In China, the volume of white collar crime is increasing annually. The financial losses caused by white collar crimes now exceed those caused by blue collar crimes, such as robbery. The number of major prosecutions and the amount of money involved have increased sharply. White collar crime in China has evolved from conduct involving sums of from a few thousand to several million yuan, to now involving hundreds of thousands, millions and even tens of millions yuan. Generally speaking, white collar crime in China has developed its own striking features in recent years. “Power-for-money” deals have become very common and are seriously damaging the economy and perceptions of the state and government.
Regardless of whether or not allegations of white-collar crime are sufficiently serious to prompt a legal authority to pursue an investigation, companies in China should consider undertaking their own internal investigation to determine the veracity of allegations, identify possible perpetrators and learn valuable lessons that can lead to improvements in policies and procedures.
Allegations of corporate misconduct typically arise with a whistleblower’s report, often made anonymously. Because the improper handling of information provided by a whistleblower, or the mishandling of information that is uncovered during an internal investigation, may result in potential criminal violations, it is vital that proper steps are taken at the outset and the correct protections put in place.
Internal investigations conducted in other countries tend to reserve until the end of the process the interviews with the employee suspected of wrongdoing, or the manager in charge of the department alleged to have been involved in wrongdoing. Internal investigations in China, however, traditionally start with these interviews. This approach allows investigators to gather upfront important information that could shape the rest of the investigation, but it raises risks that data will be compromised or subjects will try to influence others improperly. If the internal investigation is to be conducted discreetly, the order and scope of interviews must be considered carefully, and adjustments to the traditional approach made appropriately.
After initial interviews, data is typically collected and reviewed. Forensic audits are often advisable as they can identify key information about potential financial violations that could be missed in interviews and other data reviews.
The review of data and the forensic audit will often identify issues that require additional interviews, including follow-up interviews with the initial interviewees. This cycle could repeat, as more interviews are conducted and additional relevant data identified and reviewed.
Along the way, investigators must be particularly sensitive to information that creates risks under China’s state secrets law and personal privacy protection laws, or involves protected confidential business information. Reports should avoid such information, and companies and their advisors must be careful not to disseminate any reports in a manner that could violate laws in these areas.
Common Approaches and Risk Exposure
While most large companies have a general idea about how to handle internal investigations, they need to proceed cautiously; an improperly handled internal investigation may not only reduce the value of any evidence collected and the credibility of any conclusions, but could lead to civil claims, criminal charges or administrative penalties. It is also worth bearing in mind that certain elements of internal investigations that would be appropriate in other countries may be beyond an employer’s right to pursue in China. For example, some information that may be obtained during an internal investigation might be considered personal and sensitive under Chinese law, and impermissible to access without authorization.
Collecting, Monitoring, and Using Correspondence
When an employer accesses or reviews an employee’s correspondence, such as e-mails or phone messages, the employee’s right to privacy is implicated. The collection, monitoring and use of employee’ correspondence may lead to privacy disputes and may constitute an invasion of the employee’s “moral rights” by the company.
Releasing images or text of correspondence, unlawfully opening or reading another person’s letters, or accessing personal e-mail or voicemail without permission may result in criminal liability, instead of mere civil tortious liability.
Surveillance and Monitoring
Conducting surveillance and monitoring employees is relatively common in certain investigations in China, but it carries a high level of risk for the companies and individuals involved. Various laws and regulations in China prohibit private surveillance and monitoring activities, such as watching employees without their knowledge, or secretly taking photos or videos and using certain eavesdropping equipment to listen to conversations.
If the consequences of this surveillance are serious, such as unlawful surveillance causing a suicide, mental disorders, assault or significant economic losses, the company and individuals involved may face criminal prosecution.
Using Outside Resources to Obtain Information
Companies often need to contact outside resources and access information to investigate allegations comprehensively. The company must, however, be sure to only use lawful methods and avoid accessing information that is protected by law.
Accessing an employee’s personal information, e.g., bank account details or banking records, fingerprints, personal tax records or personal property information, is strictly illegal. If this type of information is gathered, the company and individuals involved may be found guilty of various crimes that lead to fixed-term imprisonment.
While there are no specific PRC laws or regulations to restrict physical searches of company offices, physical searches of an employee’s person or personal items should only be conducted by government authorities authorized to exercise criminal investigation powers under the current PRC legal regime.
Searching an employee’s body or personal items, even items that are provided by the employer for use in connection with the employment, may still violate privacy rights or lead to a conviction for committing the crime of unlawful search.
Engagement of Third Parties to Conduct Internal Investigation
Although private detective agencies and similar entities that provide investigations into private information are prohibited in China, many types of third party investigators, such as consulting firms, conduct investigations in China as “business consultations” or “market research.” There have been several recent crackdowns against these types of businesses and their unrestricted use is typically discouraged by lawyers.
Third party investigators have been known to go beyond the control of the company when they conduct an investigation, such as by expanding the investigation’s approach, scope, or resources. The company and the third party may become joint tortfeasors or be found to have committed joint crimes if the third party conducts an investigation or provides illegal consulting services to the company.
A successful and compliant internal investigation can not only identify relevant and useful information, but also help a company mitigate risks or reduce liability for its part in any wrongdoing. Nevertheless, significant attention must be paid to the potential risks inherent in internal investigations in China. Thorough planning and consultation with experienced counsel is necessary to minimize exposure to potential legal liabilities.