A raid is sometimes called “a raid at dawn”. The name itself is indicative of the element of surprise in this type of event. To be specific, a raid by an administrative body refers to an on-site inspection of a target company or person without prior notice. Depending on purpose and institution, raids fall under a number of categories.
- Random inspections usually conducted by a local industry and commerce department concerning daily management behavior or product advertisements, aiming to ensure everything is operated in accordance with the law.
- Administrative inquiries most likely conducted by the State Administration of Industry and Commerce, the National Development and Reform Commission, or other local industry and commerce departments, targeting commercial bribery or breach of anti-trust law.
- Criminal investigations targeting commercial bribery conducted by public security organizations (mainly the criminal investigation division) and the state attorney’s office.
- Joint law enforcement actions when the industry and commerce department deems certain commercial bribery potentially criminal and calls in public security organizations to strike against a national crime.
Most companies are caught off guard and startled by the unpredictable and forcible nature of such raids. Mishandling of the inspection such as reluctance to cooperate, attempts to remove persons being questioned or destroying files not only impedes enforcement of the law, but also could lead to a charge of obstruction of justice or other criminal charges.
Therefore it is important to fully cooperate with the investigation. Most companies, especially large multi-national companies, usually have a legal department led by a legal director. As part of the crisis team, it will play a key role in handling inspections. However, due to the special legal expertise required, it is unlikely to be held in an inhouse team sufficient to cover all angles. This is where external consultants can provide the skills to help strategize to ride through the crisis.
There are a number of benefits in using outside legal advice in these situations.
- Advantage of qualifications: External legal consultants are lawyers with legal qualifications to practice, whereas most corporate legal personnel are not, especially those of foreign companies based in China. Most foreign company inhouse lawyers have an overseas qualification and have a close relationship with corporate culture and staff members. Even if they are eligible to practice, they can’t present themselves as legal representatives of their employer defendant. A number of foreign enterprises opt to partner with foreign law firms with offices in China for cultural and historical reasons. Foreign lawyers at these institutions are not eligible to practice in China. According to the law, they are not permitted to provide services on Chinese law. Most of the time Chinese lawyers are necessary following a “raid”. If the inspection is conducted by a public securities organization, personnel might be questioned, detained or even prosecuted which usually entails a need for a pleader with qualifications to practice in China. Even in circumstances where such qualifications are not necessary, professional local lawyers still have advantages over other legal representatives when detained individuals are being interviewed. Last but not least, lawyers eligible to practice in China are entitled to meet with criminal suspects as long as they possess a lawyer’s license, a certificate from a law firm and a letter from the accused asking that lawyer for help? A local lawyer eligible to represent and meet with the accused in detention is what is needed most by a person under suspicion and their family.
- Advantage of experience: The reason that “raids” have a potent impact and may even cause panic is that they do not happen often, especially raids conducted by public security organizations. It is highly likely that corporate legal personnel have no or very little experience of such inspections because of their rarity. The legal process and issues are too complicated to be dealt with solely based on a theoretical understanding. External consultants, as professional practitioners with a range of clients, may give advice on this specialist area on a daily basis and thus are seasoned at dealing with the process. More importantly, they are able to strategize in advance during the initial phase of the investigation, based on possible steps that are or could be taken by the authorities.
- Advantage of objectivity: Corporate legal staff are a crucial part of the company. Important decisions are made or approved based on their advice which may be relevant to the company’s conduct being investigated. They can hardly absolve themselves if the company they work for is under investigation. They could be subject to personal scrutiny or be concerned to protect themselves from possible scrutiny. Even if they are spared the investigation, their strategy might still be clouded by their emotions. External lawyers, as outsiders, will have no potential or actual conflict of interest. They are relatively objective and will be able to see the facts more clearly and thus make a better action plan.
All things considered, when dealing with a raid, companies need to mobilize their own crisis team immediately and notify external consultants. Conditions permitting, it is best to engage external lawyers as soon as possible to work with the corporate team in managing the company’s response to a raid.