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The traditional misidentification of China as the “Middle Kingdom,” a literal translation of 中国 (zhong-guo), leads many modern observers to claim, as did their 19 century counterparts, that China has been an historically insular nation which sees itself as the “center of the world.”

Originally, more than two millennia ago, the term was understood to have several meanings, none of which encompassed that of the English translation. It has never meant what we have ascribed to it.

Furthermore, several dynasties of yore were cosmopolitan in a very modern sense. The Tang (唐) dynasty is the cosmo poster boy most often trotted out by Sinologists. Our recent burgeoning of Sino-Western contact is hardly a new phenomenon.

So let us dump on the ash heap of historiography the fantasy of a timeless “Middle Kingdom” which, because it sees itself as the center of the universe, is predisposed to disregard the rest of the world. Chinese do not see themselves to be anymore at the center of the international world than do Americans.

And yet, Chinese often blithely wander their own way with scant regard for the international sphere, and, it would appear, to their detriment. We have a timely example, in fact, that takes us to Korea on our way to the mainland.

Korea, having seen Japan’s threat to change its currency mix fail to move the Bush administration to strengthen the dollar, issued notice of a surprising policy change. Korea will now encourage outbound investment in an attempt to move offshore much its massive foreign currency reserves of $205.4 billion. As the Korea Times article notes,

"The policy shift is considered a big step to slow the pace of the won’s appreciation against the U.S. dollar and reduce the widening deficit in the service account as well as stabilize the domestic real estate market."

The Chinese government, on the other hand, steadfastly maintains its RMB to USD peg, is unable to contain rampant property speculation and continues to accumulate foreign currency reserves (foreboding grave consequences, including inflation). A recent World Bank report warns of the potential for large capital losses to those countries with excessive foreign currency reserves.

In October, 2004, Chinese regulation was promulgated to make it somewhat easier for businesses, as opposed to individuals, to invest overseas, given the requirement of specific approvals. See page 3 of this document.

Contradictorily, and despite the economic risks, China has this past month decided to place severe constraints upon individual, as opposed to business, outbound investment. As Barbara Mok of Jones Day writes, “Outbound investment by domestic residents becomes more difficult, if not impossible.”

The impetus for the State Administration of Foreign Exchange (SAFE) regulation on individual investment may have been rooted in an attempt to curtail the pilfering of state assets. But is it any less difficult for a business to manipulate the approvals system?

The contradiction embodied by these regulations -- allowing business while curtailing individual investment -- may perhaps have originated in a disagreement among the various ministries involved. But, I am unsure of the validity of this assessment.

Chinese individuals have virtually no investment options. The Chinese stock markets continue their 6 year slide. Other than the very scary real property markets or the boringly unremunerative savings account in a state bank, gold bullion and postage stamps are what is laughably left.

If individuals were allowed to invest overseas, money would explosively drain out of China to places where it would find its higher return. The plug must stick in the drain, it seems, for fear that a freer flow of capital will wash it away.

I include below the original of a press release found at the PRC Ministry of Justice site and also carried more or less verbatim in the Chinese online media, which claim that Taiwanese courts have for the first time recognized the validity of a PRC judgment.

However, I am as yet unable to verify the validity of the assertions in this article. Interestingly, it does not show up on media sites outside of China -- the meaning of which is as yet uncertain. I welcome anyone with information relating to this story.

[Rapid translation of the MOJ release immediately below. Original text directly below that.]

First Recognition by Taiwan Court of Chinese Judgment

Zhejiang Enterprise Crosses Taiwan Straits to Collect on Debt
Case in Taiwan Exhausts Appeal Process

(May 19) Zhejiang (PRC) Textile Import Export Group sued Taiwan’s Changrong International Storage and Transport Corp. to enforce rights to collect on a debt. Taiwan’s Supreme Court denied an appeal by Changrong, ruling that the judgments of the Shanghai Court of Admiralty and the High People’s Court of Shanghai were valid in Taiwan.

This case, involving a mainland Chinese company’s attempt to collect a large sum owed to it, has thus progressed to actual enforcement. It is believed to be the first case in which a Taiwan court, relying upon Article 74 of the “Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area,” recognized the judgment of a mainland court to enforce rights to collect a debt, and which exhausted the Taiwan appeals process.

[Editor's note: The Mainland Affairs Council can be accessed at this URL.]

In the fourth quarter of 2000, Zhejiang Textile hired Lirong Shipping to ship transport to Iraq in 21 bills of lading with a total value of over US$2.6 million. Zhejiang Textile did not receive payment, and upon investigation, discovered that Lirong, after shipping the cargo to Iraq, failed to deliver it to the correct receiver based on the original bill of lading. Zhejiang Textile sued Lirong, demanding damages of US$2.6 million and RMB6.36 million.

In December, 2002, the Shanghai Court of Admirality ordered Lirong to pay damages to Zhejiang Textile in the amount of US$2.6 million and RMB3.11 million, as well as interest accrued. Lirong then appealed to the High People’s Court of Shanghai.

On the eve of the judgment, Lirong merged into Changrong International Storage and Transport. Zhou Jiang-xiung, Assistant Managing Director of Zhejiang Textile, told this reporter that the company had originally planned upon enforcing the judgment by seizing Lirong’s ships in China. It was not foreseen that Lirong would dissolve, passing on its debt to Changrong, as well as its transport operations in China to another firm.

In September, 2003, the Shanghai City High Court sustained its original ruling, and the case entered the enforcement stage. Then the court discovered that Changrong had no assets in China upon which to enforce the judgment and the enforcement documentation could not be successfully sent to Taiwan, as both mailings had been returned. The judgment entered a period of stalemate.

This cross-straits debt collection case became known to the Taiwan Liaison Office in Zhejiang Province. Ma Li-hua of that Office told this reporter that in July 1992 the Taiwan Region promulgated the “Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area.” Article 74 of that act reads:

To the extent that an irrevocable civil ruling or judgment, or arbitral award rendered in the Mainland Area is not contrary to the public order or good morals of the Taiwan Area, an application may be filed with a court for a ruling to recognize it. Where any ruling or judgment, or award recognized by a court's ruling as referred to in the preceding paragraph requires performance, it may serve as a writ of execution.

This regulation clearly allowed for a breakthrough in this case. Despite the lack of a similar prior case, in the end, it had to be attempted.

The case thereafter formally began the debt collection process in Taiwan. In August, 2004, a Taoyuan (Taiwan) Local Court recognized the mainland court judgment. Changrong’s appeal was denied. Changrong then attempted to appeal once again to Taiwan’s Supreme Court. On May 19, 2005, that court denied Changrong’s second appeal. At this point, this cross-straits debt collection case entered the actual enforcement stage.

Zhejiang Textile’s Zhou Jian-xiung said that, even though three and one half long years had passed since the suit was filed, everyone could finally seeing the light at the end of the tunnel. They praised the Taiwan Region court’s ability to uphold the law and the judgment that safeguards the legal rights of mainland Chinese businessmen.

This reporter has come to understand that mainland courts have already ruled on judgments of Taiwanese courts. In 1998, the Regulation of the High Peoples Courts Regarding People’s Court Recognition of Taiwan Region Civil Judgments was promulgated. [In Chinese.] The Zhejiang Province, Taizhou Intermediate People’s Court, recognized for the first time the judgment of a Taiwan Nantou Local Court regarding the status of adoptive relationship between a Taiwanese and his nephew in Tiantai. In 1998, the Shanghai First Intermediate People’s Court recognized and enforced the judgment of the Taiwan Kaohsiung Local Court, in a case involving the repayment of a debt between Xu Ling-wen and Taiwan Changtaiyen Construction Development Company.

Fom 1998 until March of this year, cross-straits indirect trade exceeded US$420 billion. In 2003, cross-straits trade exceed US$50 billion, and last year exceeded US$70 billion.

Ma Li-hua of the Zhejiang Taiwan Liaison Office told this reporter that, in the recent few years, cross-straits trade grows daily, and that cooperation between mainland and Taiwan courts with regards to similarities in civil law processes to help safeguard the legal rights of individuals, legal persons and enterprises may become a possibility. Thus, the risk-related costs of cross-straits trade will decrease, helping to stimulate that trade and popular interaction.

台湾法院首次认可大陆法院裁决

浙江一企业大陆跨海峡追赔案在台走完三审程序

　　本网讯　记者余东明5月19日，浙江纺织品进出口集团有限公司诉台湾长荣国际储运股份有限公司执行债权一案，台湾最高法院判决驳回长荣公司的再抗告，最终裁定了上海海事法院、上海市高级人民法院关于此案的判决在台湾有效。至此，这起大陆企业跨海峡追付巨额赔偿案在台取得了阶段性的进展，进入实际执行债权阶段。据悉，此案是台湾法院根据《两岸关系条例》第74 条规定认可大陆法院裁决执行债权成功的首例案件，也是第一个在台湾走完三审程序的案子。

　　2000年四季度，浙纺公司委托立荣海运股份有限公司运输21票提单项下价值260多万美元的服装至伊拉克，此后浙纺公司一直没有收到货款，经过查询，浙纺公司发现，立荣公司将货物运到伊拉克后，没有凭正本提单就将货物交给了他人。为此，浙纺公司一纸诉状将立荣公司告上法庭，要求赔偿损失260 万美元和 636万元人民币。

　　2002年12月，上海海事法院作出一审判决，判决立荣公司赔偿浙纺公司260万美元和311万人民币及相应的利息损失。立荣公司遂向上海高级人民法院提起上诉。

　　一审判决前夕，立荣公司与长荣国际储运公司合并，长荣公司成为续存公司。浙纺公司副总裁周建雄告诉记者，原本他们打算在法院进入执行程序后，可以直接扣留立荣公司在大陆的船只进行执行。没想到立荣公司注销了，它把债权债务转给了长荣公司，将大陆的运输业务转给了另一家公司。

　　2003年9月，上海市高级人民法院作出“维持原判”的终审判决，该案进入执行程序。然而正如周建雄所介绍的，一方面，法院发现长荣公司在大陆无财产可供执行；另一方面，执行文书又无法成功送达到台湾，法院两次邮寄都被退回。执行陷入僵局。

　　这起跨海峡巨额追赔案在咨询了浙江省台湾事务办公室后峰回路转。浙台办的马礼华告诉记者，1992年7月，台湾地区曾出台《台湾地区与大陆地区人民关系条例》，该条例第74条规定：“在大陆地区作成之民事确定裁判、民事仲裁判断，不违背台湾地区公共秩序或善良风俗者，得声请法院裁定认可。前项经法院裁定认可之裁判或判断，以给付为内容者，得为执行名义。”这条规定显然给此案的执行找到了突破口，虽然此前，没有同类案件进入过司法实践，但毕竟得尝试一下。

　　此后，该案的追赔程序正式在台湾启动。2004年8月，台湾桃园地方法院裁定，对大陆法院的判决予以认可。长荣公司遂向台湾高等法院提起抗告，被驳回；此后，长荣公司又向台湾最高法院提起再抗告。今年5月19日，该院驳回了长荣公司的再抗告。至此，这起大陆公司跨海峡巨额追赔案进入实际执行阶段。

　　浙纺公司周建雄表示，此案从起诉开始，虽然历经长达三年半的时间，但毕竟让人们看到了成功的曙光。他们对台湾地区法院能尊重法律、维护大陆商人合法利益的裁定表示赞赏。

　　记者了解到，此前大陆法院曾对台湾法院的判决做过裁定。1998年，《最高人民法院关于人民法院认可台湾地区有关法院民事判决的规定》出台，浙江省台州中级人民法院首次裁定认可了台湾南投地方法院关于台湾人褚春裁对天台侄儿褚金绸收养关系的裁定。1998年，上海第一中级人民法院还裁定认可了台湾高雄地方法院关于高雄人许玲雯诉台湾长泰庄建设开发有限公司有偿借款纠纷一案的判决，并进行了强制执行。

　　有资料显示，自1998年至今年3月，两岸间接贸易总额累计超过4200亿美元，2003年两岸贸易额突破500亿美元，而去年这一数字突破700亿美元。

　　浙台办马礼华告诉记者，近几年来，两岸经贸活动日趋频繁，大陆法院和台湾法院类似的司法程序合作使依法保障两岸公民、法人、企业的合法权益成为可能，从而降低了两岸间贸易的风险成本，对推动两岸经贸发展和民间交流有着积极的作用。

Click the little triangle to hear a summation of the post below.

[Editor’s Note: We are now able to confirm the validity of a portion of the press release discovered on the P.R.C. Ministry of Justice website. A P.R.C. company, suing on a P.R.C. judgment, has for the first time won a judgment relating to a business transaction against a Taiwanese corporation in the Taiwan High Court. See this post for background. This ruling may have substantial ramifications for the legal relationships of businesses involved in cross-strait trade. We will continue to post on developments in this case.]

We turn to a guest columnist for a discussion of High Court’s decision and its possible implications. Peihuan Benjamin Kao, currently attending the University of Minnesota Law School as a Juris Doctor (J.D.) candidate, is our guest columnist this week. Mr. Kao was most recently a Legal Consultant to the Executive Director at a publicly listed corporation in Bangkok, having previously served as a Legal Research Fellow at the Science and Technology Law Center in Taipei. His education includes an LL.M. from Columbia Law School and Soochow Law School (Taipei), as well as an M.S. in Medical Technology from National Taiwan University.]

Ruling of the Taiwan High Court Recognizes P.R.C. Judgment

By Peihuan Benjamin Kao

On December 23, 2004, the Taiwan High Court, ruling against Changrong International Storage and Transport Corp. (“Changrong”), recognized a decision of the courts of the People’s Republic of China. [See links at end of this post for the full text of Ruling 93 抗 3089.] Reportedly, Changrong appealed this ruling to the Taiwan Supreme Court in May, 2005, and lost, leaving the judgment of the Taiwan High Court to stand. However, the decision on appeal has not yet appeared in the Supreme Court’s official database. Therefore, we don’t really know how the Supreme Court reached its ruling nor why it made the “breakthrough” at this moment, nearly 13 years after promulgation of the Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area (the “Act”).

While awaiting the publication of the Supreme Court’s official ruling, the ruling by the High Court is worth pondering. I will focus on the grounds upon which the Taiwanese High Court reached the conclusion of recognizing a P.R.C. judgment, and discuss the possible rationale of the Supreme Court’s denial of appeal.

BIRTH OF AN APPEAL

Zhejiang Textile Import & Export Group of the P.R.C. (“Zhejiang Textile”) sued Lirong in the Shanghai Court of Admiralty for Lirong’s breach of admiralty shipping contract. Zhejiang Textile won the judgment in the Shanghai Court of Admiralty and an appeal of that judgment in the High People’s Court of Shanghai. Lirong then merged with Changrong.

Because Changrong had no assets in the P.R.C. which the P.R.C. court could seize in order to enforce its judgment, Zhejiang Textile sought remedy in a Taiwan court by filing for a request of recognition and hence, enforcement, of the judgments of the Shanghai Court of Admiralty and the High People’s Court of Shanghai. Taiwan Taoyuan District Court ruled for Zhejiang Textile. Changrong appealed to the Taiwan High Court.

Zhejiang Textile filed its request based upon Article 74, Paragraphs 1 and 2 of the Act. Paragraph 1 allows for the filing of applications for recognition of irrevocable P.R.C. court rulings, judgments or arbitral awards, as long as they do not conflict with the public order or good morals of Taiwan. Once recognition is granted by a Taiwan Court, Paragraph 2 further permits P.R.C. rulings, judgments, or arbitral awards to serve as writs of execution.

DEFENDANT’S ARGUMENT ON APPEAL

Changrong on appeal based its arguments mainly on four grounds.

1) PUBLIC POLICY. Changrong argued that the decisions of the Shanghai Court of Admiralty and the High People’s Court of Shanghai were inconsistent with the “public order and good morals” of Taiwan, and thus shall be deemed as violating Article 74, Paragraph 1 of the Act. To back up its public policy argument, Changrong asserted: (1) the P.R.C. decisions breached the principle of privity of contract as stipulated in Taiwan’s Civil Code and (2) the P.R.C. decisions violated Taiwan’s Admiralty and Maritime Law regarding egulation of the Bill of Lading format requirements. By infringing these two legal principles, long enacted and upheld in Taiwan, the P.R.C. decisions were not in conformity with the public order and good morals of Taiwan.

2) LACK OF FINALITY OF THE P.R.C. DECISION. Changrong further argued that the decision in P.R.C. was not final. The company had appealed to the Supreme People’s Court of the P.R.C. and requested a retrial from the Shanghai Court of Admiralty, based on new substantive evidence which could overrule the former judgment. Hence, even if the Taiwan Court would have liked to review the P.R.C. judgment for the purpose of recognition, it should have halted until the final decision was rendered by the P.R.C. Supreme Court and the Shanghai Court of Admiralty.

3) ARGUMENT ON THE MERITS. Changrong tried to argue the merits of the P.R.C. judgments by bringing up the substantive issues, such as document forgery and maritime fraud involved in the Bill of Lading. Investigation did uncover certain evidence that might support such allegation. Changrong argued that it claimed damages against its opponent based on these allegations and that those cases werere still pending.

4) LACK OF RECIPROCITY. Changrong stipulated that based on reciprocity, the P.R.C. decisions should not be enforced in Taiwan, since P.R.C. courts have refused to enforce most of the decisions rendered by Taiwan courts to “avoid violating the One China Policy.” Even if P.R.C courts had enforced some decisions involving Taiwanese, most of those decisions favored P.R.C. citizens inheriting properties from Taiwanese citizens. Thus, it was argued, Taiwanese Courts should not recognize and enforce decisions of P.R.C. courts.

CHANGRONG’S APPEAL: THE HIGH COURT RULING

The High Court rejected all of Changrong’s arguments, ruling against it on the following grounds:

(1) The case was governed by Article 74 of the Act. The Taiwan High Court interpreted Article 74 as a rule of procedural character which applies only to cases of a non-litigation nature. This warrants the Court's review the cases on two issues: A) whether the irrevocable P.R.C. ruling/judgment/award violates Taiwanese public order or good morals, and B) whether an application can be filed in the P.R.C. courts to recognize or serve as a writ of execution of that irrevocable ruling, judgment or awards rendered in Taiwan. Therefore, the Court may not review the substantive merits of the judicial decision rendered by the P.R.C. courts. Consequently, how the P.R.C. court applies P.R.C. law to the facts adopted in that court similarly may not be reviewed by the Taiwanese court.

2) The dispute involved breach of admiralty and maritime contractual responsibility, causing damages to the shipper. The legal effects of the P.R.C. judgments and the factual and legal bases for such decisions were not in breach of Taiwanese public policy, i.e., public order or good morals.

3) Even if there were maritime fraud and forgery involved in the Bill of Lading, it was a dispute of the substantive merits and, therefore, shall not be reviewed.

DISCUSSION: POSSIBLE IMPLICATIONS OF THE RULING

Although the Taiwan Supreme Court's decision of May 2005 has not appeared officially, we might well make a reasonable guess that the Supreme Court will have adopted an approach similar to the High Court’s interpretation and application of Article 74 of the Act.

While the implication of this case might not be crystal clear at this point, its ramifications could be larger and wider than it appears at first glance. It seems a little bit too formalistic for the High Court to have rejected all the arguments of Changrong without considering the reciprocity issue which indicated that the the current practice in mainland China seems to favor the citizens of the PRC. Furthermore, the maritime fraud and forgery issues exposed by UN investigation deserve some degree of consideration under the context of public policy and good morals. It was surprising that the Taiwan High Court reached its ruling without even looking into the merits of the case decided by the P.R.C. court.

Although the Taiwan High court and Supreme Court have recognized irrevocable P.R.C. judgments and rulings since promulgation of the Act, those cases were mostly for personal disputes such as divorce and inheritance of property among citizens across the strait. Should Taiwan Supreme Court affirm the rationale of the High Court, it will have for the first time recognized and consequently enforced a P.R.C. judgment for P.R.C. corporations against a Taiwanese corporation.

With increasing volume business transactions across the strait, it is not difficult to foresee what a huge impact this ruling might have on the future transactional environment between P.R.C. and Taiwan. It may encourage corporations incorporated and based in the P.R.C. to be more willing to conduct business with their counterparts in Taiwan, bearing in mind their legal remedies available in the mainland would also be recognized and enforced in Taiwan. On the other hand, if the unilaterally tilted practice of judgment recognition and enforcement in P.R.C. courts are not balanced with reciprocity, Taiwanese corporations might suffer from from the lack of such assurance in their business transactions with P.R.C.-based corporations.

Will these Taiwanese companies hesitate to enter into transactions with P.R.C. based corporations merely for this reason? Probably not. Even without reciprocal legal protection mechanisms, Taiwanese corporations have for more than a decade flooded the industrial parks and investment triangles all over the P.R.C.

In other words, the net impact of this ruling might well be a boost to cross strait business transactions by providing legal assurances to PRC-based corporations, while not pouring too much cold water over their Taiwanese counterparts.

However, this entire discussion must be put in the context of the Taiwan Supreme Court ruling expected in the very near future.

[The Taiwan High Court Ruling is available here or on this weblog at the extended entry link directly below.]

Click the little triangle to hear an introduction to Ben Kao's guest column.

Donald Clarke writes on the difficulties of enforcing a judgment in China. Quoting a Chinese judge: "...over half of civil and economic judgments require coercive enforcement."

The ABA will host a CLE breakfast in Shanghai with a call-in for overseas participants.

CURRENT ISSUES FOR PRC WORKERS AND THE IMPLICATIONS FOR THEIR EMPLOYERS

Breakfast: Thursday, July 14, 2005, 7:30-9:00 am, in Shanghai
(Call-in: Wednesday, July 13, 2005, 7:30-9:00 pm EST)

Topic: As China’s legal system becomes increasingly sophisticated, and its economy increasingly developed, workers’ awareness of, and willingness to utilize, labor laws to challenge labor practices are also growing. Foreign-invested companies are feeling the effects of this shift. What are the key issues? How can employers effectively address workers’ concerns?

