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In a story picked up by the leading global press and information forces Reuters reported that "Chinese authorities raided the office of U.S.
corporate due diligence firm Mintz Group in Beijing and detained five
local staff, the company said." (China detains staff, raids office of US due diligence firm Mintz Group). In its statement, the Mintz Group declared:
“Mintz Group received no advance notice of the actions taken in Beijing this week, nor has the company received any official legal notice regarding a case against the company. We are confident that we and our employees have done nothing wrong.” (China authorities raid US due diligence firm, detain staff)
The timing appeared to be quite strategic: "The raid comes as Beijing prepares to host the annual China Development Forum, billed as China’s Davos, from tomorrow in person for the first time since the COVID-19 pandemic. Apple CEO Tim Cook, Pfizer CEO Albert Bourla and Mercedes-Benz Chairman Ola Kallenius are among the high-profile executives expected to attend the event." (China authorities raid US due diligence firm, detain staff). Western enterprises are now not just on notice, but will likely be expected to express, as a matter of policy, conformity to national expectations. That may set up a collision with home state expectations respecting global operations.
The issues are far broader than the arrest of local staff in an accountability based enterprise, particularly in the context of the construction of mandatory human rights due diligence legalities with global reach; and the constitution of markets driven human rights due diligence systems as an integral part of markets based compliance with a corporate responsibility to respect human rights. Among them are these:
1. Political systems and political ideologies matter. Marxist Leninist systems treat virtually all aspects of life as contributing to the productive forces of society. Productive forces are either state property or state directed resources. Information, especially information tied to accountability, are increasingly understood both as a productive resource, and as regulatory property. Regulatory property is an essential element of public administration, which must be directed or coordinated through state organs and guided by the vanguard. That has an enormous effect on the way on which information, especially information touching on regulatory is understood. In this case, both the function of investigation, and the accumulation of information from such investigations, may be understood as both state assets and a usurpation of the role of state organs and of the political vanguard. Internally, such activity would likely be undertaken within a tight web of state supervision or approval or direction. When undertaken by foreigners, and when undertaken for the purpose of external accountability, it might be viewed as foreign interference with the internal affairs of the nation. It follows that, in the vernacular of liberal democracy, virtually all information, and especially information touching on the operation of systems (economic, social, and political) are likely to be presumed to be state secrets.
Pix Credit here 2. The consequential effects on emerging systems of auditing and of corporate compliance systems, especially those that seek to project outward national standards, principles and the like (even if under the umbrella of national transposition of international law-norms) are significant. These include mandatory human rights due diligence, but also sanctions regimes, and anti-corruption measures like the Foreign Corrupt Practices Act and others. In this case, the arrests might be understood potentially as a prosecutorial, and administrative form of blocking mechanism. Second, it suggests that any such accountability measures would require prior state approval, likely state guidance, and substantial oversight by state organs. Third, it is likely that the results of such investigations would be directed to internal compliance mechanisms and that the expected levels of transparency common to liberal democratic states would be hard to achieve. Fourth it is likely that such efforts would be viewed with suspicion if not locally state directed--and autonomous of foreign attachment--because it might interfere with state or vanguard policy with respect to the deployment and state assets. In effect, from the perspective, for example, of the German Mandatory Human Rights Due Diligence Law, there would be substantial obstacles for compliance for companies at least with respect to their Chinese operations.
Pix Credit here 3. For private sector accountability firms, the terrain becomes more difficult. In a sense, and from a Marxist-Leninist perspective, these firms might appear to be a privatized administrative organ of states. Certainly, the move to delegate compliance based administrative functions, a trajectory that has been the defining characteristics of human rights and sustainability based regulatory initiatives, might, from a Marxist-Leninist perspective, merely hide the ultimate coordinating and thus public role, of these functions. That puts such firms--whether they are NGO or profit organized, in a delicate situation. The distinctions between state security intelligence gathering (for the purpose of furthering public goals) and markets based accountability and compliance based intelligence gathering might lose their critically distinctive liberal democratic differences when viewed through the lens of Chinese New Era Leninist principles. That perception would be increased if, to some extent, the intelligence and compliance is gathered for purposes that serve to operationalize administrative oversight through national legislation (for example, those of the EU). Left undiscussed may be issues of compliance by these entities with the expectations of liberal democratic states when they serve as gatekeepers or implementation vehicles for mandatory or permissive human rights and sustainability responsibilities.
4. When such accountability measures, from the global private side, is attached to sanctions measures--for example those of the United States aimed at conditions in Hong Kong SAR and Xinjiang, plus those targeting conflicts, for example in Ukraine--the situation becomes more complicated still. In that case the blurring between public policy and accountability-compliance (including quality control, eg corruption) private enterprise regimes makes it harder to make out the borders between intelligence, government directed conduct, markets based integrity measures, and the need or expectation or responsibility to comply with international law-norms. The result is another factor tending towards greater detachment between the internal economies of the liberal democratic camp, and those of the Marxist-Leninist camp. Alternatively, it will call for very complicated negotiations about process that provides some common space where the objectives (and integrity) of both systems might be satisfied. At this point, what is clear is that the Chinese side is going the leading economic forces of Anglo-European enterprises advance warning, even as they are summoned for an event in Beijing. The 2023 China Development Forum will serve as an important site for the rewriting of the rules of compliance and due diligence when they criss into Chinese controlled spaces.
