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Harry Cassin
Publisher and Editor

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Senior Editor

Jessica Tillipman
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Editor Emeritus

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Thomas Fox
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Marc Alain Bohn
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Bill Waite
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Russell A. Stamets
Contributing Editor

Richard Bistrong
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Eric Carlson
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Has China outlawed due diligence?

The Wall Street Journal reported Monday that China fined New York-based due diligence firm Mintz Group about $1.5 million for allegedly conducting unapproved “foreign-related statistical investigations” without official approvals in violation of Chinese laws.

Chinese authorities raided Mintz’s office in Beijing in March and detained all five Chinese nationals working there.

Documents posted online by the Beijing Municipal Bureau of Statistics but not previously reported said Mintz failed to obtain approvals for 37 projects conducted from March 2019 to July 2022 and that “such unsanctioned activities were in violation of Chinese regulations.”

Beijing was Mintz’s only office in China. The firm no longer shows the office on its website.

Chinese authorities and Mintz haven’t provided any details about what type of investigations allegedly violated Chinese regulations or who hired Mintz for the projects.

The firm was founded in 1994 and has about 450 investigators in 14 offices.

According to the WSJ, the ruling against Mintz cited regulations that require “foreign groups and individuals that wish to conduct statistical investigations in China to engage organizations with the necessary qualifications to carry out such ‘foreign-related’ investigative work.”

The raid on Mintz’s office in March followed the U.S. military’s downing of a Chinese spy balloon in February and news that the president of Taiwan would “transit” through the United States as part of her travel to Central America.

In April, police in Shanghai made an unannounced visit to Bain & Co.’s office. They questioned employees and reportedly confiscated computers and phones. Boston-based Bain is one of the biggest management consulting firms, with about 15,000 employees.

In 2013, British investigator Peter Humphrey and his American wife Yu Yingzeng were jailed for illegally obtaining and selling personal information about Chinese citizens. They owned and operated a due diligence firm called ChinaWhys. Among their clients was British drugmaker GlaxoSmithKline.

A court in Shanghai sentenced Humphrey to two-and-a-half years in prison and his wife to two years. He was released seven months early after a cancer diagnosis.

He’s now an external research associate of Harvard University’s Fairbank Center for Chinese Studies.

In a recent opinion piece in Politico, Humphrey said due diligence firms face ten times more risk today in China than when he operated there from 1998 to 2013.

He said,

Legal avenues for information gathering have also shrunk, as even harvesting information from open sources on the Internet can be termed illegal under the Chinese criminal code. It often comes down to who you are looking at, though. As one of my Chinese police interrogators said, it isn’t what personal information you acquire, but whose.

China has also enacted “blocking statutes” that criminalize the disclosure of information about business activities to foreign regulators or enforcement agencies without first obtaining permission from Chinese authorities.

In other actions this year against U.S. firms, China fined Deloitte $30.8 million and suspended its Beijing operations for three months for allegedly mishandling the audit of a Chinese company whose CEO was sentenced to death in 2019 for embezzlement and taking bribes.

In May, China’s cyberspace regulator barred key infrastructure operators from buying products made by U.S. memory chipmaker Micron Technology because the company failed the regulator’s network security review.

And in February, China sanctioned Lockheed Martin and Raytheon Technologies Corp.’s missiles and defense unit for supplying weapons to Taiwan. The sanctions include a ban on the companies’ exports and imports to or from China and prohibit their senior executives from traveling to China or working there.

Peter Humphrey called the raid on Mintz “a chilling warning to all foreign businesses operating in China — gather information at your own peril; you can become a target at any time.”

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