Speakers:

Mary Gallagher, Ass't Professor of Political Science, Univ. of Michigan

Dong Baohua, Professor, Labor Law Service Center for Workers, East China Univ. of Politics and Law

Ma Jianjun, Partner, Junhe Law Offices

American attorneys may receive CLE credit for participation. For more information, contact Jessica Elliot at 202-662-1663 or email Elliotj@staff.abanet.org.

We've heard many stories, told second and third hand, usually over a cocktail or two (or three), of outrageous sums of Chinese cash, laundered transnationally. The "invoice trick," a common and ancient method, involves a domestic company purchasing overpriced product sold by an overseas "seller." The outflow of cash over and above the instrinsic value of the product, being, of course, the laundered sum. Taiwanese authorities in the 1980s became rather expert at spotting these value discrepancies.

Of greater concern are the major cases -- and in China there have been an extraordinary number. Take the train shipments case as an example. Originating at the Luo Wu station in Shenzhen, cardboard boxes filled with RMB 8 Million (US$ 1 million) were transported daily to a Hong Kong bank for nearly a year. A cool million a day for a year. One can hear the clinking of the glasses and shouts of "A toast to China Rail!"

But only within the past few years has the Chinese government placed an emphasis on anti-money laundering (AML) legislation and its implementation. Why?

As Herbert Morais and Guang Yang of the International Law Institute state in "Anti-Money Laundering -- General Analysis and Recommendations:"

"Published reports indicate that money laundering in the PRC has increased to about RMB 200 billion (US$25 billion) annually, representing about 2% of the nation’s GDP. This is roughly equivalent to the PRC’s total export earnings (US$22.5-24.0 billion) in 2001-02."

[The report is also available in Chinese.]

In other words, what's coming in is going out. Government corruption, business impropriety, cash outflow, loss of tax revenue...all point to major defects in the financial system and its regulatory regime.

That said, Chinese banks, such as the Bank of China in 2002, have begun to establish Anti-Money Laundering committees at the executive levels to monitor and report suspicious transactions. In August, 2004, Zhou Xiao-chuan (周小川) claimed some success:

"Since the implementation of the three Rules in March 2003, the Head Office of the PBC has altogether received 3,061 reports of suspicious RMB payment transactions through screening by its branches while the SAFE has received 170,500 reports of suspicious foreign currency payment transactions with an amount of USD9.720 billion. After cross-examination, suspect cases of money laundering have been referred to the public security departments for investigation. The Ministry of Public Security, the PBC and the SAFE have also joined in cracking down on underground money centers. Since 2002, in operations of combating underground money centers, 73 cases have been solved, 57 underground money centers and 96 underground banking outlets destroyed, 240 suspects detained or arrested, illegal funds and assets equivalent to more than RMB80 million yuan confiscated. The total amount involved in the cases was as high as several billion yuan, effectively holding in check the momentum of money laundering through underground money centers. At present, there are still some pending cases of money laundering referred by the PBC and the SAFE to the public security departments for investigation."

In a recent article entitled, 专访央行反洗钱局局长, the journal Caijing （财经）interviewed Ling Tao （凌涛）, Director of the People's Bank of China Anti-Money Laundering Section. Director Ling -- interestingly the former head of the aforementioned Bank of China committee -- lays out the basic elements of China's AML efforts，and provides an insight into the drafting process.

The upshot is this: Chinese legislators are in the process of expanding the bases upon which one may be prosecuted for money laundering.

[Editor's translation follows.]

专访央行反洗钱局局长
An Exclusive Visit with Director Ling Tao of the PBOC's Anti-Money Laundering Section

Caijing: Only in the last two years has the development of China’s anti-money laundering legal regime picked up gear. Where are we in that development?

Ling Tao: There are three layers to China’s anti-money laundering legal regime. The first layer comprises law passed by the National People’s Congress, as for example, the Criminal Law 《刑法》 and the Anti-Money Laundering Law 《反洗钱法》, currently being enacted. The second layer comprises Executive Regulation issued by the State Council, such as the Regulation on the Use of Real Names on Individual Savings Accounts 《个人存款账户实名制规定》. The third layer comprises rules issued on order of the State Council by anti money laundering departments and the People’s Bank of China (PBOC), including the Financial institutions Anti Money Laundering Regulation 《金融机构反洗钱规定》, first issued in 2003 and effective from March 1 of this year, the Rules for the Administration of Reporting Large Amounts of RMB and Suspicious Payment Transactions 《人民币大额和可疑支付交易报告管理办法》 and the Rules for Administration of Reporting Financial institutions Large Amounts and Suspicious Foreign Exchange Capital Transactions 《金融机构大额和可疑外汇资金交易报告管理办法》.

These three regulations clear up the anti-money laundering supervisory requirements towards financial institutions with banking functions, and clearly establish China’s basic framework for anti-money laundering reporting and information monitoring system.

Drafting of the Anti-Money Laundering Law began in March, 2003. The National People’s Congress, Standing Committee, Budget Work （全国人大常委会预算工作委员会）members convened a drafting conference, with participants from 18 departments, including the Supreme Court, Supreme Procuratorate, Public Security, the Ministry of Finance and the People’s Bank. Thereafter, they several times convened discussion meetings, including international seminars, and moreover requested opinions from each departmental participant. Work was very tense, with workers refraining from taking time away even for vacations. According to the plan, the Anti-Money Laundering Law draft was presented this year to the National People’s Congress Standing committee for deliberation. We hope that this law will come out as soon as possible.

Strengthening anti money laundering means that each layer of the legal regime must be added to consistently, with existing law being amended, and this is an ongoing process.

Caijing: According to the law, is money laundering criminal?

Ling Tao: Money Laundering crime and money laundering behavior can be distinguished. In Article 191 of the current Criminal Law, the predicate crimes for the crime of money laundering are drug crimes, organized crime, terrorist activities and smuggling. That is to say, currently the only recognized criminal behaviors [for money laundering] are these four crimes.

Caijing: In recent years, there have been many domestic incidents in which corrupt officials have fled the country, and the majority of these have involved money laundering. People are especially concerned whether or not the Anti Money Laundering Law will include corruption and bribery as predicate crimes.

Ling Tao: The crime of money laundering requires a predicate crime. There must be a predicate crime existing, such as smuggling, drug trafficking, terrorism, etc., for there to be the crime of money laundering. What we can say is, predicate crime laws are overly narrow, which is precisely what the PBOC feels is an obvious problem with regard to anti-money laundering work.

Financial Institution Anti-Money Laundering Regulations, recently issued by the PBOC, give a rather wider berth to the predicate crimes for money laundering behavior, that is, drugs, organized crime, terrorist activities, smuggling and “other crimes.” However, this is only a departmental regulation, and delineates but a kind of an administrative illegality for money laundering crime, not a judicially recognized basis for money laundering crime.

Central to the legislation of the Anti Money Laundering Law, is the expansion of predicate crimes to Money Laundering. As I understand it, I can take the examples of corruption and bribery and other serious crimes and include them as predicate crimes for money laundering. This point is extremely important.

Caijing: We understand that the level of international cooperation with regard to anti money laundering is extremely high. If corrupt behavior is legally recognized to be a predicate crime for anti money laundering, will this assist in pre-crime monitoring and post-crime follow up of this kind of behavior. As, for example, in the Yang Xiu-zhu and Xu Zhaofan cases?

Ling Tao: Exactly so. Anti money laundering is an important function, by monitoring capital transactions, as well as preventing crime and corruption. In recent years, several very big cases have developed, such as the Xu Zhaofan case, the Gao Shan case, the Yang Xiuzhu case, all of which involved money laundering. However, since China’s current Criminal Law narrowly defines the predicate crime of money laundering, it was unable to follw up on them for the crime of money laundering. When China issued international warrants for them, it was not possible to receive expanded international cooperation. This was regretful.

In the Criminal Law of 1997, organized crime, smuggling and drug trafficking were the predicate crimes for money laundering. Internationally, money laundering became a crime in the 1998 United Nations Vienna Treaty. After China joined the Vienna Treaty, in 2001, terrorist activity was made a predicate crime for money laundering. But together these four alone are still narrow.

Each country defines money laundering differently. Some define it as any laundering offense with a term of at least one year’s punishment where the benefit of the capital has been received; others, such as the U.S., have over 100 money laundering crimes; and in some countries, regardless of the predicate crime, it only requires the characteristic, origin, place or tendency toward the hiding or covering up of criminally procured assets, [making it] rather expansive.

[...to be continued...]

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[Editor's note: Howard Jiang, partner at Baker and McKenzie in New York, has graciously provided today's post, a review of the overall legal and regulatory framework for the Chinese financial system.]

Financial Services in China – Opportunities and Challenges for International Players

by Howard H. Jiang

Introduction

Boosted by more than two decades of reform and growth, China has emerged as a major force on the world economic scene, with one of the fastest growing economies in the world and strong trade performance. China has now approximately $440 billion foreign exchange reserves and has attracted hundreds of billions of foreign direct investment. Despite the strong growth, China also faces tremendous challenges in its economic, social and political transformation in terms of unemployment caused by industrial transformation, and distribution of wealth.

Private bank savings in China now exceeds US$1 trillion. Over 160 foreign banks presently maintain branches or representative offices in China. In Beijing, Shanghai and Shenzhen, more than 3,600 companies are engaged in the private funds business. These companies control approximately US$84.6 billion of capital. Aggregate revenues for China’s insurance industry will reach approximately US$33 billion by the end of 2005. China now has more than 1,200 listed companies between its two domestic stock markets with a combined market cap of more than $600 Billion, roughly half the value of its annual gross domestic product. In 2001, initial public offerings of state-owned enterprises raised US$43 billion on Hong Kong's stock market with another US$17 billion raised in initial public offerings in the domestic markets of Shanghai and Shenzhen.

With China's recent entry into WTO and its commitment to open up its financial services market for foreign participation, the financial services sector has become a new growth area for international players. In its agreement to enter the WTO, China has promised to gradually open its financial services market. It will allow foreign investors to take various minority and eventually majority stakes in Chinese entities in the financial service sector and even establish wholly owned subsidiaries in the field of insurance, banking, investment banking, management and other fields.

Financial Services in China under the WTO Protocol

The protocol for the accession of China to the WTO was adopted by the Fourth Ministerial Conference of the World Trade Organization and came into force on December 11, 2001. Although the WTO agreements include approximately sixty agreements and annexes, three agreements are fundamental: the General Agreement on Tariffs and Trade covering goods, the General Agreement on Trade in Services, covering services, and the Agreement on Trade-Related Aspects of Intellectual Property Rights, covering intellectual property. Financials services are controlled by the services agreement (the GATS). The GATS Agreement imposes a most favored nations treatment obligation on all trade in services within China with several exceptions. The GATS Agreement requires that over time the PRC government treat non-PRC services and service suppliers firms in the same manner it treats Chinese service firms. This includes allowing access to relevant markets.

For its admission into the WTO, China has made significant and unprecedented market opening commitment as a developing economy. In addition to the drastic reduction of its tariffs on imported industrial and agricultural goods, it will liberalizes foreign participation in its internal distribution systems and key industrial sectors such as telecommunications and construction. Among the most striking market opening commitments is the commitment to open up China’s financial services market. China agreed to gradually allow more branches of foreign banks to operate in more regions and to allow foreign banks to conduct yuan (local currency) business. China agreed to allow more access to foreign insurers, to make it easier to for foreign insurers to invest in domestic insurers and set up joint venture insurance companies and to open up more geographical and services areas for foreign insurers. China also agreed allow foreign participation in its rapidly expanding investment banking and fund management industries by initially allowing significant foreign minority stakes.

In the article, we would like to analyze the opportunities and challenges as well as the means available to foreign players and investors in the financial services market in China. In particular, we would explore, in four separate sections, investment banking, fund management, the banking industry and insurance industry. In each section, we will provide an overview of the general market condition, the status of foreign participation and the means available to foreign investors in that particular industry and followed by the regulatory environment for foreign players.

Although I rarely post links to articles in other publications without surrounding them with context and commentary, I do so today and recommend you read Joseph Kahn's, Dispute Leaves U.S. Executive in Chinese Legal Netherworld. The dispute between Changhong （长虹）, a state-owned enterprise in Sichuan （四川）, and Apex Digital involves several hundred million US dollars in what is alleged to be unpaid debt，an American citizen of Chinese origin under house arrest in private (not public) quarters, the police of the city of Mianyang （绵阳）, Morrison & Foerster in New York, Cadwalader, Wickersham & Taft in Washington, DC, Wal-Mart, Best Buy and Circuit City, and goodness knows who else.

Few Chinese would give much credence to the notion that law is at all important to the their businesses, despite the growing number of regulations that impinge upon commerce. Traditionally, to the Chinese, whatever the law might be at the moment depends very greatly on the man who is executing it and your relation to him. This remains true to a large extent even today, especially since Chinese judges need not rely upon precedent, nor need they in practice explain their rulings.

However, given the many tens of thousands of lawsuits proceeding throughout China at this moment, far more than perhaps ever before, as well as the central government's insistence upon what it calls "rule of law," the law has become something like the fly that buzzes constantly around one's head, until one must take notice of it. And that is precisely what I would suggest. Your attorney will guide you through the minimal requirements that Chinese law demands of you in your particular situation, which with exception, will be generally less that what you would find inescaple in the West.

The Chinese Company Law has just been revised. The Legal Daily (法制日报) has reported upon the changes in the law with a brief comparative review, portions of which I have translated. Here is our first installment:

Understanding Revisions to the Company Law: A Comparison of the New with the Old

By Wu Kun

On October 27 [2005], the 18th Session of the Standing Committee of the Tenth National People’s Congress approved by majority vote the revised Company Law, to take effect beginning on January 1 [2006]. This is the third revision enacted by China’s legislative body to the Company Law since its passage on December 29, 1993, at the 5th Session of the Standing Committee of the Eighth National People’s Congress

As all know, the Company is the most important form of enterprise in a market economy. Enterprises with the company form do not represent the largest percentage among all enterprise forms, but their total capital and overall economic contribution far exceed other enterprise forms. At the same time, the company is an important mode by which the modern enterprise system is created. Currently, in China's state-owned enterprise reform, the use of the company structure to implement reform is very important. The revision of the Company Law and China’s company legal system contributes to the strengthening of China’s establishment and perfection of the Socialist market economy, hastening economic development. We may clearly discover, through a comparison of the old and the revised law, what of the new Company law will have various effects on the maintenance of the market economy structure.

1. Introduction of "Piercing the Corporate Veil"

Current law: Not in the current law.

Revised law: A shareholder who abuses the independent position of the company’s legal person and the shareholder’s limited liability to evade obligations, seriously damaging the interests of the obligees, assumes responsibility for those obligations.

To be continued...

An Unsteady Banking System in a Sea of Change

The Chinese stock market languishes, in large part because the state has yet to reform state ownership in listed state-owned enterprises (SOE). But, scrounging around, one finds that a number of root causes exist. As Li Xue-bin writes in "An Unhappy 15th Birthday for the Chinese Stock Market" in 中国经营报 (China Business):

"上市公司上市以后极度缺乏回报意识，而投资者入市后极度缺乏风险意识."

"After listing, companies profoundly lack payback consciousness and investors in the market profoundly lack risk consciousness." [Translation and italics are those of ABI editor.]

Investors with pie-in-the-sky expectations and companies that care little for shareholder value remind one of the hackneyed aphorism that oil and vinegar do not mix.

Little wonder, then, that Caijing (财经) magazine, consistently a proponent of market forces, editorializes against reform of the stock market, at least for now.

"In China, stock indexes never were an economic barometer and might never be, because the stock market has never been a crucial component of national economy. If the government really wants to provide the nation greater economic security, it should focus whole-heartedly on the banking sector, which holds nearly all the expendable income of the entire population."

While Hu Shuli (胡舒立), the editor, also encourages state monitoring of “commodities that make up the basic living costs of citizens, such as real estate,” the state banks remain the single sector most in need of urgent care. They touch all aspects of Chinese economic development, underpinning the export machine that keeps the system running, yet without much of a cure in sight.

Despite the creation of “Asset Management Companies” (AMC) under state control to take NPLs (non-performing loans) off of the books of the state banks [on which western banks expect to earn a return of 21-30% per annum],

"China can reasonably expect to recover only US$100-150 billion from resolutions of its NPLs, and while the AMCs can recover a substantial portion of this total from their own collection efforts and from sales to domestic investors, the domestic market can’t reasonably be expected to absorb it all."

The recent increase of 16.8% in the official GDP -- which Asia Times blessed only two days after its announcement by saying that “the new figures, which reflect a modernization of calculation methods, are widely accepted by outside analysts,” -- makes it appear that NPLs are less problematic to the Chinese economy than virtually every “outside analyst” has heretofore thought. But what makes these new GDP statistics any less inaccurate and unreliable than prior figures?

In 2006, per WTO requirements, foreign entrants to the banking system will finally see the removal of various requirements constraining their business models in China, putting additional pressure upon state banks to compete with healthier and more energetic foreign banks.

Whatever banking reform there has been has taken place ponderously -- in part because there is no solution that does not cause substantial pain to many actors. While 17 have been shuttered in recent weeks, many of the City Co-operative banks, despite questionable reasons for their continued existence, remain. Quoting an unnamed banking regulator, even they see no viable exit strategy for most of these enterprises：

“最大的问题就是我们还没有一个完善的市场退出机制。"

Far more subtle dangers exist at the interconnections of the new systems that have been created inorganically, opening potholes that could swallow the proverbial truck. The nexus where a vulnerable financial sector, nascent legal system, capable, yet overwhelmed regulatory apparatus and the general business public meet continually cough up seemingly minor problems, at least minor in developed economies, which reverberate in waves that find their impact throughout the economy.

Chongqing Cultivation Company Plants A Bad Seed

A company in Sichuan applied for a loan from the Agricultural Bank of China. In its due diligence, the bank discovered information that led it to the conclusion that a loan was too great a risk and denied the application. The company sued for damages. In a western nation, absent some extenuating circumstance of which I can’t possibly bring myself to imagine, such a suit would be readily dismissed. Instead, the Supreme Court of the city of Chongqing held for the company, and damages were assessed at 40% of the amount of the loan, about 800,000 RMB (USD 100,000).

The judge’s reasoning was based, it appears, on banking regulations issued by the People’s Bank of China (中国人民银行)

“这个案件是基于诚实信用原则，以及依据《贷款通则》中贷款人负有及时答复的义务做出终审判决的。”重庆高院参与审理此案的朱鸿春法官说。 [See footnote below for the relevant text.]

“This case is based on the principles of honest credit, and based upon the duty of the lender as set forth in the Regulations on Loans to respond in a timely fashion, said Judge Zhu Hong-chun, participant in the adjudication of this case at the Chongqing Supreme Court.“

In other words, an enterprise considered a bad risk can nevertheless sue for significant damages merely because the lender did not respond in a timely manner to the application. The application itself created a right of timely response and its violation gave rise to a right to damages.

Here is a money-making scheme in the offing. A business could make a business out of filing loan applications throughout the country, hoping that some banks would fail to respond in a timely fashion, and then sue for damages. With perhaps tens of millions of loan applications in the system, imagine the potential liability of the state banks.

Powerless to overturn this case at law, Agriculture Bank, perpetually the weakest of the four big banks, appealed to the People’s Bank of China. The PBOC responded with the non-answer one might have expected, i.e., that the court fulfilled the requirements of the law.

The Chinese Banking Regulatory Commission, however, has gone ballistic, noting the extraordinary danger that this case may present to the banking system at large, despite the fact that the Chinese legal system does not adhere to a system of precedent. In its missive (银监办函（2005）135号 ), found in this article, to the People’s Supreme Court, the CBRC requested the Chongqing court to amend its decision. In other words, at the same time it stresses the importance of banking fundamentals, such as diligent risk assessment, often dismissed in the past, the CBRC insists on playing an end-run around the legal system.

But where else could they go? The People’s Bank of China, who had issued the regulations, was clearly unwilling to change them. They are the apparatus now standing on higher ground. Will higher powers step in? It is anyone’s bet whether or not the CBRC might push the PBOC off of this mountain, but storm clouds are brewing.

NOTE:

The relevant clause reads:

第二十三条 贷款人的义务：
一、应当公布所经营的贷款的种类、期限和利率，并向借款人提供咨询。
二、应当公开贷款审查的资信内容和发放贷款的条件。
三、贷款人应当审议借款人的借款申请，并及时答复贷与不贷。短期贷款答复时间不得超过１个月，中期、长期贷款答复时间不得超过六个月；国家另有规定者除外。
四、应当对借款人的债务、财务、生产、经营情况保密，但对依法查询者除外。

FOLLOW UP, December 28, 2005
[In an interview dated December 22, 2005, Liu Ming-kang (刘明康), Chairman of the China Banking Regulatory Commission (中国银行业监督管理委员会), stated the reasoning behind government approval of recent foreign investment in state-owned banks.

这样做的好处是什么呢？投资主体和利益主体多元化之后，国家财政就不可能再为商业银行的经营亏损“埋单”，否则就有悖于市场公平竞争的原则。基于这种政策理念，引进战略投资者的政策设计和目标导向就不是为了“引资”而是“引智”。也就是说，银行不应该迫于资本充足率达标压力而“引资”，而是要引进国际发达市场的银行先进服务理念、管理经验以及产品开发与维护的技术，迅速提升核心竞争能力。

The stated motivation behind the approval of these investments is simply that state banks require foreign expertise. Later in the interview, the other shoe drops. The state will, he insists, no longer pick up the check:

　　在改制、引入战略投资者和上市之后，国有商业银行从国有独资公司转变为公众公司，切断了国家动用财政和外汇储备对已股改的国有商业银行进行不断“输血”的渠道。因此，这次改革，就是要从制度上切断国家的“输血”机制，建立和完善自身“造血”机制。可以说，股权多元化不仅从体制上消除了商业银行指望国家救助的道德风险，而且在法理上排除了国家再度“输血”的可能，高标准的监管问责制也才能够实施。这也使此次注资真正成为“背水一战”前的“最后晚餐”。

There is nothing new in these statements. The old questions remain. Are foreign expertise and capital sufficient to make a jaguar out of a wooly mammoth? Are the exhortations and manipulations of one regulatory organ sufficient induce systemic change?

