This ruling has several important implications for Chinese companies, state-owned or private, that are doing business that is in somewhat connected to the United States.
First, Chinese companies are unlikely to be able to rely on the introduction of Chinese laws and regulations such as the Guidelines or the ILACM to avoid cooperating with U.S. investigations. The balancing process will generally result in American courts finding that the relatively minor penalties and low rates of enforcement by the Chinese authorities will not create unacceptable hardship to cooperation. The general presumption of American courts that Chinese laws do not seek to protect unlawful behavior also weighs heavily against arguments for not cooperating with U.S. investigations. Furthermore, American extraterritorial cases which involve Chinese companies tend focus on anti-money launder, anti-corruption, and anti-sanction laws. The seriousness of crimes relating to these three subject areas and the impact they have on U.S. national interests will likely be considered by U.S. courts to trump China’s national interests. As such, we strongly advise Chinese companies to implement comprehensive compliance systems, especially in highly regulated sectors, such as banking. Taking a proactive stance on compliance can save companies considerable stress and resources while ensuring the integrity of their reputation.
Second, Judge Howell made repeated comments about the misapplication or misunderstanding of American laws and legal procedures by the Banks’ lawyers. These failures resulted in the waste of valuable opportunities to pursue the Banks’ legal interests. Based on the factual circumstances, the Banks were starting from a difficult position. Simple errors made by their lawyers only exacerbated the situation. It is important that companies who find themselves caught up in similar foreign investigations engage Chinese lawyers who can competently direct, cooperate, and coordinate with foreign lawyers.
Third, there were a couple of instances were evidence was submitted by the Banks’ counsel that was interpreted by Judge Howell as hindering their case. This was notable with the MOJ letters that led Judge Howell to conclude that Chinese authorities did not have a strong grasp of the factual circumstances of the case. This in turn undermined the Banks arguments that Chinese authorities were prepared to act seriously if the Banks complied with the subpoenas. Once again, the need to find competent lawyers cannot be emphasized enough. Having a team in China that can obtain and effectively marshal domestic evidence for foreign proceedings is crucial for having even a chance of a successful outcome.
This case highlights the risks that Chinese companies face when they do business in the United States. It’s increasingly clear that Chinese companies are being targeted by the current U.S. administration and are more likely than their foreign counterparts to end up in American legal proceedings. Although Chinese companies can reasonably expect to be treated fairly by U.S. courts, they cannot rely on Chinse legislation for assistance and need to be better prepared to vigorously protect their legal interests.