On October 26, 2018, the People’s Republic of China (PRC) National People’s Congress Standing Committee enacted the International Criminal Judicial Assistance Law (the ICJA Law).
The ICJA Law regulates requests for “judicial assistance” between China and other countries in relation to international criminal proceedings, including service of documents, investigation and evidence collection, witness testimony, seizure and confiscation of illegal assets, and the transfer of convicted persons.
This legislation imposes, for the first time, a mandatory pre-approval process before documents, assets, and testimonies relating to criminal matters can be exported out of the PRC. Article 4 of the ICJA Law prohibits institutions, organizations, and individuals within the territory of the PRC from providing evidentiary materials or assistance in connection with criminal proceedings to foreign countries without approval from the PRC competent authorities.
The ICJA Law sets out specific circumstances in which the competent authorities may refuse requests for judicial assistance. The legislation also contains a catchall provision to deny judicial assistance in “other situations where refusal is allowed.”
Notably, while the ICJA Law paints its primary principles in broad brushstrokes, certain questions remain unanswered with respect to how the law is to be applied in practice. For example, the ICJA Law does not set out specific procedures for requests to be made for judicial assistance, or which PRC divisions are responsible for processing such requests. While the law enumerates specific scenarios under which requests may be denied, it does not set out the factors that the authorities will consider, or the length of time it will take, when deciding to grant such requests. Similarly, the ICJA Law does not address penalties for violations.
However, it is expected that, as is common with the introduction of a new law in the PRC, the PRC authorities will, in time, issue implementing regulations that provide more details and interpretation of this law.
2. Potential impact on internal investigations in China
The scope of the ICJA Law is limited to criminal proceedings. Accordingly, self-initiated internal investigations by multinational corporations do not fall within the purview of the ICJA Law.
However, an investigation may also be undertaken in response to an inquiry from a foreign criminal law enforcement agency, such as the U.S. Department of Justice (DOJ). In such cases, the company must obtain approvals from the PRC authorities before producing documents or witnesses outside of China. It is conceivable that a disapproval by the PRC authorities to transfer PRC-based evidence or testimony pursuant to subpoenas by foreign criminal enforcement agencies, such as the DOJ or the UK’s Serious Fraud Office, may place multinational corporations in a legal dilemma.
Further, what starts out as a self-initiated investigation may evolve into a criminal matter. For example, a U.S. company may decide to self-disclose violations of the Foreign Corrupt Practices Act (FCPA) to the DOJ, as a result of certain findings made in the course of an internal investigation within its China operations. In such instances, the ICJA Law could apply, such that the Chinese subsidiary of the U.S. company has to obtain approval from the PRC authorities before transferring evidence or testimony outside China. Such approval not only pertains to the DOJ, which has criminal enforcement authority. In such circumstances, the language of the law would also seem to be broad enough to cover the provision of documents or witness testimony to the U.S. parent company by its Chinese subsidiary.
What’s more, companies that make such requests under the ICJA Law may alert the PRC authorities to conduct in China the authorities otherwise may not have been aware of, increasing the risk of subjecting themselves to investigations by Chinese regulators. Companies operating in China should carefully assess these implications prior to transferring evidence offshore.
3. Increased international criminal enforcement actions against PRC entities and nationals
The ICJA Law would appear to be designed to guard against the perceived over-reach of the long-arm jurisdiction of certain laws exercised by other countries vis-a-vis entities and individuals that are within Chinese territorial boundaries. It comes on the heels of the introduction of the Cybersecurity Law in China in 2017, which, among other things, regulates the transfer of data outside China. The basic thrust of the ICJA Law also appears to be in the same vein as China’s prohibition on the taking of depositions on the Mainland for use in a foreign court unless approved by the relevant PRC authority (which, anecdotally, is rarely granted).
However, the ICJA Law may have the collateral effect of heightening tensions between China and countries where judicial assistance treaties are in place, such as the United States. On November 1, 2018 – just six days following the ICJA Law’s promulgation – the DOJ announced its "China Initiative". One of the stated objectives of the "China Initiative" is to guard against Chinese influence over U.S. institutions by identifying cases involving Chinese companies that compete with American businesses, and increasing efforts to improve Chinese responses to U.S. requests for evidence under the China-U.S. Agreement on Mutual Legal Assistance in Criminal Matters. Recent DOJ indictments against Chinese state-owned chip maker Fujian Jinhua and Chinese telecom manufacturing giant Huawei in December 2018 and January 2019, respectively, in part for allegedly stealing trade secrets from American companies, would seem to signal the initial wave of U.S. enforcement actions under the China Initiative. The DOJ also tried and convicted Patrick Ho, an ex-Hong Kong politician, of paying bribes to the leaders of two African countries to secure business advantages for a PRC energy conglomerate.
The enactment of the ICJA Law highlights the continued need for multinational corporations with operations or interests in China, particularly those that may be involved in or otherwise subject to foreign criminal proceedings, to remain vigilant and proactive in assessing their legal risks.
Client Alert 2019-042