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[Editor's Note: I'm honored to have been asked by IP Dragon to write that blog's first guest post. The result is the essay you see below. Focusing on China's intellectual property issues, IP Dragon is well-written and penetrating. Its author has chosen to remain anonymous. This only increases the allure!]

The world knows of China’s leadership in the business of counterfeiting. If it – Delco car battery, tiger claw, night-scan telescoping mast, Viagra, holy relic of Tibetan Buddhism – can be copied cheaply and sold for profit, some entrepreneur (thief?) will grab hold of the opportunity and shake vigorously.

Counterfeiting harms rights holders. That was an “duh, fer sure, dude” statement. But the 2004 testimony of Anthony Wayne, U.S. Assistant Secretary for Economic and Business Affairs, makes one want to holler “Oh, my God!” as if we’d personally discovered alien seed pods in Santa Mira. [See Invasion of the Body Snatchers.] It is “estimated that U.S. companies' worldwide losses to counterfeiting and piracy range from $200 to $250 billion per year. Most counterfeit goods pass.” That sum exceeds the GDP of many nations.

And yet counterfeit products are rarely interdicted at the borders. China’s share? Daniel Chow, a law professor at Ohio State University, has testified that:

“In 2003, China accounted for 66% or over $62 million of the $94 million of all counterfeit and infringing goods seized by the US Customs Service at ports of entry into the United States. Mid-year figures in 2004 indicate that seizures are sharply higher with $64 million seized in the first half of 2004 alone.”

Extrapolating, Chinese counterfeits may account for US$150 billion of worldwide IP losses. No wonder it is estimated that counterfeiting produces as much as 8% of China’s GDP. Counterfeiting inevitably accompanies – and may very well benefit -- the growth of infant economies. In the 18th century, using cobalt mined in Connecticut, American potters imitated the fabulously popular China blue and white porcelain. And remember that Japan in the 1950s and 60s was rife with fake goods. Or more recently, Taiwan.

So what is the attraction with fakes? Or is this another “duh, dude” question?

In the 1980s, my cousin did business in Taiwan. Being a profligate entertainer of major customers, he once decided to impress by holding an emperor’s banquet (金玉滿堂) at the Hilton in Hsi Men Ting (西門町), the older downtown section of Taipei (台北). The centerpiece of the table was bear paw (熊掌), a traditional delicacy in Chinese cuisine, favored by only the very wealthiest. In the Taipei of the 1980s, a prepared dish of bear paw cost a King’s Ransom of nearly US$750, equivalent to the monthly salary of an office worker. A raw paw was shown to the guests before it was cooked. If I remember correctly, his guests were enormously impressed.

Several years later, a lady who had worked as a waitress in that same restaurant told me there was but one real paw in the refrigerator. Whenever the dish was ordered, the paw was trotted out to show the beaming guests and then immediately returned to cold storage. The chef would proceed to cook whatever meat he might have lying around that was less common than beef – alligator, venison, elk – and far less expensive. !Profit! And with just a little sleight of hand it descends in sheets. The crux of the bear paw con is dual, requiring a customer who’s neither ever tasted bear nor sees the paw cut up and cooked.

Yes, counterfeiting is a classic con. It needs but a sure thing -- a paying customer. An entrepreneur with energy, capital, nerve, imagination and a great product may still fail. The counterfeiting of an established brand requires similar elements, within a business environment favorable to the unimpeded trespass upon individual property rights, to allow the con to flourish. Bear paw is an established delicacy in Chinese cuisine.

Counterfeiters in China have established world-class CD duplication facilities (capital); harnessed the production power of entire villages (energy); threatened the lives of children with fake infant formula (nerve); built secret manufactories or factories in ship containers for mobility (imagination). But there’s virtually no economic risk. Someone else has built and crossed that bridge. The brand has already been established. The buyer is a certainty.

Even at a youthful age, I could not believe the premise of the movie, “The Sting,” (1973) the hit that starred my favorite pseudo-Oreo manufacturer, Paul Newman. Two good-natured gangsters (an oxymoron?) ante significant funds up front to replicate a bookie joint on the off chance they might score many times more dough from their mark. Several times, the scheme was nearly blown. The sucker could have simply walked away. Too much risk for a counterfeiter, don’t you think?

Despite two millennia of discourse and instruction on the Confucian ideal of 天下為公 (usually translated as “the world is a commonwealth”) and its modern diminutive, the Communist slogan, 为人民服务 (“serve the people”), Chinese find impractical, to say the least, the integration of the individual and the family into a greater public “good.” [Is this simply a display of my western liberal arts education or a genuine preoccupation with a beneficial and unifying ideal?] It apparently mandates the sacrifice of individual benefits to complete strangers with whom no bond is valued. Most undesirable. The individual thinks, “Where is the value to me and mine?”

The novel concept of individual rights under the law, often seen written into a subtext of the phrase 合法权益, has been received to a powerfully positive reception by P.R.C. Chinese. Everyone now, it seems, has some individual power. But the larger framework for these rights is barely constructed. The remnants of the old system do not suffice as its foundation. What can be built on detritus?

My strong impression from readings and discussions on this subject is that mainland Chinese view the law as but a tool – a means to an end – whereby individual gain can be gotten at the expense of a rival. They do not respect it as a particularized expression of an encompassing framework established to protect the welfare of the populace at large, despite sloganeering to the contrary. The law is for “me,” but not, more importantly, for “us.”

Until that conceptual foundation has been built – who knows when and if, despite the work by many brilliant intellectuals – the rights you hold in your intellectual property will be the object of stubborn disrespect and counterfeiting will continue to be a staple of the Chinese economy.

Well, dude, maybe that was just a bit too serious. Why don’t we turn to some hilarity for the nonce? Remember W.C. Fields’s epithet that one should "never give a sucker an even break?" [Translate that if you can!] Read this article for the story of a Chinese counterfeiter with a preposterous con who played upon the profundity of his wealthy collector-customer’s inexpertise. In doing so, he collected US$500 and the attention of the world’s media. Ah (deep breath), success!

Click on the little triangle below to hear today's post, Translation Challenge: "Never Give a Sucker an Even Break."

[I would like to express my thanks to Amy Hirter of Holland & Hart and Bob Brown of Greenebaum, Doll & MacDonald, for inviting me to speak yesterday to the American Bar Association, Section of International Law conference in New York City. I found it thoroughly enjoyable and instructive. My remarks of yesterday follow, with audio to come. You will find the quick links to the "Irrational Exuberance" series towards the end of the post.]

Good afternoon and thank you for having me here today. My name is Rich Kuslan and I’ll discuss aspects of global business expansion, with specific reference to China and to the function of the business attorney involved in that expansion. For those of you with a good deal of China experience, my apologies for what might be repetitive information for you, but, I trust, still worthwhile.

China business is a hot topic. When I first became involved in it, in the early 1980s, only a very few Americans, outside of the State Department and Intelligence, showed much interest in China. Now, it seems, just about everyone, even those who don’t have much good reason to go there, feels that he must put at least his toes in the water. Expansion into China can prove to be a positive and profitable experience.

That noted, the Chinese waters in which we wish to warm our toes usually prove murky and deep. What lies down there and, by the way, how far down? And what can we do, working with our business clients, using our skills and talents, to help them through it and ensure maximum protection?

A brief note on the subject of law in the eyes of a Chinese businessman. The Chinese historically and by preference, have maintained social order and settled disputes, not based upon the rule of law, but upon the situation: party doctrine, power relationships, familial networks, friendships and other factors. In fact, from 1949, when the People’s Republic of China was established, until 1978, there was but one law in China, the Chinese Constitution, virtually no one populating the legal landscape and extremely few legal cases. (That said, Chinese heavily practiced mediation at the local level.) Since the promulgation of the next law after the Constitution, interestingly enough, the Criminal Law, in 1978, several thousand laws and regulations have been passed in a frenzy to provide the legal framework for a changed society, from one in which law and procedure was traditionally of little value to one in which they have gained in importance.

But still, there remains a tension in Chinese business society – Chinese in business consider the law only as the merest afterthought, for example, when government approvals are needed, and approach the law with resistance. More recently, viewed as a weapon to gain an advantage over a perceived combatant. Legal considerations are not usually a main ingredient in business planning, certainly not to the extent it is in the west. This is the thinking in the heads of the Chinese executives with whom you may find yourself dealing.

With this preface, I’d like to offer two guidelines you might want to take with you into the Chinese business environment.

1. In China, valuable information is always withheld.

This becomes very important when doing due diligence on a possible partner or distribution channel.

For example, it is common for a Chinese business enterprise, even state-owned behemoths ostensibly under the purview of the state or national government, to have two sets of books (or more), one (most likely accurate) for the use of executive management and the other for the tax authorities. This is common practice – but the official tax return that you are given during your review may not be reliable – so, will you become liable for tax avoidance penalties? Or perhaps there are debts owed by the company, but not included in the public set of books. You may find these debts have now become payable by you.

Important information – more accurate than the books to be given over to the Tax Bureau and thus of greater value – has been secreted. The idea that valuable information is always withheld permeates mainland Chinese society and makes the job of, for example, due diligence, that much more difficult. In passing, I note that where this idea tends to dissolve is in the trusted personal relationship between confidants, one in which valuable information is often shared.

A subset of this guideline is that any information that has any worth is considered valuable and thus confidential. But beware, you might be told information is confidential because it doesn’t exist.

To show you this in practice and also to demonstrate how tightly Chinese businessmen hold what we’d consider ordinary information, I give you a common example in business relating to routine information. The salesman in China, having been one myself, who asks the potentially helpful question of his customer what his plans are for the year upcoming, so that he can sell in the right product for the need or want, usually gets the response that it is none of his business to ask for such confidential information. And none is usually given, at least none that is reliable, and often because no plans have been made. One might think that, when searching for the right distributor, for example, where the power balance generally tips towards the supplier, that it would be that much easier to demand and receive accurate information. But, alas, it is not. The distributor feels he has every good reason and right to provide only that information which he feels will convince you to select him.

Knowing the guideline that valuable information is withheld, our job is to discover what that valuable and accurate information is. Part of the work involves three things, and here I generalize somewhat, 1) the ferreting out of bits of information from evidence that goes beyond words, such as forensic accounting, independent valuation of physical assets, interviews with employees and 3rd parties, even the rumor mill, etc., which all may give clues to the true situation, and 2) the creation of trusting personal relationships with management of the target, and even those farther down the chain, that enables one to receive worthwhile information from these sources that tend to confirm or deny suspicions, and allow one to pass on persuasive fact-based exhortations to management that might shake loose something more likely approximating the truth, and 3) some experience in the local business environment, so that one knows what to look out for. Note, please, that this work as herein summarized does not always remove the cloud cover completely, and often, you will find yourself working in the twilight, indeed, sometimes you may be in the dark, and not get a clear-cut answer.

As a personal example of a situation that worked out to the benefit of the foreign investor, once in South China I was dealing with Company X, a potential joint venture partner. Over the week I spent with them, I was treated from the start in an overly festive fashion, which put my antennae up immediately. During that week, I was provided with information about Company X which, based partially on my experience, I believed was very likely untrue, specifically their sales projections, which seemed high, and debt levels, which, for a state enterprise seemed very low. The foreign company was to rely upon this information as an important basis for its decision to invest, and I was to verify or disprove it. In passing, I note my conviction that my legal training helped me to penetrate the façade, but more on this later.

My initial questioning of this information brought responses of confirmation that the information they provided was accurate, but supporting information was lacking. Later in the week, I began to delve deeper into their bases for the information provided -- Why do you think you will sell X units of this product at this location? Who are your customers? How many installers do you currently have in that location? etc.-- probing for holes and finding many, becoming more uncertain about this company each day, when, by happenstance, I picked up the local newspaper which on its front cover displayed a picture of a new skyscraper along with an article on its investors, including this Company X, which had stated to me it was involved only in the manufacture and sale of its core products. Their investment in the building was staggering for the company’s size and it was speculative as well. Not wanting to broach this topic directly with the managing director of the company – hoping not to embarrass him, at least not publicly – I showed the article to one of his aides. The aide denied it, and the other aides denied it, and then, perhaps partially owing to the friendly relationship I’d created with the MD but more probably spurred on by the shrinking likelihood of success of continued denials, the MD himself confirmed it. My suspicions about the other information that I had been presented were more than likely confirmed. The western company did not invest in this firm. That was the good thing that happened for the western company in this deal.

A note: whereas Chinese in the 1990s were poorly equipped to deal with foreigners, and generally unknowing of and unwilling to meet foreign requirements for cooperative business enterprises, Chinese in 2006 are comparatively more sophisticated, especially those operating in Shanghai, the commercial center, and in Beijing. (To a much lesser degree elsewhere in China.) Many 100s of thousands of Chinese have returned to work in China from western business and legal education, and experience in western companies. So the chances are that you may come upon someone who understands something about you that will make your job slightly easier. But in most cases you will need to educate them on your requirements for due diligence. I use the term “educate” gingerly. Perhaps, out of respect, it would be better to say that you will “discuss cooperatively.” (What you need and why you need it.) But this does not mean that they will be any more forthcoming than anyone else. Keep those “suspicious antennae” up, even while forming positive relationships. Those relationships may very well provide you with the information you are looking for.

2. Approach China critically

I’ve written at my weblog asiabizblog.com about what may be called the “Irrational Exuberance,” with apologies to Mr. Greenspan, of those who are gung-ho, pardon the pun, about establishing an operation in China, without having done sufficient homework and blinded by a certain mystique that seems to be part and parcel of China, in the eyes of the west. Eyes that often wear rose-colored glasses. (Does that describe your client?) Perhaps less rosy in the eyes of those who have a good deal of experience there, but I am shocked and amazed by those who continue to come back after one trip, declare it a paradise of opportunity without seeing or wishing to investigate the concomitant risk.

Sigh... This is nothing new. What was the content of Carl Crow’s book entitled “400 Million Customers.” Can you guess? And it was published in 1934. Indeed, ever since the Empress of China set sail from the New York harbor in 1784, to purchase tea and silks, China has beckoned, with a mystery and exoticism (to the westerner) that exerts a pull like no other.

The antidote to the mystique is rational analysis, given the facts that one can glean, supplemented by instinct and reliant upon experience. Analysis – the understanding of the truth of the situation -- is an important focus. That is, one asks the right questions, and sees the answers intelligently and objectively without the detriment of unbridled optimism. When the answers are insufficient to form a sensible response – more penetrating questions and more evidence are required. If the result is not something you yourself would be willing to defend in front of your company’s board of directors, it’s insufficient.

In the interests of time, I note that I detail the process of analysis in several posts on asiabizblog.com, and will put up easy links to the series at the home page tomorrow.

[EDITOR'S NOTE: Here are the quick links to the "Irrational Exuberance, or, Should You Enter the China Market?" series:

Number 1: Should You Be Doing Business In China? (Text only)
Number 2: What Do You Wish to Accomplish? (Text / Audio)
Number 3: Where's the Beef? (Text / Audio)
Number 4: A Handsome Bit of Documentation (Text / Audio)
Number 5: Says Who? (Text / Audio)]

And I may as well tell you I have been told that this recommendation I provide to clients insults the intelligence of some. And yet how many companies delve deeply – I mean, really deep -- before committing themselves to China? Does your client?

Management, in my experience, while it may be sharp as a tack, often does not feel a pressing need for in-depth examination of business opportunities, preferring instead to go with the gut, based on some information, showing that they are decisive first and will ask questions and solve problems later as necessary. (Of course, there are exceptions. But that has been my experience.) In any case, managers, generally speaking, haven’t been taught the skills, unlike those with legal training, to establish and understand the facts.

However, in the practical environment that modern China offers us, given its opacity and potential for surprise, the attorney offers precisely those critical and analytical skills that allow for great value to be added to the mix.

You may have already given thought to this aspect of your contribution to your client’s success, or perhaps it hadn’t occurred to you. Even if you have, have you suggested that management make use of these skills in such a way? Perhaps it is possible for you, and in doing so, you will expand the pie by adding more of your intrinsic value, so to speak, to the decision-making process. As an integrated member of a business team formed to plan and implement expansion into China, the attorney, who is trained to establish the facts and look at them critically before coming to conclusions, can help to provide the counterweight of reality.

And that brings to an end my remarks. Thank you kindly.

Click the little triangle to hear my remarks made to the American Bar Association, Section of International Law. Text of the post may be found directly below.

This Saturday, June 17, 2006, I will deliver a paper to the Chinese-American Librarian's Association (CALA) at the Queen's Public Library in New York City. The topic: Pirated Editions and American Copyright Law -- Implications for Librarians Building a Chinese Collection.

To my knowledge, the seminar is open only to CALA members, but interested readers of this blog are welcome to contact me. If there is sufficient interest, I would be willing to post in shortened form or submit the full length paper for publication.

Early in this blog's life, nearly 7 years ago, I wrote on business issues throughout the Asian region. Reader interest has focused this blog on China since then, but, having discovered the excellent collaborative blog of Kiyoshi Takahashi and Ippei Takushima, both bengoshi, also admitted to practice in New York, I find my eye wandering back. Legal readers especially should click over to the Japan Corporate Law Blog.

Tennis, anyone?

[Editor's Note: Japanese companies have for a very long time relied upon seniority- based compensation systems, but over the past 10-15 years, some have attempted to move toward compensation at least partially based on merit. Japanese law has not entirely smoothed the way for employers, but apparently something of a breakthrough has occurred. We are grateful to William Herbert, a foreign law associate at Lexwell Partners in Tokyo, whose comments on a recent High Court ruling of note follow.]

On June 22, the Tokyo High Court overruled a lower court decision that had held invalid a Kanagawa Prefecture electronics manufacturer's April 2001 change to its rules of employment. The change involved adopting a "results" based compensation structure in place of a seniority based structure. After the modification to the rules of employment, employees were evaluated based on their achievement and ability. Three employees who were demoted and had their base salaries reduced under the new structure filed suit against their employer in 2002. The plaintiffs alleged that the change was an unjust and illegal modification of their rules of employment, and demanded damages for compensation they would have received had the modification not been implemented. Japanese Supreme Court cases have held that as a general rule, a unilateral modification to employee working conditions that leaves employees worse off than they had been before the modification is invalid, unless the reasons for and substance of the modification are reasonable.

The plaintiffs in the court of first instance were employees between the ages of 44 and 53. As a result of the modification to the rules of employment, the employees were demoted (some from managerial positions to non-managerial positions) and their base monthly salaries had been reduced by 38,000 to 75,000 yen. To compensate the employees for the reduction in salary, the employer had provided each with a special allowance for the entire amount their pay had been reduced in the first year after the modification to the rules of employment, and one-half of the amount their pay had been reduced in the second year after the modification.

The defendant had argued that the modification to the rules of employment was necessary to strengthen competitiveness and increase labor efficiency in light of the fact that its primary products compete in the global market.

The defendant further argued that the modification to the rules of employment was reasonable because the purpose of the modification was to offer incentives to individual employees commensurate with results they achieved and to encourage them to be active problem solvers.

The court of first instance had found partly in favor of the plaintiffs, ruling that the transition measures the defendant had provided to them had been inadequate, finding that the revisions to the rules of employment were void, and ordering the defendant to pay approximately 3 million yen to the plaintiffs.

The Tokyo High Court rejected all of the plaintiffs claims and, in finding that the modification to the rules of employment was reasonable, noted that

(1) the total amount of money allotted for employee salaries did not decrease for the employees as a whole; (2) treatment of the employees as a whole was fair because under the modification, each employee has the opportunity to advance and to receive increases in salary through personal improvement; and (3) the system for evaluating employee achievement and ability included a sufficient minimum amount of fairness.

The Tokyo High Court noted that the defendant had turned in four consecutive years of losses, and in the current economic climate, the modification to the rules of employment had been based on great business necessity. The modification was therefore reasonable.

According to the Tokyo High Court judgment, this decision was the first in which a change in a seniority-based compensation system to a merit based one has been found to be reasonable. The case is expected to draw much interest as companies across Japan continue to adopt merit-based employee compensation systems. The plaintiffs indicated that they would appeal the decision.

[Editor's Note: None but the most perspicacious non-lawyer is aware that the legal industry remains faithful to the ideas embodied in the medieval guild. A guild attempts to construct barriers to competition, keeping prices and sometimes standards of quality high. One method is to limit entry into the guild. American lawyers, while maintaining a strong semblance of these hallowed guild practices -- accredited qualifications, in-house training, seven years of "indentured servitude," etc. -- haven't been particularly successful in limiting entry. The law schools -- the variable the American guild can not really control -- have generated far more talent than the field can practically absorb. Neither, evidently has the Chinese equivalent of the lawyer's guild been successful in policing its sphere of control, until very recently. We are grateful to CCH Hong Kong Limited, and especially to Elaine Wong, its Publishing Manager, and Mia Prieur for this excerpt of Mia's report on the reaction of one guild to the apparent advances on its territory of another.]

The Shot Heard ‘Round the World: A Brewing Revolution Against Foreign Law Firms in China?

— Including Exclusive Interviews with Richard Wang and Martin Hu of the Shanghai Bar Association

Mia Prieur

Another hot summer is preparing to descend on Shanghai and slow down this fast paced city. But even as some are planning their vacations, others are preparing for a battle. The first shot was fired by the Shanghai Bar Association (“SBA”) on 17 April when it posted a memorandum on its website entitled The Situation of Illegal Business Activities Practised by the Foreign Law Firms in Shanghai is Severe (“Memorandum”). The Memorandum broadly accused foreign law firms of unauthorized practice of law. Rumours quickly circulated that the Memorandum was part of a government effort to reign in or even eliminate foreign law firms. The only facts available on the record are that the Memorandum was approved unanimously by the SBA’s Special Committee on Foreign Affairs and that it was approved by at least one high ranking official at the Shanghai Bureau of Justice (“Shanghai BOJ”) who was present at the time of the meeting.

