A year ago, we wrote here about the enactment and possible implications of a new law in China preventing China-based individuals and entities, including the China-based subsidiaries of non-Chinese companies, from providing certain assistance in criminal proceedings outside of China. Specifically, the International Criminal Judicial Assistance Law (ICJAL), enacted in October 2018, blocks disclosure of evidence obtained in China to criminal enforcement authorities outside of China in connection with a criminal matter, absent approval from the Chinese government.
Now that the ICJAL has been in existence for a year, we wanted to provide an update on the development and use of the ICJAL in the United States and China and discuss how multinational companies can address potential ICJAL issues.
1. No implementing regulations yet … and maybe not in the future
After the Chinese government enacts a law, it typically issues implementing regulations to provide more specifics on how the law should be interpreted. While such regulations typically are not exhaustive, they can signal the areas of importance to government policymakers and sometimes offer additional clarity on the underlying law.
The government has not yet issued such regulations for the ICJAL. And our sources indicate that the government does not have any current plans to do so because it believes that the ICJAL is sufficiently detailed.
2. Use in U.S. cases and courts
Even though the ICJAL is relatively new, it has already been discussed in at least one case in the United States. Earlier this year, a U.S. federal district court in the District of Columbia issued an order compelling three Chinese banks to comply with subpoenas issued by the U.S. Attorney’s Office related to a sanctions and money laundering investigation. The banks had argued that they would be subject to fines and penalties in China if they provided information in response to the subpoena without approval from Chinese authorities. The banks had also claimed that the only avenue for them to produce the requested information was via the mutual legal assistance agreement (MLAA) signed by the United States and China in June 2000.
The court reasoned that without historical precedent, the potential penalties from the Chinese government were “pure speculation” and noted that past MLAA requests from the United States to China had not been effective. In conducting its international comity analysis, the court found that other factors — the national security interest of the United States, the irreplaceability of the requested information, and the ineffectiveness of MLAA requests to China — weighed overwhelmingly in favor of compelling the banks to comply with the subpoenas.
3. Use in China cases and courts
Defense attorneys in China have also started to use the ICJAL to challenge criminal convictions, albeit unsuccessfully to date. In one case in Beijing, the defendants were convicted of participating in a telecommunications fraud scheme in Kenya and argued that their sentences in China should be offset against their detention in Kenya under the ICJAL. The Chinese court upheld their sentences, noting that there was no evidence that the defendants were detained in Kenya and that any detention in Kenya was based on Kenyan law rather than a request to China for judicial assistance.
In another case in Anhui Province, defendants argued that the ICJAL should have applied to their convictions for concealing illegal income from tricking companies in Finland and Sweden to send money to bank accounts in China and Hong Kong. The Chinese court found that even though the ill-gotten funds came from outside of China, the ICJAL did not apply because the crime took place in China, so no judicial assistance was needed.
4. Reactions from multinational companies
As we have discussed the application of the ICJAL with our multinational company clients, common questions have arisen:
- how to address inquiries from non-criminal enforcement bodies (e.g., the U.S. SEC), where the information could be shared with a criminal enforcement agency;
- how to navigate ongoing cooperation with non-Chinese government regulators in criminal cases that began before the enactment of the ICJAL;
- how to handle transfers outside of China of information, documents, summaries, and case files related to internal investigations;
- how to handle a purely internal investigation — with accompanying internal reporting to headquarters outside of China — that later changes into an external criminal investigation;
- how the ICJAL affects the decision whether to self-disclose a potential criminal matter to a enforcement agency outside of China, and whether it would impact cooperation credit; and
- how to handle ongoing obligations to disclose criminal matters worldwide to an enforcement agency (e.g., as part of a settlement or monitorship).
While each situation must be considered on a case-by-case basis, some general principles can guide decision making and risk analysis:
- consider the policy rationale behind the ICJAL
- consider the type of case and the interest that the Chinese government could take in the case
- assess what investigative work can be done within China
- assess transfers of information, keeping in mind other laws in China that could impact information transfers (e.g., potential application of State Secrets Law and/or Cybersecurity Law and related cross-border transfer regulations)
- consider whether the information is likely to become public
- consider the relative threat of non-compliance with a conflicting law
We continue to monitor these developments closely.
Eric Carlson, a contributing editor of the FCPA Blog, and Helen Hwang are partners in Covington & Burling LLP’s Shanghai office. Both are fluent in Mandarin and specialize in anti-corruption compliance and investigations, with a particular focus on China and other regions in Asia.
Audrey Zhi, an associate in Covington’s Shanghai office specializing in anti-corruption compliance and investigations and regulatory compliance for life science companies, provided research assistance for this post.