lawyers, diplomats and others say risks include jail, detention in dingy hotels and other limits on freedom that often stem from allegations of bribery, tax offenses and even civil suits where the bail is surrender of a passport.

Although Ms. Wu was never charged with a crime, she says her yearlong legal odyssey -- including a brief stint in jail, two months in a hotel room with barred windows, and being forbidden to travel outside China -- torpedoed a promising banking career and her wedding plans.
The hazards for many foreign business executives have played out over the past year in the case of British pharmaceutical firm GlaxoSmithKline PLC. Chinese investigators say the company paid bribes to boost drug sales. Glaxo has said that some senior executives may have violated Chinese laws and that it is cooperating with Chinese authorities in investigations. What surprised the foreign business community was the swift action police took against foreigners linked to Glaxo.
Chinese authorities issued a travel ban on Glaxo's onetime top executive in China, a Briton. But he hasn't appeared in court or been officially charged. The company says the Shanghai-based executive has been cooperating with investigators; he couldn't be reached to comment.
China's Ministry of Public Security said foreigners are subject to the same laws as the country's citizens. Diplomats, lawyers and executives say that is increasingly the case.
This past week, Chinese authorities said they detained a Canadian couple, Kevin Garratt and Julia Dawn Garratt, on suspicion of espionage activities including alleged theft of state military secrets. The couple, who run a coffee shop near China's border with North Korea, can't be reached. Canada's embassy cited privacy and declined to comment on the couple.

'There's a sense that it went quickly from 'foreigners don't merit any more preferential treatment' to 'let's discriminate against foreigners and foreign businesses,' ' says Nancy Murphy, an attorney with Beijing law firm Jincheng Tongda & Neal. Among Ms. Murphy's clients last year, she says, was a German warehouse manager who was never charged with a crime but who spent four months in a north China detention center during a police investigation into artwork smuggling, followed by 10 months of being blocked from leaving China.

Such cases have become the buzz of business circles in China and are seen as a new risk for expatriates to consider, alongside other downsides about living in the country such as air pollution. Another worry: that a summertime wave of antimonopoly investigations into foreign auto and technology companies might trigger criminal charges against corporate executives.

Figures about how many foreigners are arrested in China annually are difficult to find because of a lack of transparency in the country's legal system. Not everyone thinks the number of cases is rising substantially. But several lawyers and diplomats said a foreign passport and multinational corporation job isn't the stay-out-of-jail card in China it used to be, and warn executives that it is increasingly necessary to remain on their best behavior.
A result is that foreigners face some of the same troubling legal procedures applied to Chinese nationals that have long vexed human-rights groups.

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