To understand more about the background leading up to the Memorandum’s posting and what it means, China Legal Watch (“CLW”) talked to Richard Wang and Martin Hu. Wang is the Vice-chairman of the SBA and Chairman of the SBA Special Committee on Foreign Affairs that initiated the Memorandum while Hu is Vice-chairman of the Committee. This is the first time they have accepted interviews from the foreign press since the issue of the Memorandum. For these interviews, both speak in their SBA capacity.

Interview with Richard Wang

CLW: Why did the SBA post the Memorandum now?

Wang: The dissatisfaction with what is going on in the legal community has been building up over many years. This issue of foreign law firms giving Chinese legal advice to their foreign clients has continued for too long and gone too far — it has reached a boiling point. There has to be a movement in order to achieve changes in this community. Members of the bar: we need dramatic change in the foreign legal community; we need a revolution.

CLW: How did things reach this state?

Wang: It is due to the lack of supervision over the foreign law firms from the Shanghai BOJ and [its superior organ] the Ministry of Justice (“MOJ”). The foreign firms are openly violating the regulations, and very little is done about it. There seems to be no partnership anymore between the local and foreign law firms. The local government received complaints from the local firms but has done very little about it.

CLW: Does the Memorandum represent the members of SBA or the government?

Wang: Yes. When the Memorandum was circulated among the leaders of the SBA, there was no dissenting opinion written, and a unanimous decision was reached by the Committee. One of the Shanghai BOJ chiefs approved it as well. He was present when the Memorandum was discussed and he expressly approved it.

The SBA took that as a signal from the MOJ to act on this matter.

CLW: How should foreign firms view the Memorandum?

Wang: The Memorandum should be considered a warning notice to the foreign law firms that they cannot continue their illegal activities.

CLW: There are statements that one of the prime factors behind the Memorandum was the economic pressure local firms feel from competition and, especially, the competition for young lawyers. Is this true?

Wang: The Memorandum is not about business, it is about the professional bar — judicial matters, not individual matters. Foreign law firms must act according to the Administration of Representative Offices of Foreign Law Firms in China Regulations (“Regulations”). Local law firms do feel some economic pressure from paying more money to associates to keep them from leaving for foreign law firms. However, employment is not a big issue behind the
Memorandum.

CLW: What do you think the Shanghai BOJ will do?

Wang: According to an official at the Shanghai BOJ, they have already found evidence of wrongdoing, and they are considering taking action on these foreign law firms. Foreign law firms cannot carry on with the violation of the Regulations if they intend to continue working in the Shanghai legal community.

Interview with Martin Hu

CLW: What triggered the posting of the Memorandum?

Hu: There were two main factors. The SBA notices deep concern among Chinese law firms about the foreign firms’ increasing non-compliance with the Regulations. Complaints in this regard about foreign law firms from Chinese law firms and both Chinese and foreign companies have increased. There simply has been no effort made on either side, Chinese or foreign, to draw the line on activities that violate the Regulations.

Another reason is to protect the clients and maintain the professional reputation of the legal profession, Chinese and foreign. It is just so ridiculous that some foreign law firms on one hand give so-called “qualified” legal opinions or draft contracts under Chinese law with the disclaimer that they are not allowed to interpret Chinese law, but on the other hand charge clients full-fledged fees and act as if they are Chinese law experts. As time goes by, this becomes very misleading to the clients, which is very irresponsible on the part of the foreign firms. This causes harm to the clients and the profession and therefore should be changed.

CLW: Is that why the Memorandum takes such a strong tone?

Hu: The purpose of writing the Memorandum in this tone is to make the public pay attention to what is going on. There is abundant evidence that some foreign law firms have crossed the line and are still pushing as if the line does not exist. The situation is indeed severe, and is harming the Chinese law firms, the clients and the reputation of the entire legal profession. The SBA needs to let the public know how serious this situation is in China. The foreign law firms must comply with the WTO agreement, and the regulations of the State Council and MOJ while practising law in China.

CLW: Law firms are businesses too. Is this about business and profits in the legal industry?

Hu: Lawyers are not business people. Lawyers have a responsibility to educate the public to be lawful citizens. Lawyers must play a positive role in building a rule of law society. My hope is that some day China will become a more democratic, rule of law country. But with that said, the Chinese legal community must be given a fair chance to grow in order to play a role in the future changes in the society and in the growth of this country. It would be difficult
to imagine that a rule of law society could be successfully built in China without a strong Chinese legal community.

CLW: There are charges that the Memorandum is about protecting local lawyers from competition, and not about protecting the public or the clients. What is your reaction to those charges?

Hu: That is not the case. Of course there are economic issues. But as I said before, the purpose of the Memorandum is to first respect the law, and second to protect the clients and maintain the professional reputation of the entire legal profession, Chinese and foreign. As Shanghai further develops into an international financial centre and as the government opens up more sectors to foreign investment, investors are pouring in. There is enough business for all of us.

I’m concerned about such charges because they are diverting the issue here. The public and the clients will be better protected if the foreign law firms abide by the Regulations and work with Chinese law firms in a more cooperative way. In fact there are federal regulations in the US for publicly listed companies stipulating that public companies may not hire lawyers who do not follow the law of the jurisdictions where they practise. The unauthorized practice of law by some foreign law firms is putting their clients at compliance risk. I also believe that some foreign law firms engaging in the unauthorized practice of law are in violation of the bar association rules in their home countries.

CLW: What is the goal of the Memorandum?

Hu: The goal here is to set the course in the right direction so that a win-win environment can be achieved for both sides to work together. The foreign law firms have the responsibility to inform their foreign clients, and bring awareness to their foreign clients and professional insurance providers about the regulations of this country. They need to draw the line and respect the rule of law. Furthermore, they should set examples in this legal community by informing their clients that they should not be treated as Chinese law experts or practitioners
and that they would work with Chinese lawyers to better serve the clients.

Sub Rosa

So far, it looks like the Memorandum will be the only shot fired in the revolution — foreign law firms have remained resolutely silent about the matter, apparently as part of a unified strategy. Foreign law firms are relying on the Shanghai BOJ’s realpolitik to balance the interests of local lawyers with those of the members of the foreign investment community, most of whom will not rest easy if they cannot choose their own advisors. But even the Shanghai BOJ seems to be bowing to the forces that the SBA has unleashed and the criticism made against it. The SBA says that the matter has reached such a critical state due to the lack of supervision from the Shanghai BOJ and MOJ.

Speaking anonymously, foreign lawyers in Shanghai expressed their view on this matter. “The foreign firms want to understand the purpose behind this Memorandum,” said one partner of a foreign law firm. “Any comments made should be in a constructive manner,” said the partner. “To cause further problems in this community and start a confrontation does not solve anything. Reaction to the Memorandum will reflect on the foreign law community and on how we solve problems. It is always more efficient to first try to understand what is at hand.”

To date, there has been no official response from the Shanghai BOJ. It is widely understood that an investigation is proceeding and universally said that at least one or two foreign law firms will be disciplined. The rumour mongers claim that the BOJ will “kill a monkey to make an example”. The severity of the punishment will serve as an example to other would-be transgressors.

In response to a CLW inquiry, an officer of the MOJ in Beijing stated that he had not heard about the Memorandum, but invited CLW to make a formal written query. The Shanghai BOJ was aware of the Memorandum but had no comment for the press, indicating that they would only respond to inquiries from governmental entities. The BOJ in fact referred CLW to the SBA itself and then asked what the SBA had said in the interviews.

The natural allies for foreign law firms are the foreign investors that they represent in China. But so far there has been no reaction from investors or either the American, European or other chamber of commerce. The silence is odd given the high stakes involved and the shared interests of multinational corporations (“MNCs”) and foreign firms. It is easy to imagine the outcry that would result if MNCs were told that they could not consult advisors of their own choosing.

As one foreign lawyer points out, the US Ambassador to China was himself a foreign lawyer who headed a foreign firm’s China practice before his appointment. Ambassador Randt would no doubt have a unique insight and interest in the issue. But so far, the silence from the foreign firms has kept the matter from becoming political. Given the long and hard negotiations on legal services that China experienced as part of its discussions on the WTO accession, the silence could give the Shanghai BOJ some flexibility to handle the matter on its own.

Flip Side of the Coin

In the interviews, Wang and Hu spoke with genuine passion about a lack of enforcement by the authorities. They pointed to a newspaper report citing an employee of a US law firm at the Shanghai Kerry Center who asserted that 70% to 80% of the firm’s practice was illegal and to the administrative warning given to Coudert Brothers for a blatant violation by its Beijing Chief Representative to show that the situation is out of control. Nevertheless, the SBA may only be seeing one side of the coin. The employee cited in the newspaper report had only worked at the firm for three weeks and might not have a good understanding of what the firm really does. In Beijing, Coudert Brothers removed the Chief Representative within days of the warning from the authorities and he was obliged to leave for an English firm that recently opened its Beijing office. Clearly, foreign firms do observe some limits and do cooperate constructively with Chinese law firms. One partner at a foreign law firm said that his firm used 10 different local law firms for China legal matters in the past year. A local lawyer confirmed that “he worked closely with a foreign law firm on Chinese matters.”

Role Play

According to Hu, the purpose of the Memorandum is to have a dialogue with the foreign law firms to address the issues and roles played by foreign and domestic law firms. However, foreign firms actually see themselves as unequal partners in any dialogue. They face a complete termination of their business and the loss of many years and dollars invested in Shanghai — and they already know that the SBA will be decidedly unsympathetic. The Memorandum is clearly very hostile in its tone. According to an SBA member and partner of a mid-sized local law firm, “the Memorandum would not help relationships with the foreign law firms, let alone strengthen it.” In fact, he fears that it could have the opposite effect.

He is certainly correct. The coverage of this matter in both domestic and foreign press is expanding; and the tone of reporting, especially in the local press, is becoming increasingly strident. Instead of dying in the summer heat, the issue threatens to flare up in a very ugly way. So far, the foreign law firms and foreign investment community have been silent and played a waiting game. In the current environment, they cannot afford to remain silent for much longer. For better or for worse, the SBA has already taken a highly confrontational approach. If the relations between the law firms are to be salvaged, the response of the foreign side will have to be both considered and mature. As one local lawyer said, “The important aspect of this is that Shanghai wants to stay on track to be an international financial centre to the world at large and will do everything to protect that from being destroyed.” Ironically, the SBA has now left it to the foreign firms to exercise moderation, preserve relations among law firms, prevent politicization of the issue and safeguard this local interest.

The above is an excerpt of an article from China Legal Watch, a monthly journal on China law published by CCH. The full article is available at the China Legal Watch website.

[Editor's Note: Now and again, this writer hears from young men and women who wish to build a career in China, echoing aspirations I heard and similarly uttered whiles ago, when most of that vast nation was off-limits to foreigners. For me, who had been given extraordinary linguistic talents, China was the locus of a range of fascinating sounds and expressive concepts, which nation, by extension, must also have been as exotic, mystical and enjoyable in every other aspect.

We are grateful to Mark Agrasut for today's post. Mark discusses legal careers specifically, but his post will likely prove helpful as well to those considering what might be called a China career. Mark is a solicitor with Linklaters, specialising on energy and infrastructure transactions, as well as project finance. He has also been a research associate and programme director at the Centre for East Asian Law at the School of Oriental and African Studies, London University (SOAS), The opinions expressed in this post are his own and do not represent the views of his firm.]

Possibly more so than ever, international law firms are targeting Asia, and especially Greater China. More and more newly-qualified lawyers are starting their careers with aspirations and intentions to work in Asia, and many are approaching the path as "Asia specialists" first, lawyers second. Having spoken to a number of aspiring China law specialists, trained in the UK/US, about career options, one notices more and more looking to spend a greater and greater proportion of their professional lives in the PRC. This note is a (slightly) amended posting which was made in relation to one such query (from a US-trained law student), detailing my point of view on the subject of starting a legal career at a China office of an international law firm. Let me qualify this by emphasising that this is all just based on unofficial information/personal views, and from informal discussions I have had with colleagues and lawyers in similar positions. Further, my intent is not to ignore the importance and accomplishments of the developing China-business environment, but to focus mainly on the potential breadth of experience at the cutting edge of commerce-side legal developments offered in more established legal/regulatory environments to lawyers trained within them, exposure to which may allow an aspirant China-specialist, for example, to bring more to the table when the time comes.

I think one needs to have in mind a long-term view when considering this sort of move. Starting your career and being hired to be in China may have a slightly limiting effect on your long-term options to practice anywhere else. My personal view on this is that in most areas of practice, starting out as a China-based foreign attorney may not serve you well if you intend to move back to a more mature jurisdiction later, especially if you're thinking of competing to secure your place working on complex, ground-breaking international deals in markets like London or New York. My experience has been that the ability to move laterally from a position in China (or any developing market) to an equivalent position in London is limited if you have no real grounding/transactional experience in the more mature legal markets.

I'd also say that the work you get in fast-developing markets has also often been more subject to macro movements in the market; you start as an energy/infrastructure sector lawyer, and then find yourself working on general IPOs the next year. In that context, you might find yourself being a China lawyer first and foremost, and a specialist in any particular field of law through necessity rather than choice. Of course, I also accept that there may be much to be said for "regional" specialisms, much as there are "industry/sector" specialisms: but it has always seemed to be the case that the process of globalisation diminishes the need for the former, whilst increasingly-sophisticated business practices demand the latter. On current trends, my inclination is to believe that sector specialism to be marginally more important.

That being said, an excellent lawyer anywhere should be an excellent lawyer no matter what, and there is a lot of valuable experience you can gain in China. Of course, you may only wish to practice in China, and not to practice in your "home" jurisdiction, in which case the position is different: bear in mind, however, the fact that foreign lawyers/law firms in China currently occupy a unique, but essentially medium-term position, that will erode as PRC law firms gain experience and expertise operating in and dealing with international standard environments/documentation. As the dynamic between foreign and domestic law firms changes, so will the profile of the lawyers involved. It may take a while, but I think it must happen, and at that stage you will be competing with PRC nationals who (forgive me for making quite an assumption) will in most cases have a greater grasp, linguistically and legally, of the nuances of the domestic market; as well as foreign lawyers entering a maturing market which is demanding cutting-edge legal products which you may not have expertise in.

In all honesty, I often question many of the UK/US lawyers-in-training who intend to start their professional practice in China and for whom that goal is paramount, because I haven't yet heard a really good professional reason why they've chosen to set out their stand and declare for China so early in their career; I do, however, hear an awful lot of personal reasons (and many reasons which are ostensibly professional but which often do not bear up to close scrutiny in the context of anything other than academia or certain types of development/NGO work). Essentially, my view is that the very best training and experience (with the greatest degree of transferability) is probably more easily found in the more mature legal jurisdictions, amongst those firms who consistently practice at the forefront of their fields of expertise. Unless the US firms are very different in their approach, I'd think long-term on this point, and bear in mind that (until China becomes an exporter of legal services on the scale of New York and London) the widest range of options are reserved for the lawyers with the greatest exposure to the widest spectrum of deals, who can practice almost anywhere they choose.

For those searching for it, newly promulgated regulation on the purchase of PRC enterprises by foreign investors may be found here (in Chinese).

UPDATE: Tom Pifer of GRVR tells me that a repeat of this webinar will be held on August 31. Check out GRVR's website for more information.

Gonzalez Rolon Valdespino & Rodriguez has announced a webinar happening today at 10.30 am Central time (11.30 am Eastern).

[Note: This posting may not give you sufficient time in which to sign up for this webinar. However, please contact the firm through the URL above if you missed the webinar, but would like to take it.]

If you are an American exporter selling product to China, recently proposed changes to US export regulations may affect your business. Carol Kalinoski of Carol A Kalinoski & Associates in Washington, DC, has written that they will, "if made final...dramatically and adversely impact trade and finance between China and the United States and its allies."

Tom Pifer, an attorney with GRVR, describes the webinar:

"The webinar presents the proposed regulations that were published by the Department of Commerce - Bureau of Industry and Security on July 6, 2006. These regulations are in the Comment Stage right now. A finalized version is expected to be implemented in early 2007.

The webinar will cover the policy behind the regulations, as well as the major aspects of the proposed regulations, including: (1) a new license requirement applicable to 47 particular commodities when the exporter knows the goods are destined for a military end-use in China; (2) the creation of a Validated End-User (VEU) status for Chinese importers that would exempt the VEU from certain export licensing requirements; and (3) an expansion of the use of End-User Certificates issued by the Chinese Ministry of Commerce.

The audience should be able to take away a basic understanding of what is being proposed and the rationale for the change in regulations."

There is a fee. See this page to participate in the webinar.

The Beijing News reports that Dell has lost its trademark suit against a Foshan (广东佛山) research institute, which had in 1997 registered a trademark for “德尔,” a transliteration of the Dell name. Dell has long since made use of another Chinese name "戴尔", which, to my ears, sounds rather more attractive. The article in full reads:

戴尔起诉要求撤销“德尔”商标

一中院经审理维持商评委裁定，戴尔一审败诉

　　本报讯（记者吕佳瑜 通讯员郭京霞）戴尔公司以其“DELL”商标的中文译名与广东一家研究所注册的“德尔”商标相近似为由，要求国家工商总局商标评审委员会撤销“德尔”商标未果，遂将商评委诉上法庭。北京市一中院近日作出一审判决，驳回戴尔公司的诉讼请求。

　　1997年2月，广东佛山兴禅高新技术应用研究所申请注册了“德尔”商标，指定使用的商品为“计算机，电子记分器等”。戴尔公司认为该商标侵犯了戴尔公司的在先企业名称权，于2000年11月29日向商评委提出申请，请求撤销该商标。

　　戴尔公司称，其在1991年开始陆续在中国申请注册了“DELL”商标。其产品大规模进入中国市场前就选择“德尔”一词作为其驰名商标 “DELL”的中文音译商标，同时“德尔电脑股份有限公司”也是“DELL”最初进入中国市场时正式使用的商号。2005年，商评委经审理作出裁定，维持了广东的“德尔”商标。

　　商评委裁定后，戴尔公司不服，向一中院提起诉讼，请求法院撤销商评委的决定，撤销争议商标注册。

　　一中院经审理认为，商评委的决定维持争议商标的结论正确，审理程序亦符合法律规定，驳回原告戴尔公司的诉讼请求。

A reader with a transcript of the judgment （if one there be) is encouraged to send it to me at the email in the right sidebar.

Date and Time: Thursday, September 14, 2006, 8:30am-10:30am
Place: 125 East 65th Street, New York, New York 10021
RSVP: 212-744-8181 ext. 125

"On August 27, 2006, China passed a new Enterprise Bankruptcy Law after more than a decade's preparation and debate. The law gives tougher backing to creditor claims on insolvent companies and creates, for the first time, a formal corporate-bankruptcy process, a Wall Street Journal article comments. What are the significant changes under the new law? How would it affect international investors current and future investments in China?"

Moderator:
- Deryck Palmer, Partner, Weil, Gotshal & Manges LLP

Speakers:
- Professor Shuguang Li, Member, Drafting Working Team of the National People's Congress on China's new Bankruptcy Law; Director, Bankruptcy Law and Restructuring Research Center, China University of Politics and Law
- John Rapisardi, Partner, Weil, Gotshal & Manges LLP
- Michael O'Hanlon, Independent Director, Shenzhen Development Bank
- Stephen Lukow, In-house Counsel & SVP, Lehman Brothers, Inc.

Sponsor: China Institute

Title: Doing Business in Hong Kong and China
Date: Tuesday, September 19, 2006, 8:30 a.m.
Place: University Club, 76 East Monroe Street, Chicago

Speaker: Dr. Michael Moser, partner, O’Melveny & Myers LLP, Hong Kong. Vice-Chairman of the Hong Kong International Arbitration Centre, Co-Chair of the China Arbitration Forum, China International Economic and Trade Arbitration Commission (CIETAC) panel member.

Topic: "Dr. Moser will share his insights and extensive Hong Kong/China experience in arbitration, mediation and counsel to American companies transacting business in China." Breakfast is provided.

Sponsor: Hong Kong International Arbitration Center and Hong Kong Trade Development Council.

RSVP: All are welcome. Contact Ms. Lillian Lee at the Trade Development Council (Lillian.lee@tdc.org.hk, 312-826-4515).

[Editor's Note: This paper was commissioned by the Chinese-American Librarians Association and presented in a talk given at the Queens Public Library in New York City. Anyone interested in pirated products and copyrights may find this a worthwhile read.]

Pirated Editions and American Copyright Law:
Implications for Libraries Building a Chinese Language Collection

ABSTRACT: This paper discusses the phenomenon of pirated Chinese publications, relevant aspects of American copyright law and the implications for libraries building Chinese collections.

Part I

I. Introduction

There is a large bookstore on Hongqiao Road (虹桥路) in Shanghai which takes up an entire floor of a major electronics mall. It is not nearly as prolific as the 6 floors of Shanghai Shucheng (上海书城 -- Shanghai Book City) on Fuzhou Lu Road (福州路), nor does it have the specialty books such as the reproductions of ancient works, like the bookstore Shanghai Guji Shudian (上海古籍书店), but it is still extensive and modern, and since it was close to where I was living at the time, I visited it often.

One day I decided to walk all the stacks, and quickly noticed the computer books section – several walls stocked to the brim with textbooks – all pirated, that is, printed without permission of the copyright holder.

I then walked through the business section where a large number of best sellers in the US had been translated and put into print in China, again without permission of the copyright holder. Then I traveled over to the CD section, where I could choose from the genuine Deutsche Grammophon CDs imported from Germany at 300 RMB (about US$40) and up, or, the illegal copies made in China, at 1/10 that price. Then over to the VCD section (as DVDs are known in China), where…well you get the picture.

It is not just the traditional street sellers who are the distribution channel for counterfeit book materials. Mainstream bookstores in China carry huge inventories of unlicensed works of copyrighted material for sale to the domestic market. Pirating is a mainstream in China. And it is everywhere.