5. Those Chinese controlled territories are not necessarily limited to metropolitan China. It is quite likely that as part of capacity building along the Chinese Silk Roads, that similar approaches will be cultivated--if only to protect Chinese Belt & Road Initiative enterprises. This development might serve the interests of certain post-colonial states emerging from 20th century European imperial reasons. It also serves to refocus the thrust of due diligence from a human rights to a development core in line with the emerging principles of Socialist Human Rights in economic activity about which I have written before (see here). This could be accomplished in a variety of ways--the most likely sources will be embedded in the Memorandum of Understanding that are usually attached to BRI BITs. Where such revamped due diligence regimes are then enforced through BRI dispute resolution mechanisms in and through China, the likelihood of a successful self-referencing normative system detached from those of other global orders become clearer.
Pix Credit here 6.The consequences for mandatory human rights due diligence laws (mHRDD) is thus acute. It is acute in two principal ways. The first is that the effort to extend the reach of mHRDD legal obligations through national law beyond national borders (traditional jurisdictional limits) may not be possible. Companies may face incompatible obligations to investigate and to refrain from investigating (without the approval or guidance of the state) in ways that cannot be resolved. Either national legislation will have to be rewritten or enterprises will have to withdraw from impossible compliance situations. Certainly, NGO and NGO aided litigation seeking to internationalize the breadth of national mHRDD will only bring this to a decision point sooner rather than later. The second, is that the influence of the principles and outlooks reflected in mHRDD statutes may lose some effectiveness outside of developed liberal democratic states. States along production chains may take the lessons and narratives of compliance from China to heart and naturalize them in local context. This naturalization may include state permissions and review of investigation; transparency or data nationalization law; regulation of external auditors or investigators; or the domestication of the results of investigation requiring any legal or civil action to be based in the state where the issue occurs (and that will likely reshape conflicts of laws rules).
The reporting from Reuters follows with links to the original website posting.
China detains staff, raids office of US due diligence firm Mintz Group
and Yew Lun Tian
WASHINGTON/BEIJING, March 24 (Reuters) - Chinese authorities raided the office of U.S. corporate due diligence firm Mintz Group in Beijing and detained five local staff, the company said, putting foreign companies in China on alert just as the country hosts an international economic forum.
News of the raid and detentions comes as Sino-U.S. relations have spiraled downwards following months of diplomatic tensions, including over the U.S. military downing in February of a suspected Chinese spy balloon and a planned U.S. transit next week by the president of Taiwan, the self-governed island China claims as its territory.
"We can confirm that Chinese authorities have detained the five staff in Mintz Group's Beijing office, all of them Chinese nationals, and have closed our operations there," the company said in an emailed statement to Reuters late on Thursday.
It said it was ready to work with the Chinese authorities to "resolve any misunderstanding that may have led to these events", and that its top concern was the safety and wellbeing of colleagues in China.
"Mintz Group has not received any official legal notice regarding a case against the company and has requested that the authorities release its employees," the company said.
Chinese foreign ministry spokeswoman Mao Ning said on Friday she was not aware of this case. The Beijing public security bureau did not respond to a request for comment.
A source at the New York-headquartered firm earlier told Reuters on condition of anonymity that the company's local legal counsel said the raid occurred on the afternoon of March 20, and that the employees were being held incommunicado somewhere outside of Beijing.
'RED ALERTS'
As per Mintz Group's website, the Beijing office is its only one in mainland China. The website says the company specialises in background checking, fact gathering and internal investigations. Its wide-ranging clients include the National Football League, New York City and The Beatles, according to media reports.
Mintz has 18 offices around the world and hundreds of employees. Randal Phillips, a partner at the firm who heads its Asia operations but is based outside of China, is listed on its website as the Central Intelligence Agency's former chief representative in China.
Phillips worked in Beijing for years after leaving the CIA. There was no indication the incident was related to him, and Reuters was unable to reach him for comment.
The news of the raid and detentions comes as Beijing is gearing up to hold the three-day China Development Forum from Saturday, where executives from multinationals and representatives from international organisations will be among the more than 100 overseas delegates present.
One U.S. business community person told Reuters the Mintz Group incident sent a "remarkable signal" that Beijing wants foreign money and technology but that it won't accept credible U.S. firms conducting due diligence on Chinese partners or the business environment.
"Red alerts should be going off in all boardrooms right now about risks in China," the source, who did not wish to be identified due to the sensitive nature of the matter, said.
China has said it welcomes foreign trade and investment but stressed that security comes before development.
U.S. businesses operating in China are increasingly pessimistic about their prospects in the world's second-largest economy, according to a survey released this month by the American Chamber of Commerce in China.
Two-thirds of the respondents cited rising U.S.-China tensions as the top business challenge.
Western due diligence companies have got into trouble with Chinese authorities before. British corporate investigator Peter Humphrey and his American wife Yu Yingzeng, who ran risk consultancy ChinaWhys, were detained in 2013 following work they did for British pharmaceuticals group GSK.
Humphrey, who spent two years in jail for allegedly acquiring personal information by illegal means, which he denied, told Reuters that providing due diligence in China was even harder now because of a "massive tightening in access to information."
"The foreign business community needs due diligence in order to conduct safe business, to pick the right partners and the right hires, to invest in the right companies without losing their shirt ... But Beijing has made it impossible to do this," he said in an email.
"This is at a time when Western companies need transparency more than ever," he added.
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