II. Pirated Chinese Editions and Copyright Infringement in the U.S.

What concerns us today is the purchase of Chinese book materials (books, audio CDs and DVDs) by US library buyers, and its implications. We’ll examine this question: Does library use of unauthorized Chinese publications, commonly known as “pirates” or “pirated editions,” constitute an infringement of intellectual property rights? If so, when and to what extent? And what, if anything, can be done to protect a library from claims of infringement that may be made against it?

What is intellectual property, anyway? There are many definitions. Let us describe it generally, the easy way. Very briefly, it refers to just about anything you can think up and express, and which you might be able to make some money from. In this country, and in most others, government protects assets created by the intellect in a variety of forms, for example, in patents for inventions and designs and the like; in trademarks, like brand names and logos; and in copyrights, of stories, songs, films, etc., even of pantomimes. In other words, the person who comes up with these imaginative inventions of the mind has certain rights in them and others can not make use of them, generally speaking, without permission, usually procurable by the payment of money. This discussion will focus on copyrights, leaving aside patents and trademarks.

How do people protect themselves against the theft of intangible assets, such as these? You can put valuables, like coins and jewelry, in a safe deposit box in the bank. But to make commercial use of them, by selling them, for example, they must be displayed, and you would go to great lengths to ensure that physical valuables are not easily stolen by someone who sees what you have got. Intellectual property laws and the mechanisms to enforce them are the means by which intangible assets are protected. While there are similarities between Chinese and American intellectual property law, there are differences; but enforcement of the law is so very different in effect that where one may be well protected in the U.S., one may be virtually unprotected in China.

Who hurts and who gains when copyright is infringed? The copyright holder is not paid for his work; the seller of an unauthorized work profits while failing to uphold the law. The purchaser usually receives a poor quality substitute, but saves money, and may run the risk of infringing upon the rights of the copyright holder as well. Infringement, in the larger scheme of things, is an attack upon the system of laws and enforcement established to maintain market order and to encourage invention and creation.

Despite a Copyright Act in existence since 1790, America has seen significant book pirating in its history. 19th century American publishers pirated thousands of popular English works without obtaining permission from copyright holders across the Atlantic. One often sees on the cover or title page of works of the time the label “Authorized Edition,” which the reading public may have considered a signal as to the quality and integrity of the text. These days, book pirating in the U.S. is negligible. In modern China, despite the existence of intellectual property laws, albeit in their infancy, and a regime that professes to their enforcement, there is, similar to 19th century America, little check on the infringement of intellectual property rights.

It is cheaper not to pay the rights holder and then force him to sue. The rights holder who sues finds that his chances of success are much more doubtful in China than in the U.S. The infringer in China is more likely to get away with it. Besides, someone else will do it if you do not, creating a cheaper product that will take market share away from you. What is important in understanding this phenomenon is that mainland Chinese, who have only recently been introduced to the idea of personal rights in any form, have not yet gotten their minds around their fundamental nature, which is that rights, which are abstractions, can have finite value in and of themselves. Intellectual property is a complex bundle of intangible rights with real value. This is a difficult concept to grasp.

When I first sold computer hardware into China in the early 1990s, Chinese buyers would not think of paying extra for service (maintenance) on the machines. After a few years, they began to realize the value of service, and began paying for it with greater willingness. It took a combination of the customer’s inability to reproduce the service, as well as their recognition of its value to them, for them to willingly pay for it. Gradually, some intangible services are now recognized by mainland Chinese as having such value that people are willing to pay for it. A similar change may come in the area of intellectual property in China.

But in the short term, one can not expect rapid and radical change in intellectual property rights consciousness. Mainland Chinese seem to recognize that they may have certain legal rights, but apparently they have not yet extended that idea to the general public. In more traditional Chinese parlance, we might even say there remains a serious lack of social ethics (公德心).

In other words, “I have rights,” but there is little recognition that “you as well have rights.” A further complication finds the modern extension of an historically traditional disrespect Chinese generally feel towards the concept of rule of law, in great contrast to their more respectful attitude towards (or perhaps fear of) the rule of man. In such an environment, one can expect relatively lethargic and stuttering progress towards the development of a consciousness in China that equates the unauthorized use of intellectual property with theft; that the theft itself is unlawful and unethical; and is, as well, an attack upon the developing structure of legal rights. With greater exposure to the ideas of intellectual property and the rights involved, China may see progress over the next few generations. It took the United States a long time before a system of intellectual property rights became well established, not only in law, but in the American consciousness. However, even now, as we all know, digital technologies and the ease of cheap copying have once again posed a challenge in the American mindset.

TO BE CONTINUED

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The Federation of International Trade Associations and Dutch company Omni Bridgeway will present a free event in Manhattan:

Date: 28th September 2006
Time: 5:00 PM until 7.30 PM
Location: AIG - 70 Pine Street, 60th floor, New York, NY
(The seminar will be followed by cocktails & hors d’oeuvres.)

For further information, visit this page on the Omni Bridgeway website.

This FT article avers that Chinese have begun to "aggressively" protect their patent rights in the U.S. Unfortunately, the writer does not attempt to quantify the assertion, giving perspective through context, but relies entirely on a few quotes from American lawyers whose firms would very much like to drive that business.

The mere fact that Chinese make use of the American court system isn't news. One remembers stories of a similar ilk about Japan and Taiwan in the 70s and 80s. Of more importance is the extent to which the Chinese have become "aggressive" pursuers of patent rights -- if indeed they have -- and not in comparison to a past devoid of such legal behavior, but to similar high-growth economies in their hey-day, such as Japan and the little Tigers.

The ICBC IPO and the "UTD" Syndrome. Click the little triangle to hear today's post. (If you are reading this in an RSS viewer and the podcast does not display, you may hear it at www.asiabizblog.com or on iTunes in the business podcast section.)

Don Clarke's, Chinese Law Prof Blog, heartily recommended for attorneys with an interest in China, takes note that 800,000 judgments -- the number given by Supreme People's Court president Xiao Yang -- have gone unexecuted.

While Don cautiously and with merit suggests that we haven't as yet the perspective to say if this is objectively good or bad, the gut tends me towards the position that it should not give much confidence in the value of a Chinese judgment.

Indeed, that a number was even publicized gives credence to the notion that unexecuted judgments have become a problem of major proportions in the eyes of the judiciary -- one need only note below the euphemistic phrase "“执行难”问题." Even granting the questionable perception of openness, supposedly fostered by government, the number 800,000, without a verifiable basis, is very likely itself under-reported.

Xiao Yang's remarks:

最高法称执行难问题未根本扭转 80余万案件积压

新闻来源：法制网 转载时间：2006-10-31

最高人民法院院长肖扬今天向十届全国人大常委会第二十四次会议作“关于开展规范司法行为专项整改报告”时说，经过一年来对执行积案的集中清理，人民群众反映强烈的“执行难”问题尚未得到根本扭转，有80余万件积压案件未能执行。

　　肖扬说，为缓解“执行难”问题，在专项整改中，各级法院采取多种措施：严格执行条件，解决暂缓执行、中止执行、终结执行、查封案外人财产和超标的查封的问题。此外，加强执行管理，将选定评估和拍卖机构的环节作为整改的重点，切断拍卖过程中不正当的利益联系，彻底杜绝拍卖中的暗箱操作；建立执行款专用账户，防止个别法院违法使用、截留、挪用、侵吞、私分执行款物。强化执行公开，解决消极执行、拖延执行和执行人员的违法违纪问题。

　　肖扬表示，全国法院执行案件信息管理系统正逐步扩大试点范围，力争明年起全面实施。通过互联网公开执行信息，加强与有关部门配合，对不履行生效裁判的被执行人实行财产申报、强制审计、限制出境、公布被执行人名单等措施，促使被执行人自动履行义务。

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Bloomberg reports that a Beijing court has fingered IBM in the China Construction Bank corruption prosecution of Zhang En-zhao, the bank's former Chairman and once winner of an"Economic Person of the Year" award. Zhang is now the Person of 15 Years, the length of his sentence.

Documents issued by the court state that the company paid an agent US$225,000, which sum was channeled to Zhang. (No, no, we're not talking about Wang Xue-bing, Zhang's predecessor, who was also forced to resign and convicted of bribery. This is the the new guy. Well, not any longer.) We must note, however, in all fairness, that the mere inclusion of this information in a Chinese court document does not necessarily make it true. Regardless, it is now in the public realm.

The idea that one must buy favor permeates Chinese society, even down to the lunch offered by a family member asking for assistance. But bribery and the Foreign Corrupt Practices Act do not mix well. Since most commercial transactions can not be accomplished in China without the former, in one form or another, the latter tends to suffer when sales figures must be met. As to the actual payment of moneys, most corporations in China who fork it over do not do so directly, but instead make use of third (and fourth) parties -- often foist upon them by potential customers, but sometimes selected. Payments may be made within China or even overseas through a wide range of entities that may help mask the payment. One can be as sure of crisp US $100 bills in a satchel as often as numbered Swiss accounts.

An important note: the use of agents does not necessarily shield the American executive from prosecution. Actual knowledge that a payment or a promise to pay will be forwarded to an official is not required: constructive knowledge -- you "should have" known, given the facts -- can make the exec just as liable.

And is it even debatable that Zhang is an official for the purposes of the FCPA, when the CCB is a quasi-governmental organ of the state of China? The big spender [click this link if you want a good time] in China remains the state. How does the exec defend foregoing a big sale to a quasi-governmental organ and a payment to its key decision-maker in a market your headquarters believes will save the company?

(By the way, when senior management passes out copies of the FCPA -- with the notation in biro "read this and make sure you do not violate this law," as once happened to an American I know, it does not mean they care whether you violate the law, but just that they don't.)

The U.S. Department of Justice has grown increasingly serious about enforcement of the FCPA in recent years -- note the FIS investigation already in progress at the DOJ and in China, also stemming from the Zhang corruption case. But the acts of corporate bribery in China are so numerous, the proof for which is at best difficult to develop, that this the notation in Chinese court documents is an obvious anomaly. (Then again, when all the facts are known, it may be as much of a slam-dunk as might be attributed to George Tenet.) A squealer would seem to be the more common route to an investigation.

If you have not seriously considered it before, now is the time to give serious consideration to the value of risky behavior in light of the demands presented by the FCPA, the DOJ and, now, it appears, the Chinese government.

American cabinet officials will travel to China to "press for changes in Chinese economic policies long criticized by the administration and Congress, officials said Wednesday."

At long last, another Magical Mystery Tour. The mystery is that they should believe in the power of their magic at all. Chinese can be awfully stubborn when asked to take actions they see running contrary to their interests. (Was that too subtle?)

You may remember that the film was panned with gusto. We await the film of this trip with bated breath.

[We are grateful to Michael Burke for today's post, an update on China's recently enacted M & A regulations. Mike is an attorney with Williams Mullen, where his practice focuses on advising U.S. companies on the structure and operation of investments in Greater China. He is experienced in China-related direct investments, acquisitions, private equity transactions and technology ventures. Mike is currently Co-chair of the American Bar Association, Section of Int'l Law & Practice, China Law Committee, and Visiting Fellow at the Asian Institute of International Financial Law, Hong Kong Faculity of Law.]

On September 8, 2006, the Provisions on Acquisitions of Domestic Enterprises by Foreign Investors (the New M&A Provisions), issued by China’s Ministry of Commerce (MOFCOM) and other agencies, became effective, replacing 2003’s Provisional Rule on Acquisitions of Domestic Enterprises by Foreign Investors. The New M&A Provisions are a significant development in the regulation of mergers and acquisitions in China.

Under the New M&A Provisions, a purchaser may use its own equity (provided it is listed on a foreign stock exchange) to acquire equity interests in a domestic Chinese company. A Chinese-registered advisor must conduct specific due diligence into the purchaser’s financial condition and submit a required report to MOFCOM.

In certain circumstances, the equity in a Special Purpose Vehicle (SPV) (an offshore company directly or indirectly controlled by domestic Chinese companies or residents) may be listed on a foreign stock exchange. Proceeds from such listing must be used only for authorized purposes, including establishing a new foreign invested enterprise (FIE). Such equity, subject to certain conditions, may be used as consideration in a M&A transaction.

The New M&A Provisions reiterate that the foreign-owned equity interests in a target after a foreign-invested M&A transaction must exceed 25% of its registered capital for such FIE to be able to avail itself of any FIE-related incentives or preferences. In addition, the New M&A Provisions clarify the treatment of FIEs established by offshore entities that, in turn, are controlled by domestic Chinese persons or enterprises.

The burdensome antitrust review process created by the 2003 M&A regulations remain in the new M&A Provisions. This process relies in part on vague and undefined terms to determine which M&A transactions should receive antitrust review.

If a M&A transaction would (a) result in any change in control of any domestic company in a key industry; (b) involve the holder of a well-known Chinese mark or brand; or (c) have potential or actual impact on national or economic security, such transaction must be approved by MOFCOM. This approval process is independent of the usual approval processes imposed on all foreign investment in China, including M&A transactions. Note that the New M&A Provisions do not define terms such as “key industry” or “well-known brand” and do not specify the approval procedures or timeline applicable in this context.

The New M&A Provisions are the Chinese government’s latest effort to regulate foreign-invested M&A transactions. In some measure the New M&A Provisions reflect the Chinese government’s concerns over asset stripping of state-owned enterprises and potential abuse of FIE incentives. They also reflect the government’s efforts to enable more forms of M&A transactions in China. The New M&A Provisions likely will be supplemented with implementing rules in the near future, meaning that China’s M&A regime will continue to evolve.

[Editor's Note: Given the restrictions upon the movement of money within China and across its borders, money laundering -- the transformation into apparently clean income of unlawfully transferred or earned money -- has become a commercial activity of great significance. This article from 21世纪经济报, which I have roughly translated, describes the methods used by a major player in that business, now imprisoned, that turn "black" money, as the Chinese call it, into mainstream wealth.]

Money Laundering

Special Report
Reporters: Zhong Wen-qing (Shanghai)

“Soak, wipe clean, wring dry” – and several hundred millions of dirty money become clean. Huang Guang-rui has not been in prison long. On December 4, China’s Anti-Money Laundering department announced that it had broken up one of Shanghai’s largest underground money laundering cases since the founding of the PRC, involving as much as 5 billion RMB (US$ 625 million).
　　
All international money laundering experts know that the soaking stage is the most delicate and easiest to be discovered. But Huang Guang-rui was fortunate. The Judiciary department has said that counter staff at two local banks he patronized weren’t alert.
　　
For nearly five years, Huang Xi-tian took his 15 siblings and disappeared into the border area between China and Vietnam.

They liked the feeling of flying at night. Each time, they loaded up their private airship with its five engines full of carefully chosen name brand cigarettes, like Southern Comfort and 555. [Private dirigibles in China? You bet.]

Flying from Situn over the Gulf of Tonkin, Huang Xi-tian traveled into Hepu County in Guangxi to a shrimp farm on the coast. Zheng Xu-ming owned the shrimp farm. Many nights, he waited for the airship to land on the dock at the farm. Radar had been installed on the roof of the shrimp farm’s office building, used specifically to monitor the patrol status of the Customs, Coast Guard and other police unit. After the goods had been safely unloaded, they were loaded onto trucks and transported to Guangzhou, Shenzhen, Kanjiang and other places, to be sold to many [buyers]. [Editor's Note: Does any reader know the Vietnamese name for the port of 四屯?]

Huang Xi-tian was very busy, flying often in the past five years, and having smuggled from Vietnam over 47,000 cigarette cartons across the border, they now had 170 million RMB (US$20 million) in hand. But with any more money than that, they were anxious – after all, it was dirty money.

Huang Guang-rui was a genuine money god for them. Only through him could the money become Huang Xi-tian’s legal income. Money laundering – the “dirty money industry” practiced by Huang Guang-rui, was becoming the world’s third largest business activity after foreign exchange and oil.

But now, the easy life was over. On August 23, 2006, the Guangxi People’s Supreme Court sentenced Huang Xi-tian and 15 defendants to prison, reprieved from death sentences, for various terms for commodity smuggling crimes

Moreover, Huang Guang-rui set a precedent – since the amendment of the criminal money laundering law of 1997, this was the first case in China where guilt had been established for money laundering with smuggling as its predicate crime.

TO BE CONTINUED

[Editor's note: Read Part 1 here.]

“Soaking”

This isn’t something everyone can do – laundering money requires contact with financial institutions so that cash can move up to the surface from underground, becoming legal income – it requires a series of complex techniques. The players in this industry have specialized knowledge and skills: lawyers, accountants, auditors, financial consultants and others.

Born in 1972, Huang Guang-rui was nonetheless considered a skilled mouthpiece. From 1990 to 1993, after studying at the Guangdong International School of Finance, he spent the next five years working in a bank branch in Shenzhen. After resigning in 1998, with an inside-out knowledge of the way banks move money, he became a expert money launderer.

His activities fit the classic laundering process – using the analogy of clothes-laundering, the money laundering cycle of “placement, layering and blending” became to them “soaking, wiping clean and wringing dry.
　　
Soaking is the first stage. Placing unlawful revenue into the financial system, into ordinary channels of distribution, is the first step. Important methods include the use of bank current accounts, postal money orders, travelers checks and other commonly circulated instruments.

Under ordinary circumstances, a very large bank deposit will attract the attention of regulators. Huang Guang-rui didn’t have much he could do about this. He used the most common technique – he opened tens of accounts in the local branches of two banks under many false names.

These accounts were patently preposterous. A few were opened using the altered IDs of his cousins. As an example, the account name of "Huang Juan-hua" was opened with a copy of photographs taken from an ID of Huang Guang-rui’s wife Huang Hai-xuan and sister-in-law Huang Xiao-yan, but with altered ID names, addresses and other pertinent information, The account name of "Huang Hui-juan" used Huang Hai-xuan’s photograph, but the ID name and number did not match hers.

Kanjiang’s “Boss Chen” shipped smuggled cigarettes into Guangzhou, Shenzhen and other designated stores, included cigarette counters and tea shops. Then those who were responsible for selling the smuggled cigarettes would figure their total revenue, and using banking institutions over a wide area, deposit that money over computer networks into the accounts Huang Guang-rui had established with falsified documents.

Experienced international money-launderers all know that the soaking stage is the most fragile, the most easily detected. But Huang Guang-rui was fortunate. The Judiciary has stated that the counter staff at two banks he patronized were insufficiently alert. Due diligence on the customer was halted at the auditing stage, becoming somewhat like a dead letter.

Identity auditing is but the first link. If one wishes to uncover soaking, one only needs to look very closely and often at the individual bank account.

Usually, a bank account opened with a false identity will show constant movement of large sums in and out. From July 1, 2003 to Feb. 27, 2004, the deposit account of "Huang Rui-juan" received 73 deposits for total of RMB 38.35 million (US$4.5 million). On August 8, 2003, however, that account showed 5 transactions amounting to over RMB 4 million (US$500,000).
　　
However, in developed areas such as Guangzhou and Shenzhen, a single account with flows exceeding several tens of millions and even over 100 million is not that unusual. This provided good camouflage for Huang Guang-rui.

TO BE CONTINUED

[Editor's Note: This is the final installment of our series on money laundering in China. Read Part 1 here. Part 2 here.]

“Wipe Clean” and “Wring Dry”

“Wiping clean” follows soaking -- allowing dirty money to distance itself from its unlawful origin. After the dirty money has entered the banking system, [they move it in and out of] accounts in as many different locations as possible or holding companies [they] establish, creating a complex web of financial transactions that render helpless any auditor and moving the dirty money farther and farther away from the criminal boss [of the original enterprise].

When Huang Guang-rui would set up a false account, the deposit usually came in and went out on the same day or the following. Huang Xi-tian and the others would split up and deposit money in the accounts set up by Huang Guang-rui. Huang Guang-rui would then move it on the same day or the following into the accounts of Gao Zhan-kun, Wang Li-Mei and others, leaving a small balance in the [transmitting] account.

Thereafter, the money would be transferred to Huang Guang-rui’s Hong Kong Xinxing International Trade Company and YongXing International Trade Company accounts. Once wrung dry, the dirty money had been washed clean, becoming money Huang Xi-tian could make use of without worry,

An important middle man, called “A-Nan,” who exchanged RMB for Hong Kong dollars and has not yet been made part of this case, moved Huang Guang-rui’s RMB across the border, completing the important step of wringing the money dry.

Actually, before the end of 2000, Huang Guang-rui didn’t know who A-Nan was. Later, he was introduced to A-Nan, who, through his gang, made money off of the forex spread across the border. But in the beginning, when the amount of RMB was small, A-Nan was never directly in touch with Huang Guang-rui.

The turning point came after 2002. The amount of smuggled money that was wired had become rather large, so Huang Guang-rui began direct contact with A-Nan so that [RMB could be] exchanged into Hong Kong dollars.

Between them, Huang Guang-rui and A-Nan established a fixed fee schedule. Huang Xi-tian and Huang Chu-dong called Huang Guang-rui to ask the daily rate (not the official rate, higher than the bank’s officially announced rate, and based on the supply of Hong Kong dollars at the time of the transaction), and paid Huang Guang-rui in RMB based on the rate Huang Guang-rui had provided. Huang Guang-rui would pay A-Nan based on the rate provided by A-Nan, making money off the forex spread.
　　
Changed into Hong Kong dollars, A-Nan would then transfer, via underground money-lending networks, to the Hong Kong Xinxing International Trade Company and YongXing International Trade Company accounts.

Judiciary organs have said that, since A-Nan has not been made part of this case, the exact methods of those who use underground money-lending networks to move money across border remain a mystery. Moreover, the details of the transacations between Huang Guang-rui and A-Nan are impossible to prove, as there is so little evidence.
　 　
Huang Guang-rui said that he only wished to give RMB to A-Nan. He guessed that A-Nan, in order to exchange currencies, may have had a relationship with a joint venture factory, to which A-Nan would have provided RMB in cash, in return for the joint venture (or foreign invested factory) would have placed the equivalent in Hong Kong dollars into the Hong Kong accounts.

In addition, Huang Guang-rui disclosed the activities of several other underground money lending networks – which directly exchanged RMB for Hong Kong dollars in cash and then moved it out into Hong Kong accounts. Chinese who gambled and won Hong Kong dollars on horse racing or the lottery in Hong Kong would give over their cash to A-Nan, who would then pay RMB to them in China. Outside of China, criminal elements who received smuggled goods would take Hong Kong dollars and within China pay RMB at a certain rate to people of a similar ilk.

Just like Huang Xi-tian and the others who profited from laundered, smuggled cash, there was still the originator of the smuggling – a Vietnamese trader name Zhang Ze-chun　　

For ease of moving money from one account to another, Huang Guang-rui and Zhang Ze-chun settled accounts via cellphone messaging that would send money from the Hong Kong accounts to Huang Xi-tian, and then to Huang Guang-rui. Block amounts of 500,000 or 1 million Hong Kong dollars were moved into Zhang’s Hong Kong accounts. The money arrived the same day. Zhang only shipped product once he had the money in hand.

By means of this cycle, the laundered cash entered the “wringing dry” stage, or perhaps one might say it had reached the “return of capital” stage. Just like legal capital, the laundered money was moved out to other destinations.

Well over 100 million RMB, dirty money earned through the smuggling efforts of Huang Xi-tian and 15 of his brothers and sisters, had been washed clean.　　　　　
　 　

For those involved in China finance, read Joe Studwell's latest column:

Over the medium term, the big significance of the move on corporate bonds is diversification of systemic financial risk. A financial system with three legs is harder to knock over than one with two. Moreover, while we have seen emerging market financial crises based on state bonds (Latin America) and corporate bank borrowing (south-east Asia), we have yet to see one result from the issuance of corporate paper.

Perhaps China will show that corporate bonds can produce a crisis. But more likely this is the last chance to diversify and strengthen the financial system in this period of particularly fast growth. When growth slows, as a result of diminished external demand or a falling number of labour market entrants early in the next decade, and banks begin to report higher non-performing loans, the system will need resilience.

Topic: Civil IP Litigation in China

Date: February 8, 2007 2:00pm – 3:30pm EST

Content:

A discussion on China’s latest legislative developments, an overview of civil litigation in China and best practices for resolving intellectual property disputes in China’s civil courts.

Speakers:

James V. Feinerman, Professor and Co-Director, Asian Law and Policy Studies Program, Georgetown University Law Center,

Bill Huo, Attorney, licensed in U.S. and China specializing in IP commercial disputes, Kramer Levin Naftalis & Frankel LLP

Elaine Gin, Attorney-Advisor, U.S. Patent and Trademark Office

Cost: Free of charge. The program is free. No special software or computer configuration is needed to participate; only a phone line and a computer with an Internet connection are necessary.

Registration: Send your contact information to ChinaIPR@mail.doc.gov. A registration confirmation, and dial-in/log-in instructions will be sent to you a week before the program.

URL: http://www.stopfakes.gov/events/china_webinar_series.asp

[Editor's Note: We are grateful to Paul Jones for today's post on China's new franchise regulation, in which he delineates the differences between it and previous franchise regulations. Mr. Jones is a franchise and intellectual property lawyer in Toronto, Canada, and a Chinese speaker. The international law program at John Hopkins University currently uses his paper on the interpretation of the previous Commercial Franchise Measures to illustrate the differences between common law and civil law. He may be contacted at this address.]

China has just released a new franchise Regulation (商业特许经营管理条例) to come into effect on May 1, 2007. It replaces the existing Commercial Franchise Measures (商业特许经营管理办法) that came into effect on February 1, 2005. [In Chinese.] The new regulation (hereinafter, "Regulation") is significantly different from previous Measures that had caused considerable concern amongst international franchisors and led to intervention by the U.S. Trade Representative.

The Regulation tries to balance a variety of international and domestic concerns and there is some question as to whether it manages to satisfy the needs within China for intervention to prevent fraud and abuse, and the international desire for easier access to the China market. The new Regulation has clarified that it will apply to all franchises operations in China equally. The Measures had a separate chapter (第七章外商投资企业的特别规定) that had requirements for Foreign Invested Enterprises (FIE), but it was not clear from the text what triggered the requirement to set up an FIE, and some questioned whether these separate requirements were in line with China’s WTO commitments. The Regulation has eliminated this issue by eliminating separate requirements for FIEs.

Another international concern was the requirement for a franchisor to have owned and operated two locations in China for at least one year. The requirement to have owned and operated two locations has been retained in the Regulation, but the requirement that they be in China has been removed. Foreign franchisors that have met this requirement in their home market will now be eligible to franchise in China.

But there are also restrictions to try to curb the rampant fraud in the domestic market for franchises. The State Council’s Legislative Affairs Office and the Ministry of Commerce (国务院法制办、商务部) also released a set of questions and answers on the new Regulation. [In Chinese.] They describe the Regulation as having five aspects that are designed to deal with problems in the franchise market.

Firstly, only corporations and other legal entities can be a franchisor. Individuals may not be franchisors. Franchisors must have a mature business model and have the resources to provide support.

Secondly, franchisors must disclose sufficient information for the franchisee to make a suitable investment decision. This information must be accurate, complete and not omit related information. Previously, U.S. franchise lawyers had complained strongly about the vagueness of the unfamiliar civil law drafting in this section. The wording has been changed, but the obligation to disclose all material facts may still arise out of Article 42 of the Contract Law (合同法). Article 42 requires that parties negotiate a contract in good faith and not conceal “key” or “material” facts (重要事实). It is based on similar provisions now codified in Germany’s Bürgerliches Gesetzbuch. German courts have relied on the equivalent law to impose an obligation of pre-contractual disclosure on franchisors in several cases. The questions and answers clearly indicate that the General Principles of the Civil Law (中华人民共和国民法通则) and the Contract Law continue to govern franchising.

Thirdly, franchisors must now register within 15 days of signing their first franchise agreement in China. The Regulation specifies certain documents that must be submitted for registration, such as a marketing plan, but does not specify the fees, if any.

Fourthly, the Regulation stipulates a number of items that must be in a standard form franchise agreement, including an unspecified cooling-off period.

And finally, the Regulation sets certain standards for the relationship, such as requiring the franchisor’s approval for the transfer of locations and requiring the franchisee to protect the franchisor’s commercial secrets.

The Regulation will make it easier for foreign firms to enter the China market, but the greater concern will continue to be not the laws and the courts, but the lack of more developed “rule of law” culture, or as the State Council calls it, the “chaotic market conditions” (市场秩序较为混乱).

Americans must be working from a script because yet another fellow is auditioning for the same part:

Chairman Guy Halgren of Sheppard, Mullin, Richter & Hampton on plans for a China office:

"It's a giant legal market and we're getting in the middle of it," said Chairman Guy Halgren, who announced last week that the firm had opened a Shanghai office as expected.

A giant legal market? China will never become a giant legal market. China means some additional business for American firms whose clients do business there, but, unlike shoe manufacturing, law will not grow to American-like proportions over time just because an impoverished population has finally made productive use of its human capital.

Chinese businesses -- the market law firms would hope to target -- are unreachable, given the prohibition against legal practice by foreigners. One must also doubt whether Chinese would consider a foreigner competent, as compared to a native-born and educated Chinese, to represent them in China. But even more significantly, Chinese businessmen consider law to be of little importance: it is an afterthought to be avoided always, unless it is impossible to do so. Ask a Chinese businessman to be proactive about legal matters and you will get a laugh.

And besides, Chinese do not and never will pay American rates. American companies in China generally do. (And I've heard more than one rumor of large discounts given by law firms to American clients in China because of the heated competition.) They, the Americans, appear to be Sheppard's target, just as they are everyone else's.

Tell me again how many American firms have offices in China now? 60? 90? (Ever increasing, it seems.) And selling legal services to a few thousand American multi-nationals with sufficient business. Just how many apples can you fit into one pie?

We represent almost every major film studio in the country, and studios are making major investments in China," Halgren said. The firm will ideally work on intellectual property issues related to distribution in Asia, particularly China, he said.

Okay, IP in China is a big deal for Americans. But it's not for Chinese. Is there a market for IP work for anyone but Americans? And lest we forget, the American clients a firm goes over with may jump ship, stranding attorneys with an office, little business and little idea how to market. Attorneys in China who read this know what I mean. So, then, quo vadis, Sheppard?

It appears as if the ex-Coudert people who landed at Sheppard have managed to convince the firm to open an office, perhaps simply to retain current clients. Given the Coudert contacts in Chinese government (if they still have them), perhaps Sheppard may even capture one or two large Chinese clients whose American business interests they might represent. But it doesn't shake up to be the giant legal market pie in the sky. Of course, I hope otherwise for the firm.

Mr. Holmgren stated:

We're going to establish ourselves and show we have the best product. Let the best person win.

To this curious expression of loyalty to market forces (whatever that may mean) where non-market forces reign (government influence, personal networks, a belief in fortune), one can only wish the best.

Just a quickie today -- this superb article on Vinson & Elkins, its Chinese government clients and the argument to change the Commerce Department's countervailing duty policy. [Site registration required - here.]

[Editor's Note: This is clearly a search for a Chinese national, while not so stated, for obvious reasons. Unless you are the rare foreigner with a Chinese law degree -- how many are there? Any?]

The American Bar Association (ABA) seeks candidates for a Chinese legal PROGRAM OFFICER position in the Beijing program implementation office of the ABA Rule of Law Initiative.

The ABA Rule of Law Initiative is a public service project that provides technical assistance in support of legal reforms in over 40 countries around the world. ABA's program office in Beijing, with support from Washington, D.C.-based staff, supports a variety of legal reform and legal training projects in mainland China, with a particular focus on issues of public interest law, criminal justice, and good governance.

The new Program Officer, working under the supervision of ABA's China Director and Deputy Director, will be responsible for managing and implementing law-related cooperative training, symposium, research, and networking projects with Chinese institutions and organizations. The position entails management of financial and administrative aspects of cooperative projects and subgrants; monitoring and reporting on project activities and project impact; conducting research, monitoring media reports and attending conferences and meetings to follow important legal developments related to current and potential future projects; developing new program initiatives; legal research and analysis related to project and office needs; and such other duties as may be assigned from time to time. The work requires an ability to manage multiple projects at the same time; the project portfolio for this position is expected to include environmental law, criminal law, labor law and property law. Travel within China is required as necessary for meetings and program activities.

Required Qualifications:

* Chinese law degree and foreign JD or other graduate law degree
* Fluent in both Mandarin and English
* Ability to maintain and develop relationships with high-level Chinese government officials, bar association leaders, local and international NGOs, and legal academics
* Excellent legal analytical and organizational skills
* Strong sense of responsibility and ability to work independently
* Ability to multi-task and to keep the Directors fully informed of program developments
* Commitment to public interest work

Preferred Qualifications:

* Previous experience managing NGO projects or government exchange and cooperation projects

More information about the ABA Rule of Law Initiative China program is available at www.abarol.com. Interested candidates should send a cover note in English explaining their interest and qualifications, along with a brief (1-2 page maximum) resume in English by email to Ms. Ding Xia at: abadingxia@yahoo.com. Candidates will only be contacted if invited for an interview.

[Editor's Note: Carol Kalinoski, who will speak at the conference, has kindly provided this overview.]

"The Fourth Annual Conference of the Asian Legal Studies Program, co-sponsored by DePaul University School of Law (Chicago, Illinois) and Beijing Foreign Studies University School of Law will be held Wednesday, May 30, 2007, at the Japanese Studies Center, Beijing Foreign Studies University, Beijing, China.

"The theme of this year's conference is "U.S.-China Trade: Legal and Policy Issues and Opportunities". The panelists will focus on a number of practical issues facing the every-growing, economically interdependent U.S.-China trade in a highly-charged political environment in Washington. Topics include developments in Chinese antitrust law, Chinese Customs and tariff issues, hot topics in U.S. export controls affecting China, managing trade risks, and trade conflicts in the textile and apparel industry.

"Speakers have been drawn from the U.S., China, and the Asia Pacific region, and include prominent Chinese government officials, American jurists, trade practitioners and experienced consultants, industry representatives and scholars.

"Additional information about the conference is available from Jerald A. Friedland, Director Asian Legal Studies Program, DePaul University College of Law, e-mail: jfriedland@depaul.edu."

Those of you who are members of the American Bar Association may wish to check your June issue of the ABA Journal, where your editor, Rich Kuslan, is quoted. See Terry Carter's article, "A Chinese Puzzle," on page 30. Interesting compilation of ideas, focusing on ethics as they appear to apply to foreign firms in China, but touching briefly on marketing. Dan Harris of China Law Blog and Matt Adler of DLA Piper were interviewed as well. Here's the link.

From Xinhua come reports of this case, in which a Guangdong court has, for the first time, decided a commercial leasing dispute by application of Hong Kong law. Thanks to Paul Jones, a barrister, solicitor and trademark agent in Canada, for making note of this article. You will find the original article in Chinese directly below the translation.

Our translation was graciously provided by ZHAO Chen, a patent examiner at the State Intellectual Property Office of the P.R.C. and a certificated translator. Zhao Chen, an M.E. graduate from Tsinghua University, blogs on China's intellectual property system: here (for readers in mainland China) or here. Two of his published commentaries may be read here and here.

Mainland Court Applies Hong Kong Law for the First Time
Contracting Parties are Both Hong Kong based Companies

June 13, 2007

By DENG Xinjian, WU Jiao, From Legal Daily

On June 11, Zhongshan Intermediate People's Court of Guangdong Province made the first instance judgment on a Hong Kong-related lease dispute. The case is said to be the first one where Hong Kong law is applied by a mainland court. Plaintiff Diamond Lease Ltd. (hereinafter referred to as “Diamond”) and one defendant Ronghui Technology Ltd. (hereinafter referred to as “Ronghui”) are both Hong Kong based companies. The court ordered the lease contract between the parties to be terminated, and the lessee Ronghui to return rental equipment.

The dispute is reportedly due to defendant Ronghui’s violation of the lease agreement. Plaintiff Diamond claimed that, on November 22, 2002, it entered into a lease contract with Ronghui agreeing that Ronghui leased certain machine equipment from Diamond. Diamond delivered the equipment to Ronghui for use under the agreement, although the actual user was Ronghui Electronics (Zhongshan) Ltd. (hereinafter referred to as “Ronghui II”). However, Ronghui did not fulfill the rental payment requirements set out in the contract, and failed to pay any rental ever since September 2003. Diamond alleged Ronghui’s contractual violation, and requested the court to order the contract dissolution and the return of rental equipment from two defendants.

“This contract shall be governed by, and interpreted and construed in accordance with the Law of Hong Kong. The Lessor and Lessee consent to the jurisdiction of courts in Hong Kong, and the Lessor may turn to courts in any other competent jurisdiction for compulsory enforcement of this contract.” The contracting parties agreed upon the application of law for dispute resolution under Article 16 of the Lease Contract.

Since Diamond and Ronghui concurred the law of Hong Kong as the governing law, Zhongshan Intermediate Court ordered Diamond to proof concerning the application of law. In response, Diamond filed a legal opinion rendered by Deacons Law Firm, Hong Kong, proposing opinions concerning certain provisions of the lease agreement. According to this legal opinion, Diamond may, in the case that Ronghui fails to pay rental timely pursuant to the terms and conditions of the agreement, immediately terminate the contract through written notification under the agreement, and be liable correspondingly for breach of contract.

Zhongshan Intermediate Court found that the legal opinion filed by Diamond was provided by qualified attorney in Hong Kong, attested by appointed attesting officer recognized by the Ministry of Justice, and delivered through China Legal Services (Hong Kong) Ltd. The opinion was thus not only presented via a sound, legal channel, but the legal content within Hong Kong thereof was in accordance with the judicial principles of the Basic Law of Hong Kong, and was neither contrary to basic principles of mainland law nor against social public interest. Therefore, the opinion could be adopted.

Zhongshan Intermediate Court so determined at first instance that 1) the lease contract between the plaintiff and the defendant terminate, 2) Ronghui return all the machine equipment leased from Diamond within three days after the ruling takes effect, 3) the two defendants bear the Case Acceptance Fee, RMB 36,500 Yuan.

CHEN Wei, Judge of No. 4 Civil Division of Zhongshan Intermediate Court, stated that extraterritorial application of law in hearing cases is available under two circumstances. One is where both parities in dispute have clearly agreed upon the application of law provided the agreement is valid, the other happens where the most related law with the dispute is extraterritorial law based upon the most significant relationship principle if the disputing parities fail to identify any governing law.

More Words from the Judge

Concerning the jurisdiction of this case, presiding judge CHEN Wei points out that Diamond and Ronghui have agreed upon the jurisdiction over disputes, i.e., the lessor and lessee consent to the jurisdiction of courts in Hong Kong, and the lessor may turn to courts in any other competent jurisdiction for compulsory enforcement of the contract. This means the lessor can make the contract enforceable in other dispute-related jurisdiction besides the jurisdiction of Hong Kong’s courts. Thus, the jurisdiction of courts in Hong Kong over their dispute set out in the contract is actually a non-exclusive jurisdiction, or in other words, does not preclude the jurisdiction from competent courts of other countries.

This is further clarified in the purchase agreement, an annex to the lease contract, signed by the contracting parties on the same day. The agreed upon jurisdiction set out in the agreement is that both parties consent to the “non-exclusive jurisdiction” of courts in Hong Kong concerning any litigation and legal proceedings of certain agreement. Hence, Diamond has the right to litigate this case before other courts with competent jurisdiction besides courts in Hong Kong. Through financing lease, Ronghui leased machine equipment (commodities) from Diamond in compliance with its purchase requirement for the purpose of Ronghui II’s use. As a result, the place of performance of this contract is mainland China where Ronghui II is located; meanwhile, machine equipment, object in dispute of this case, is also located in mainland China. The litigation brought by Diamond before Zhongshan Intermediate Court, therefore, is in accordance with Article 24 concerning territorial jurisdiction and Article 243 of the Civil Procedure Law of P.R.C, and Zhongshan Intermediate Court has jurisdiction over this case.

合同双方为香港企业 内地法院首用香港法律判案
2007年06月13日 08:26:09 　来源：法制日报

昨天（11日），广东省中山市中级人民法院对一宗涉港租赁合同纠纷案作出一审宣判，据了解，这是内地法院首例适用香港法律判决的案件。原告钻石租赁公司和被告之一荣辉科技公司都是香港企业，双方的租赁合同被法院判令解除，承租人荣辉科技公司被判令返还租用设备。

据了解，双方的纠纷因被告荣辉科技公司违反租赁合同约定而起。原告钻石租赁公司诉称， 2002年11月22日，双方签订《租赁合同》，约定由荣辉科技公司向该公司租赁有关机器设备，该公司已依合同约定将租赁物交付被告使用，而实际使用人为荣辉电子(中山)有限公司。但荣辉科技公司却违反合同关于支付租金的约定，自2003年9月开始就未支付任何租金，其行为已构成根本违约。钻石租赁公司向法院请求判令解除合同及两被告交还租赁物。

“本合同在各个方面均受香港法律管辖，并按香港法律诠释。出租人与承租人愿受香港法庭司法管辖权的管辖，而出租人可在任何其他主管的司法管辖区法庭强制执行本合同。”双方在《租赁合同》第16条对解决纠纷适用法律作了约定。

由于钻石租赁公司和荣辉科技公司对双方发生纠纷适用的管辖法律约定为香港法律，中山市中级法院要求钻石租赁公司就法律适用进行举证。钻石租赁公司提供了由香港“的近律师行”出具的《法律意见书》，对租赁协议的相关约定提出了法律意见。对于违约责任，该《法律意见书》认为，根据香港法律，荣辉科技公司没有根据该协议的条款按时支付租金时，钻石可根据该协议的条款以书面通知立即解除该协议，并承担相应的违约责任。

中山中院认为，由钻石租赁公司提供的经香港注册专业律师作出、并由司法部委托公证人见证、法律服务公司转递的《法律意见书》，不仅提供途径规范、合法，其阐述的香港法律内容，也符合香港基本法规定的司法原则，并且没有违反我国法律的基本原则和社会公共利益。由此，可以采信。

中山中院遂作出一审判决，判令解除原、被告签订的《租赁合同》，荣辉科技公司于判决发生法律效力之日起3日内返还向钻石租赁公司租赁的所有机械设备。36500元的案件受理费，由两被告共同承担。

据中山市中级法院民四庭法官陈薇介绍，适用域外法审理案件有两种情形：一是如果争议双方明确约定适用域外法且约定有效的；二是争议双方没有约定，但根据最密切联系原则，与纠纷有最密切联系的法律是域外法的，也可以适用。（记者 邓新建 通讯员 吴娇）

法官说法

关于本案的管辖权，主审法官陈薇指出，钻石租赁公司和荣辉科技公司在《租赁合同》中有关于双方纠纷司法管辖的约定，即出租人与承租人愿受香港法庭司法管辖权的管辖，而出租人可在任何其他主管的司法管辖区法庭 “强制执行”本合同，意思就是双方因《租赁合同》而产生的纠纷，出租人除接受香港法庭的司法管辖外，还有权在其他与纠纷相关的司法管辖区域使合同得以强制履行。由此，该合同约定的香港法庭对其争议享有的管辖权，实际是一种非排他性管辖权，即并没有排除其他国家有管辖权法院的管辖权。

这一点，在双方同日签订的作为《租赁合同》附件的《购买协定》中有更进一步的明确：协定对管辖约定为双方同意接受香港法院对有关协定的任何诉讼及法律程式行使“非专有的司法管辖权”。因此，钻石租赁公司有权向除香港法院以外的其他有管辖权的司法管辖区法庭提起本案诉讼。荣辉科技公司以融资租赁的方式，向钻石租赁公司租赁由其指定购买的机械设备(货品)，以供荣辉电子公司使用。由此，本案合同的履行地在荣辉电子公司所在的中华人民共和国内地；同时本案争议的标的物机械设备也位于我国内地。因此，钻石租赁公司向中山市中级法院起诉，符合《中华人民共和国民事诉讼法》第二十四条关于地域管辖以及该法第二百四十三条的规定，中山市中级法院对本案享有管辖权。

Today's post contains a few questions I'm hoping some of my readers might be able to answer.

This WSJ article on American labor union officials and labor activism in China is an interesting read.

The All-China Federation of Trade Unions (ACFTU) is a government department. Its management does not take its cue to any degree from laborer members, who, by the way, must, without exception, join. There are no benefits to speak of - except perhaps for the annual ticket to see a movie (forget a first run) and perhaps a box lunch.

[Here is a video interview with Andy Stern, President of the Service Employees International Union, speaking on his union's involvement with Chinese unions. Thanks to Bob Kapp for the onpass.]

It strikes me as incredible that American union officials have any sway without explicit approval and active participation of the Chinese Communist Party (CCP) at the highest levels – and certainly the encouragement of labor activism in general is not at the top of the Party's “to do” list.

So here are a few questions to my readers:

1) Can anyone point me to research on CCP control and oversight of the ACFTU? Is anyone working on AFL-CIO involvement in the Walmart “unionization?” The WSJ story does not refer to sources other than foreign union spokesmen, and I wonder if scholarship has been done on the subject.

2) This may be well out in left field, but it strikes me that there exists some American legal stricture upon union mobilization in connection with Communist controlled labor unions. Am I mixing something up? Call this a junior moment, if you will, but some legal thread somehow perhaps related to COCOM of years ago is telling me some federal prohibition exists.

Because American states must, in most cases, enforce a judgment issued by the court of any other American state, Yanks in business tend to take for granted that fabulous feature of our legal system, known as "full faith and credit." [A dear relative was wont to say "for granite," but the malapropism is nevertheless just as valid, i.e., written in stone.]

But nations do not fall within the American constitutional system: American court judgments aren't not often enforced outside of the U.S. Unless, of course, there is a treaty between the U.S. and a foreign nation, there is little chance a court of that nation will recognize and enforce an American judgment. And, lest we forget, vice-versa.

For this brief post to be of any value to you, I must mention Don Clarke, who teaches at Harvard. He's written a brief article, entitled "The Enforcement of United States Court Judgments in China: A Research Note," and even if you are not an attorney, it is worth your time. Don says, in essence, that Chinese courts do not recognize and haven't enforced an American judgment.

My point in recommending you read Professor Clarke's article is this: here lies an important lesson for American companies who do business with China. Don't expect you can take an American judgment against a Chinese company to China and sue upon it. Your American judgment will not be recognized. Your more likely remedy would exist when the Chinese company has established sufficient presence in the U.S., such that you can sue the company in an American court. But unless that Chinese company has assets in the U.S. upon which you can levy, you are unlikely to recover very much at all.

What implications does this have, exactly? For importers, for example, the Golden Rule is to guard your money carefully -- before you even enter into a transaction with a Chinese exporter. Do not pay up front and then expect to receive product. You may not receive it once the money has left your hands. You will simply have no recourse.

The wise prefer to spend the extra fee to open a letter of credit, payable upon your acceptance of the product, rather than resort to prayer. Now prayer is a good thing, but its efficiency in trade is yet to be proven. Who wouldn't spend the extra? Many inexperienced traders. Perhaps you. Especially if you are new to importing -- and some I've spoken with are sourcing via the internet without even visiting the physical location of your provider -- you should never blindly pay cash up front. [If you haven't visited your supplier, you are neglecting essential due diligence.] But even if you have longstanding relationships with your suppliers, I would not recommend anything but L/C based transactions, except in the rarest circumstances (emergency circumstances where a mold needs to be opened immediately, etc.). Continue to pray, by all means, but, with some recourse in your own country, you won't need to pray so very urgently.

More on the practical aspects of Don's article in upcoming posts.

UPDATE: We have a translation. Thank you (!) to the four readers who offered to provide one.

I've had a second reader request for a translation into English of the Chinese text of "Guangdong Court Applies Hong Kong Law in Commercial Lease Dispute." With apologies, I can't spare the time to do even a rough translation myself.

Would you (yes, you, one of my mandarin fluent readers) like to do the translation itself? The willing translator will get some exposure (I will post your name as translator, your bio and a link to your website along with the translation). My only caveat -- the translation must be faithful to the original.

[Editor's Note: Price fixing and industry collusion aren't generally considered hot topics among investors and lawyers, except when the discussion turns to China. Does Chinese business culture, whatever that may be, favor monopolistic behavior, eschewing competition? Or is price fixing, where it occassionally pops up, merely a symptom of inadequate regulation, incompetent administration or general chaos, regardless of the region?

Alas, these questions have been subject to endless disputation, often argued anecdotally, for lack of hard evidence, as mere unsubstantiated claim. We are thus grateful to Lou Schwartz for today's post, which provides us with the benefit of his lengthy experience analyzing and reporting on the Chinese aluminum industry. His bio may be found at the end of his post.]

Contrary to Lou Dobbs’s characterization of China as “Communist” or “Red,” China’s economy today is actually raw, unbridled capitalism. The Chinese aluminum industry, which I have followed closely for more than eight years, is very representative of the road that China’s economy has taken since the death of Mao and the beginning of the Reform Period. From an outdated and lethargic industrial base managed by an enormous government-run mega-corporation to a plethora of new companies whose world-class plants are financed with much more private capital than state-owned bank loans (in 2006 77.2% of the capital which the Chinese non-ferrous metals industry used for fixed asset investment came from non-bank sources), the aluminum industry represents how Chinese industry has become more like what is described in The Wealth of Nations than the Communist Manifesto. And if there still is a doubt that the Chinese economy has become the greatest example of pure capitalism -- with all its warts -- since Adam Smith described it, one need look no further than the aluminum industry again, which has been spotted organizing cartels in an effort to save themselves from their own excesses.

The Chinese aluminum industry largely has followed the same meteoric trajectory as a wide variety of Chinese industries. In the first forty years (1953-1992) of its existence, the industry’s capacity to produce primary aluminum grew to 1 million tonnes per year (tpy). It took just an additional 5 years for primary aluminum capacity in China to reach 2 million tpy. Assisted by the restructuring of the Chinese non-ferrous industry beginning in 1997, a plethora of new companies in this space has grown China’s aluminum smelting capacity to a projected 14.6 million tpy this year from 3 million tpy as of the end of 2001. By late 2005, a group of 23 primary aluminum smelting companies, smarting from growing losses caused by their unrestrained development of smelting capacity which had exceeded even the torrid ramp up of demand for aluminum in China, banded together and agreed to idle 10% of their capacity to stabilize the price of aluminum. This consortium was sufficiently disciplined in idling capacity that it was able to mostly stave off a series of projected insolvencies among Chinese aluminum smelters.

Perhaps the most significant reason why primary aluminum smelters felt compelled in 2005 to form a seller’s cartel and idle capacity was that the price of alumina, their most significant input, had more than doubled in price -- due to the rapid increase in capacity in the Chinese primary aluminum smelting industry. The world’s producers of alumina, including the remaining Chinese state-owned aluminum industry behemoth--the Aluminum Corporation of China Limited (Chalco) ((中国铝业股份有限公司 (中国铝业)) benefited royally from surging alumina prices: Chalco leveraged the squeeze that primary aluminum smelters found themselves in to acquire companies that were at the brink of insolvency.

As the world price of alumina rose, Chinese entrepreneurs ((including Xinfa Aluminum Industry (信发铝业) and Weiqiao Aluminum Industry (魏桥铝业)), now inhabiting a free-wheeling economy, leapt at the apparent opportunities in alumina refining and in early 2006 began a rapid multi-billion Yuan build-up of alumina refining capacity in China. As of the end of 2007, total alumina refining capacity in China is expected to reach 27.7 million tpy, an increase of 4.4 million-tpy over year-end 2006 and a 17 million tpy increase over year end 2005! Not surprisingly the price of alumina has dropped by two-thirds since late 2005 and the price of the alumina refining industry’s most significant input -- bauxite -- has increased precipitously. This turn of events caused a group of seven private alumina producers, to meet in early 2007 and agree to adjust output to support alumina prices.

Meanwhile, lured by outsized prospects in supplying aluminum sheet, coil and foil for the construction, automotive and packaging industries in China and easy access to capital, Chinese industrialists flocked to the aluminum rolling industry beginning in 2004, pushing capacity up from 1.5 million tpy in 2004 to 2.5 million tpy in 2005; when all the rolling mills under construction or in planning are completed as of 2010, China’s rolling industry will have more than 5 million tpy of rolling capacity. In the so-called “Double 0” segment of the rolling industry (named for the thickness in millimeters of the aluminum foil produced) which supplies aluminum foil to that part of the packaging industry serving the tobacco, food, beverage, pharmaceutical and cosmetics industries, the growth in capacity is expected to grow to a significant proportion of the 940,000 tpy in total aluminum foil capacity which will be in place by 2010. Once again the response of the thinner gauge segment of the aluminum foil industry was to form a cartel to attempt to control output and prices. According to a report in 中国铝业网, in February 2006 five of the principal producers of “Double 0” aluminum foil met at a “summit” meeting to agree, among other things, to hold their respective shares of the domestic market to a fixed amount, to export all output in excess of their agreed share of the domestic market, to adhere to a specified lowest domestic and export processing price and to refrain from selling their products for a price in excess of the imported price.

In the free-wheeling economic environment that is today’s China it is far from certain that the attempts to monopolize markets is likely to have more than short term benefits to the Chinese monopolists. Rather, the central dynamics which Adam Smith discussed with such acuity in 1776 are at work in China today and will ensure that the attempts at monopoly power by some of the actors in this panoramic economy will not permit the level of control that was a fixture of the pre-Reform period.

[Lou Schwartz is president of China Strategies, LLC and publisher of the China Renewable Energy and Sustainable Development Report, as well as the China Aluminum Industry Report. Mr. Schwartz earned degrees in East Asian Studies from the University of Michigan and Harvard University, as well as his J.D. from George Washington University Law School.

Fluent in Mandarin Chinese, Lou work includes matters dealing with China's legal system, economic development, trade and investment. After serving at a large U.S. law firm, Lou has for a decade taught at the University of Pittsburgh School of Law and College of Arts and Sciences.]

[Editor's Note: My scant treatment of Korea on this blog has not been intentional. Occasionally, I've dealt with the topic, blogging on fruitless plans to build highway and rail lines across the DMZ into the DPRK (North Korea); the now imprisoned flower-baron Yang Bin's involvement in resort casinos in Shinuiju across the border from Dandong （丹东）; and, if I remember correctly, something about bibimbap.

But readers of our next post will find somewhat more of Asia in Asia Business Intelligence than just China. Our next author prefers to remain anonymous, going by the happy epithet, Drambuie Man. You will find his bio in the first three paragraphs of his post. Those who may wish to contact him should contact me first.]

Registration and Enforcement of IP Rights in Korea: A Brief Introduction (Part I)

I first would like to thank Rich Kuslan for the honor of contributing this piece. His blog is one of my regular reads. I was asked by Rich to contribute something on IP law in Korea. As with anything you know a lot about, its tough to limit yourself to what is essential. Thankfully, one of the previous posts here as Chinese IP Law overview provides a good framework. Many parts of that post, particularly the discussion on business practices, goes for the Korean side as well.

The exact position I am in is somewhat unique, given I am not a Korean lawyer nor admitted to the bar anywhere. I started in the IP field on the practical end, first via working with high-tech companies in the US on Korea. While obstensibly doing marketing, I found my at the heart of matters relating to contracting, patents, IP valuations and IP transfers between companies.

For the past five years I have worked roughly as a paralegal (Korean has no exact analogous word in my experience) for the Law Offices of Book Chon, a Korean law firm specializing in all areas of Intellectual Property Law. Within that time, I have also worked for the Korean Intellectual Property Office, the Korean government office responsible for the review and registration of IP in Korea. While with the government, I worked on cooperative projects between KIPO, other national IP offices and multilateral groups, such as the World Intellectual Property Office, due to my knowledge of Korean IP law and the unique perspective I have as non-Korean. When I have time, I blog on Korean IP news at Dram Man, and on things in general at the Marmot’s Hole.

Below I may give what could be inferred as specific advice. It is not. Rather it is my unfortunately blunt style combined with my over eagerness to help when I can. If you have any practical concerns, contact Korean counsel. Your case is unique and special, and should be considered as such.

Rich’s original post found a US company in a problem. Somebody in Korea was counterfeiting its parts and shipping them to China. For obvious reasons, the story stopped there. However, I can give a practical conclusion for that story. First, an overview.

Korea has a certain reputation for bias against foreign intellectual property applicants and rights holders; sometimes that reputation is deserved in individual cases, but on the whole not true. Things in Korea have radically changed with respect to IP Law, and today Korea boasts one of the more advanced IP legal systems.

Korean patent documents are considered so essential that they were included as Patent Cooperation Treaty (PCT) minimum documentation last year, a distinction shared with the US, EU, and Japan. As part of the PCT minimum documentation, Korean patent information must be searched for all PCT applications (method for gaining early recognition of certain rights and later patents worldwide).

Also last year, the Korean Intellectual Property Office became an International Search Authority for the USPTO, an ability shared with the EU. This designation intends to relive some of the workload for the USPTO. PCT applicants can now indicate that their initial international search for a US filed application can be done by KIPO, thus giving confirmation that the quality of patent examination done by KIPO in this area is on par with US and the EU.

IP Registration: Promise, Despite Pitfalls

Unlike China, Korea has one main office handling IP registration, the Korean Intellectual Property Office (KIPO). KIPO handles the registration of patents, trademarks, and designs, but not copyrights. Korea is also part of the Patent Cooperation Treaty and the Madrid Protocol, allowing international applicants to gain early priority.

A pitfall, however, is the seductive similarity of KIPO and its procedures on paper when compared to the US and Europe. For example, drug companies have a hard time with patents because, among many other things, molecules cannot be patented. Korean trademark examiners read English language marks quite closely, and may fail to see a turn of a phrase or unique wording.

For the latter, consider the booming use of the “e” prefix by marketers today (eFile, eBay, eFriend, etc.). Under Korean law a simple letter is considered to be non-distinct. So if you combine it another descriptive or non-distinct word, a KIPO examiner will likely fail to grasp the coinage of the word and reject the mark for being two non-distinct or descriptive words. So for example, consider proposing the mark “e-Pet Quality Pet Shops” for pet shops. A native speaker grasps the uniqueness of the mark, but to a typical KIPO examiner there is little more than the descriptive “Pet Quality Pet Shops” components and a non-distinct common letter “e,” making the mark unregisterable in Korea.

This is not to say necessarily that you will definitely have these problems in trying to register your IP. However, if problems do arise, take a deep breath and realize that Korea is not the US, the EU or even Japan.

If any problems cannot be resolved with written arguments to the initial examiner, you will find you can appeal a decision to the Intellectual Property Tribunal (a KIPO appeals board), then to the Patent Court and finally to the Korean Supreme Court. (A brief note, the Korean Supreme Court is really the highest appellate court circuit; it is not a “Supreme Court” in an American judicial sense.)

Copyrights fall under the Ministry of Culture and Tourism. The system is remarkably similar to the US. There is no requirement to register your gain a copyright, but you can if you wish.

Read Part 2 here.

[Editor's Note: We continue from Part I)]

Basic Overview of IP Enforcement Mechanisms

The first thing I can say about enforcing your IP in Korea is “forget civil courts and damages.” Such cases can be long, expensive, long, tedious, long, and can have anticlimactic rulings (oh, did I mention they were long?). For the latter, courts usually only award compensatory damages that can be meticulously accounted for and they almost never give punitive damages. To give you a time frame, an initial decision can take at least a year, and usually you can add another year or so for the appeals process to work out, and the latter makes the reward for patience rarely worth it. To make these options even more unattractive, while you may be able to recover legal fees, they are limited by law and rarely match the actual cost.

However, I actually should not be so dismissive. Civil courts can be a weapon in your arsenal. You will find your Korean lawyers treat it as a weapon of last resort. So should you.

A “dispute” could cover a variety of laws. It could be your standard patent or trademark case. In some cases, however, it may be better to proceed under fair trade laws, called anti-competition or unfair competition laws locally.

If you have an IP dispute, the first move you should normally make is to send a Cease and Desist letter to the infringer. An attempt to settle the manner amicably is seen as a good faith gesture by either the courts or prosecutors office (depending upon your route). It is also incidentally a good internal springboard for the next step, since in a C&D you have to explain what law was violated, how it was violated and show what evidence of the of the infringement you have collected. (You can always add violations and evidence later however if you need to).

The next normally recommended step would be to file a criminal complaint. While cases vary, you usually assert criminal offense based on the Patent Act, the Trademark Act, the Anti-Competition Act, or others (you can find the text at the Ministry of Legislation website). A criminal complaint is usually a statement made in person to the police covering much the same content as the C&D. The filing process for a criminal complaint can be rather involved, so do not be surprised at the cost quoted by local attorneys. Be assured the cost is to cover this time, not the enforcement itself as some erroneously conclude.

In a way, this is partly a negotiating step since it can be withdrawn. Being indicted in Korea is considered a social black eye, thus you may find people more willing to settle once an official criminal complaint is filed. As part of any settlement, you may ask for damages. However, my tip is to keep it minimal, if not a token.

Ultimately you will get an indictment, which is pretty much a conviction. Oddly the penalty the court will give will usually be slight, due to the Korean courts' penchant for lenience for first time offenders. (The conviction itself is usually seen as the big deterrent).

I have come across a few who think is an easy thing to conduct police raids (why, I do not know). In order to conduct a police raid, you need to have complied enough evidence and have a compelling argument to convince the Public Prosecutor’s Office to go before the court, and enough for a court authorize the police raid. I personally have never found a need to conduct one, but have heard that the burden of proof is quite high. A final note here, the cost for a raid is quite small, or even none, when conducted in conjunction with a criminal complaint.

And the last, but by no mean least, tool is the Korean Customs Service. Over the past few years the Customs Service has taken vigorous role in policing counterfeit goods going in and out of the country. If you have a suspicion your IP is being infringed either by import or export, you can inform the Korean Customs Service and they will do the best they can. You can approach them with a general concern, but obviously the more specific you are the more likely catch the goods. Such evidence can be used in a later criminal or civil action.

[Editor's Note: We continue from Part 2.]

Quicksand and Other Surprises

First, a present surprise, again contrary to reputation due to the past: Korea’s IP system is largely free of corruption or domestic favoritism. In my five years of working in this field, both in and outside the Korean Intellectual Property Office, the number of times when I suspected there was something nefarious I could count on one hand. Most allegations boil down to either tough calls or a disagreement with the practice and administration of IP law.

One of those disagreements is what constitutes a famous trademark under Korean or International Law. In a nutshell, if your mark is sufficiently famous, you have a de facto defendable trademark. The crux however is what is “sufficiently famous”. Korea sets a very high bar in determining what’s famous. In addition, Korea is strict as well as to the type of goods.

I was involved in a case regarding a very famous copyrighted character with multiple derivative movies, TV shows, and cartoons (some of which did multi-million dollars worth of business in Korea). Yet we were unable to prevent the unauthorized registration of the mark for pet toys and novelties since KIPO determined the character was famous, but not sufficiently so for pet toys.

Since Rich mentioned it in his original post, I think it’s a good idea to bring it up here. Remember Korea is in Asia. This means any contract you may have to ensure confidentiality, like any other contract in Asia, is not in stone. Be sure to keep this in mind as you meet to discuss technical issues. There are trade secret laws, but as always they are hard to prove and may upset your business relations.

Finally, a topical grey area: domain names. Korea is still grappling with the legal and administrative means to resolve national level domain names (e.g. “co.kr”). To be honest, I do not know exactly what to recommend in a general sense, other than saying expect this to be a problematic area.

[Editor's Note: We present our fourth and final installment of our review of the Korean intellectual property system. Prior installments: Part 1, Part 2, Part 3. Once again, let me thank Drambuieman, the author, whose bio you may read in Part 1 of the series.]

Common Scams

Speaking of cyber-squatters, I thought it might be useful to give some tips I have picked up on trademark squatting. Due to issue above with what is considered a famous mark, there are a few bad-faith registration scams in Korea that a company, especially a small or mid-sized one, should be aware of.

At one time, Korea was a very restricted market. Back then, about 10-15 years ago, a distributor, particularly one distributing a foreign mark, needed to be registered at KIPO as such. This aspect of Trademark Law has since been appealed and although the system is no longer mandatory, the registration system still exists in its dusty, bureaucratic, inert way.

While the numbers are declining rapidly, some bad actors still scan this distributor register to identify marks without a distributor listed. Lack of one either signals a mark vulnerable for counterfeiting, or a mark vulnerable for other actions to be mentioned later. So I recommend companies, partially ones without much business (for reasons you will see), register a Korean distributor with KIPO or at least raise the idea with their Korean attorneys.

Another common tactic is what I like to call distributor blackmail. In this a person who hopes to be a distributor of a foreign good (or even an existing one) registers the mark in THEIR name with KIPO. They then use this to gain a distributorship from the company, or use it as a tool to gain a better bargaining position with the foreign maker. Unfortunately the only protection against this is early registration and vigilance.

The last scam can be particularly deadly if used in combination with the two above. Korean law allows a trademark to be cancelled for non-use after three years. So if you register a mark and do not sell of market goods with the mark, the mark could be canceled by anybody and then they would have an exclusive right to apply for that mark for three months. So if you have minimal sales in Korea and are vulnerable, it can helpful if you have Korean sales materials, import records (even if only samples) and perhaps an officially registered Korean distributor (see above).

Like the guy waking up in a bathtub of ice in his Las Vegas hotel room missing a kidney, the above are not guaranteed to happen to you. However, these are some common scams you may want to be aware of. If you have specific concerns, contact your local Korean representation.

Back to the beginning

So what would I recommend to the parts maker? Well, the first idea is to assess what intellectual property rights he currently holds in Korea. If he does not own the trademark, register it as soon as possible. If the current maker owns the trademark, he could argue he is the rightful owner given the fame of his mark internationally, but you may gather from the above that I would not be hopeful of success.

If the parts maker does own the mark in Korea, first, I would contact the customs service with everything I know (name, part type, shipping information, etc.). This would help isolate the problem to Korea. Ideally, the Korean Customs Service will hopefully block any exports and imports of possible counterfeit parts used in the final product.

Second, would be to send a C&D to the Korean manufacturer for either IP infringement and anti-competitive acts (depends on the specifics). Lack of compliance would lead to a criminal complaint.

All this would hopefully stop the problem short to mid term. After that I would be very vigilant about local usage and exports. Unfortunately for Korea, if it happened once, it can happen again.

Qiang Bjornbak, editor of the ABA's China Law Reporter, is soliciting articles on two timely topics.

1. China's much anticipated anti-monopoly law: its major features and potential for influence upon unfair competition behaviors, such as price fixing.

2. Product safety issues. Ideally, CLR is looking for two articles on this subject -- "one from a lawyer from the Chinese perspective and one from a non-China-based lawyer taking the importer's perspective. Lots of topic possibilities with this one.

For further information, contributors should contact Qiang directly with their proposal.

Get a judgment somewhere in China. Then try to collect. There is little value in a judgment when the authorities flout its enforcement. Read this Washington Post article. The local government, against whom the judgment was entered, won't pay and can't be forced to.

Yuci township, the subject of the story, is not a rogue element (although it may be run by rogues); in fact, it displays typical administrative behavior. It might possibly disgorge its illegal gain if a superior authority compels it to -- a strategy used by a number of American bankers collecting on bad loans in China ("The governor of the province is a personal friend of mine, and if you don't give me my $23.6 million today I will be having lunch with him tomorrow). But then, the judiciary is once again circumvented by the power structure which would -- or would pretend? -- to espouse judicial independence in the first place

[Editor's Note: I'm grateful to Carl Minzner, author of the China Law and Politics blog, for permitting the reposting of his analysis below. His post represents a scarce example in modern Chinese Studies of a laudable skepticism towards a claim, the import of which, if unquestioned, would have lead to an unfounded assumption regarding Chinese life, law and government.

Mr. Minzner is Associate Professor of Law, Washington University School of Law in St. Louis, and formerly Senior Counsel to the Congressional-Executive Commission on China.]

Is Yunnan "Eliminating" the Hukou System?

Short answer – no. At least one website has reported that recent reforms undertaken by the provincial government of Yunnan will "eliminate" the household registration (hukou) system. This isn't the case.

The announced Yunnan reforms will eliminate the distinction between "agricultural" and "non-agricultural" hukou status, according to an October 25 Xinhua article. Similar reforms have been announced by a number of other provinces and municipalities. But they do not affect the requirement that migrants obtain local hukou in urban areas to receive public services and benefits on an equal basis with other urban residents.

The proposed Yunnan reforms will require migrants to urban areas to have a "fixed place of living" and a "stable source of income" in order to shift their hukou registration to an urban area. According to the Xinhua article, the Yunnan reforms define "fixed place of living" as property ownership of a home in an urban area, or possession of one allocated by one's work unit prior to 1995. How many rural migrants satisfy that condition?

The Yunnan reforms actually look almost identical in content to those announced by dozens of other provinces and municipalities. For more information, see these posts (Is The Hukou System Really Disappearing?, Hukou Reforms Under Consideration), the topic paper of the Congressional-Executive Commission on China (CECC), and this list of similar reforms.

There is one interesting aspect of the Yunnan reforms. According to the Xinhua report, they define "stable source of income" as the ability to support oneself without resort to government minimum standard of living subsidies. Other local reforms I've seen define the term as professional employment or ownership of a business. The Yunnan reforms would seem to adopt a relatively less restrictive definition of this term. This may reflect new policy directions announced by Chinese central authorities over the summer.

Southern Weekly （南方周末）interviewed Harold Berman, author of " Law and Revolution," found here and here. That Berman, whose expertise extended to the religious foundations of Western law, should be the focus of a two-hour interview with an iconoclastic and popular Chinese language Sunday Magazine is in itself a wonder -- not solely for its political commentary. One is delighted to know that its readership is, in the minds of the editors, sufficiently well-educated and curious to wish to read it.

法的背後是什麼？

南方周末　 　2007-11-22 14:30:57

　　2006年1月31日，中國社會科學院美國研究所研究員、美國埃莫裏大學法學院法律與宗教研究中心客座研究員劉澎在埃莫裏大學法學院伯爾曼教授的辦公室采訪了伯爾曼教授。在這次長達2個半小時的訪談中，伯爾曼先生深入淺出地歸納了自己的法學觀，這是伯爾曼先生去世前單獨與中國學者進行的最為深入的一次學術對話。限於篇幅，本報對訪談有刪節。

　　劉澎(以下簡稱劉)：教授，您認為在宗教和法律之間存在共同之處嗎？

　　伯爾曼(以下簡稱伯)：是的，至少有四點：儀式、傳統、權威和普遍性。對法律的信仰是普遍的，就像一種世界宗教。我非常相信基督教和所有偉大的宗教，特別是儒教和佛教，以及所有世俗的信仰，包括共產主義在內，都有一個精神層面的東西。

　　劉：在一個國家，沒有宗教信仰基礎，法律自身能否單獨發揮作用？

　　伯：法律只有具備了精神上的效力才能發揮作用，如果每個人都認為違反法律是錯誤的，我們就需要這個法律。我知道這在哪裏都是如此。

　　劉：您的意思是說，在法律之上還有適用於全人類的某些普遍原則？

　　伯：對，它存在於人的內心之中。

　　劉：那麼，您認為對法律的信仰和對宗教的信仰之間是否存在主要的差別？

　　伯：我認為法律有一個精神層面的信仰，取決於你怎麼看。像《十誡》當中的第六、第七條戒律，已被納入到了所有的文明之中，無論在哪種文化中，盜竊、殺人、毀約等等都是錯誤的。

　　劉：在中國，我們沒有這種基督教背景、文化和傳統，因此有人強調法律的重要性，呼籲人民尊重法律。我們的問題是，我們有法律，但沒有人執行或遵從它，您有什麼解決辦法？

　　伯：我認為，如果他們改變自己對法律的理解，事情就會有轉機，因為法律不止是政府所說的話。人們知道的主要是習慣法，那是由人們自己在家裏制定出來的。他們恪守承諾、與鄰為善，他們認為應該如此。

　　劉：也就是說習慣法是基於人的內心。

　　伯：是的。子女應該尊重父母，父母應該照顧子女。

Read the interview in its entirety here.

We briefly posted on the Danone-Wahaha scandal in June. Now comes the sound of the other shoe dropping. From the Wall Street Journal:

A Chinese beverage maker won a trademark arbitration ruling against joint-venture partner Groupe Danone SA, the latest legal twist in a closely watched case and one that is unlikely to end the dispute.

The Hangzhou Arbitration Commission said the period had lapsed during which Danone was eligible to file its case against Hangzhou Wahaha Group Co. The case was aimed at forcing Hangzhou-based Wahaha to honor alleged obligations to transfer ownership of the Wahaha brand to the companies' joint ventures, a key aspect of Danone's effort to re-establish control over the Wahaha business in China.

Paris-based Danone said it is "shocked" by the result and is studying its options.

Shocked!

On a related note, a Harvard Business Review study of the supposed influences of Mao on modern Chinese managers, refers to the CEO of Wahaha:

High-profile Chinese business leaders who have used...Mao-style tactics to dominate their managers include Zong Qinghou, the founder and former CEO of Wahaha, the French-Chinese beverage joint venture. Zong recently circumvented the formal organizational procedures during a dispute and mobilized Wahaha employees to publicly denounce the French management. As of this writing, no settlement of the dispute was in sight.

Is it accurate to state that managers emulate Mao? Any case, apparently analogous, requires one to trace an influence from cause to effect, which the authors do not seem to attempt. And what is the benefit of an analogy so tenuously tied?

Instead, it is more accurate to say that mainland Chinese in positions of authority, and to a lesser degree Chinese outside of the PRC, share a purposefulness in their methods, often ruthless, usually creative, straightforwardly ambitious, enormously resourceful and extraordinarily authoritarian.

From the New York Times: China Agrees to Post U.S. Safety Officials in Its Food Factories.

Embedded, like Judith Miller in Iraq?

Michael O. Leavitt, secretary of health and human services, said he expected that Food and Drug Administration officials would eventually be embedded in China’s food safety bureaucracy to help train Chinese officials and keep records on their inspections.

Did Mr. Leavitt make use of the word "embedded" in conversation with the interviewing journalist, Steven Weisman? Or did Mr. Weisman himself choose that word, pregnant with negative connotation, while lacking a direct quotation from Mr. Leavitt?

China and the United States, seeking to ease the furor over the safety of food exports, signed an agreement Tuesday calling for a greater American role in certifying and inspecting Chinese food products, including an increased presence of American officials at Chinese production plants.

This should help, shouldn't it? English speaking inspectors in an entirely Chinese environment. Many thousands of factories to be monitored -- extraordinary cost of bringing American inspectors to China, housing and feeding them, etc...

This agreement will provide an opportunity to have our people here on a continuous basis with expertise so that we can work with our Chinese colleagues in helping to develop good practices,” Dr. von Eschenbach said.

People is plural, meaning at least two. But the precise number of inspectors was not actually specified.

American officials said that the agreement did not cover all the food products sought for tighter inspections, but that it could be expanded. It is to cover some preserved foods, pet food ingredients and farm-raised fish, all products that the United States has said were tainted.

But, wait! Only a few food groups would undergo any inspection at all.

One may conclude that this initiative has been a major failure, from conception to implementation, on the part of American food and safety officials. Can one, however, consider this a public relations success?

I am honored to have been profiled by World Journal （世界日報）, a newspaper with the largest circulation among Chinese readers in North America, in their Sunday magazine section article on the teaching of Chinese in the U.S （《美國現象》中文課走紅美國大學 written by Jeff Han 韓傑 ）.

The interest, I think, and the reason for my inclusion in the article was, perhaps, the everyday usage of Chinese by a caucasian based in the U.S. in his legal practice, but also the value of learning to speak the language over and above the merely practical aspects.

The article begins here, and you are welcome read the interview with me here. [In Chinese.}.

Investors should note the following article, detailing "illegal securities activities," this past week made the target of apparently concerted regulatory enforcement. Specifically, activities include the issuance of stock as well as the offering of brokerage and investment research services without prior government approval, 90% of which are allegedly carried on with criminal intent to deceive. While the article quotes the authorities calling it a widespread problem, only 1,400 such cases were reported nationally in 2007. However, what interested me most was this:

突出问题是罪与非罪的判断，非法证券活动往往涉嫌擅自发行股票罪、非法吸收公众存款罪、集资诈骗罪等，但这些罪名如何区别、定性；非法经营罪与擅自发行罪在审理过程中是否应互为前提；非法证券活动受害人能否通过民事诉讼进行救济等等都不明确，阻碍了打击非法证券活动的效率。 [Editor's paraphrase: The problem that stands out is the delineation of what is legal and what is illegal...as well as how to distinguish between violations of the criminal law...whether a victim can proceed in a civil suit based on illegal securities activities, etc....all obstacles to effective securities law enforcement.]

Hence, perhaps, the issuance of this order 《关于整治非法证券活动有关问题的通知》(证监发［2008］1号, which may be found in its entirety here.

四部门扎篱合围非法证券活动

21世纪经济报道 　2008-01-08 11:38:42

　　本报记者　于海涛　北京报道
　　
　　非法证券活动将在今后一段时间内受到更加严厉和更有效率的“联合围剿”。
　　1月6日，最高人民法院、最高人民检察院、公安部、中国证监会四部门联合公布了《关于整治非法证券活动有关问题的通知》(证监发［2008］1号，以下简称“1号文”)，标志着又一打击违法、惩治犯罪的强有力武器的“亮剑”。
　　据悉，一段时间以来，非法证券活动出现了新动向，即通过网络非法发行股票和从事非法证券活动的案件时常出现。这类案件蔓延速度快、危害面广，已经引起了监管部门的高度重视。
　　此次四部门联合发文，将加强监管部门与公安、司法机关协作配合，在法规体系、工作机制上扎紧“篱笆”，更及时、高效地打击资本市场各类新型违法犯罪活动。
　　
　　非法证券五大特点
　　“非法证券活动主要有两大类：一是非法发行股票；二是非法经营证券业务，主要是针对场外市场。”中国证监会有关人士表示。
　　非法发行股票包括未经证券监管部门核准而擅自公开和变相公开发行股票两种行为。而未经证监会批准，任何机构和个人从事股票承销、经纪(代理买卖)、证券投资咨询，均为非法经营证券业务。
　　据悉，与“带头大哥777”在证券市场上收费荐股方式的案件不同，此处所称“非法经营证券业务”主要有三类。一是以“证券投资咨询公司”、“产权经纪公司”等为名，未经批准非法买卖、代理买卖未上市公司证券；二是所谓外国资本公司或集团公司驻中国办事处，以给境内企业提供境外上市服务为名，未经批准从事未上市公司证券买卖；三是一些地方的“产权交易所”、“产权托管中心”等违规从事证券业务。
　　尤其值得注意的是，一些非法发行股票的公司，让当地产权交易机构给投资者出具股权托管文件或所谓的股权证，迷惑投资者。实际上，这些股权托管文件或股权证并不能证明其活动的合法性。
　　在上述人士看来，非法证券活动是一种典型的涉众型的违法犯罪活动，严重干扰正常的经济金融秩序。
　　从近期办理的一些案件看，非法证券活动具有五大特征。
　　一是按照最高人民检察院、公安部《关于经济犯罪案件追诉标准的规定》(公发［2001］11号)，绝大多数非法证券活动都涉嫌犯罪。据不完全统计，非法证券活动中90％以上都涉嫌犯罪，而从目前各地查处情况看，最终被追究刑事责任的，只占很小一部分。
　　二是花样不断翻新，隐蔽性强，欺骗性大，仿效性高。“有的通过亲戚朋友或熟人兜售股票，带有传销性质；有的采取股份置换方式；有的采用信托、集资等方式。”上述证监会人士说。与此同时，非法证券活动出现了新动向，即利用网络平台非法发行股票和从事非法证券活动。
　　三是案件涉及地域广，涉案金额大，涉及人员多，同时资产易被转移，证据易被销毁，人员易潜逃，案件办理难度大。从已立案调查的案件看，范围小的涉及几个省市，多的涉及二三十个省市；涉案金额大多在千万元以上，有的达到数亿元；牵涉到投资者少则上百人，多则数千人。这些非法证券活动一般都是有预谋、精心策划的，有的还有很高的反侦察手段，当公安机关收集到一定证据，决定实施抓捕时，经常是人去楼空，证据被销毁，赃款不知去向。“其中一些中介机构从事非法证券经营活动还带有明显传销性质，采取类似'洗脑'方式进行宣传，逐渐形成一张巨大的销售网络，且内部组织严密，对外界调查持高度警惕。”上述人士说。
　　四是不少案件涉及到境外资本市场，办理该类案件政策性强，专业水平要求高。现阶段主要是一些非上市公司编造虚假信息，以即将到国内或者国外上市、业绩优秀、已由政府批准、已经递交上市申请材料等名义为诱饵，以获得高额回报为幌子，以兜售所谓的“原始股”为形式，采取非法手段诱骗群众购买股票。
　　五是投资者多为离退休人员、下岗职工等困难群众，承受能力差，极易引发群体事件。
　　
　　扎篱“合围”
　　“只有从重从快地审理一批大要案，才能震慑住犯罪分子，遏制住非法证券活动的蔓延势头。”上述证监会人士说。
　　目前，各部委正在扎紧篱笆，对非法证券活动实现联合围剿。
　　据悉，政策法律不明晰、适用标准不一致是导致此前大部分非法证券案件不能被追究刑事责任的主要原因之一。
　　突出问题是罪与非罪的判断，非法证券活动往往涉嫌擅自发行股票罪、非法吸收公众存款罪、集资诈骗罪等，但这些罪名如何区别、定性；非法经营罪与擅自发行罪在审理过程中是否应互为前提；非法证券活动受害人能否通过民事诉讼进行救济等等都不明确，阻碍了打击非法证券活动的效率。
　　“1号文”的发布，对上述问题均做了详细的政策法律界定，还明确了新老《证券法》的衔接问题和非法证券活动受害人的救济途径问题。从而与其它法规一起构筑起了打击非法证券的法治体系，从法规层面扎紧了第一道篱笆。
　　此外，“1号文”首次以四部门联合发文的形式，明确有关法律适用问题，尝试各部委协作配合，使得联合执法机制和快速反应机制更加顺畅地进行，也为今后相关部门及时、高效地打击资本市场各类新型违法犯罪活动，提供了新模式。
　　此前，中央成立了由证监会牵头，公安部、工商总局、人民银行、银监会并邀请最高法院、最高检院等有关单位参加的整治非法证券活动协调小组，全面负责打击非法证券活动的组织协调、政策解释、性质认定等工作。
　　而地方的非法证券活动查处和善后处理工作按属地原则由各省、自治区、直辖市及计划单列市人民政府负责，形成了联合打击的合力，为有力推进打击非法证券活动工作提供了制度保障。
　　在工作机制层面，协调小组办公室建立了协调小组定期工作会议制度、信息月报制度、工作简报制度、信息共享制度、大案要案的督办制度等。
　　数据显示，过去一年，证监系统全年共收到涉及非法证券活动的各类来信、来访1400余件，并将其中366件涉嫌犯罪线索移送公安机关；一批大案要案进入司法程序，证监会协助公安部督办的8起重点案件均已侦查终结，并移送检察机关审查起诉，其中4起已经法院一审判决。目前，8起案件共抓获犯罪嫌疑人48 人，取缔非法中介机构19家。
　　实际上，涉嫌犯罪的非法证券类案件从调查取证到审理终结，主要涉及证监、公安、检察、法院四个部门。此前有部分地区的一些案件久拖不决，有的甚至出现'踢皮球'现象，分工协作不甚顺畅，案件办理周期过长。
　　“1号文”对相关部门的工作分工及协调配合做了总体部署。
　　首先确定了证监系统的“督促、协调、指导”等核心功能，除对非法证券类案件及时出具性质认定意见外，还要创新办案模式，在当地政府的领导下，密切与其他行政执法机关的联合执法，提高快速反应能力。
　　同时根据工作需要，可组织当地公、检、法等部门相关人员进行业务培训或案情会商等。
　　“1号文”还要求公检法部门加强沟通衔接，以提高办案效率，为打击非法证券的工作机制提供了强有力的法律武器。可以预见，近期将会有一批涉及非法证券活动的大案要案进入司法程序，一批犯罪分子将会受到应有的惩处。
　　此外，记者获悉，在善后处理方面，证监会联合高法、高检、公安部等单位，正积极探索研究在现有法律架构内的投资者民事诉讼保障机制。　　
　　
　　·链接·　　
　　
　　从事非法证券活动承担的法律责任　　
　　
　　关于非法发行证券，根据《证券法》第一百八十八条规定，不法分子将受到警告、罚款等行政处罚；如数额巨大，构成《刑法》第一百七十九条规定的擅自发行股票罪，不法分子将处五年以下有期徒刑或者拘役。
　　以发行股票为幌子，而以非法占有为目的，涉嫌犯罪的，依照《刑法》第一百七十六条、一百九十二条，以非法吸收公众存款罪、集资诈骗罪追究刑事责任。如果数额特别巨大或者有其他特别严重情节的，不法分子将处十年以上有期徒刑或者无期徒刑，并处罚金或者没收财产。
　　关于非法经营证券业务，根据《证券法》第一百九十七条规定，不法分子将受到警告、罚款等行政处罚；如情节严重，构成《刑法》第二百二十五条规定的非法经营罪，情节严重的，处五年以下有期徒刑或者拘役，并处或者单处违法所得一倍以上五倍以下罚金；情节特别严重的，处五年以上有期徒刑，并处违法所得一倍以上五倍以下罚金或者没收财产。
　　以股票承销、经纪(代理买卖)、证券投资咨询为幌子，而以非法占有为目的，涉嫌犯罪的，依照《刑法》第一百七十六条、一百九十二条之规定，以非法吸收公众存款罪、集资诈骗罪追究刑事责任。如果数额特别巨大或者有其他特别严重情节的，不法分子将处十年以上有期徒刑或者无期徒刑，并处罚金或者没收财产。

More on the nascent outsourcing of legal work to India. One shudders to see it, if only for reasons of professional ethics.

Gregg Kirchhoefer, an outsourcing lawyer with Kirkland & Ellis who spoke at last week's LPO summit, said there were still no industry standards for how a mishap or mistake would be handled.

"With U.S. lawyers, you always have the rules of ethics," he said. "Going to a service provider offshore, you have to replace that gap-filler with contract."

Good luck monitoring outsourced labor -- it is difficult enough when your people sit in an office down the hall.

But beyond the ethical problem lies greater danger to the welfare of the working American. When manufacturing left the United States, the battle cry was "Retrain for Services!" This left the man who works with his hands in the proverbial lurch.

And now, as service jobs begin their trek to balmier climes -- radiologists in India, customer service reps in the Philippines -- what will we have left here for the man of average drive, intelligence and skill to do?

Cheap goods at the local megafranchise. Adults earning just above the minimum wage for mindless work with ever lessening opportunities to advance. Serfs captive to bureaucratic business units -- are you not frightened by what this portends for the future?

Where is the American Bar Association to nip legal outsourcing to India, such as this, in the bud? As of May, 2007, an ABA spokesman told LAW.com that no statement would be issued on the topic. [See that article's penultimate paragraph.]

Certainly, the ethics opinions issued by the Bars of several major markets are an indication that this is a hot-potato topic which the ABA may not wish to touch. Those Bar Committees have ruled that outsourcing legal work to attorneys unlicensed in any American state does not constitute the unauthorized practice of law. The New York City Bar's Ethics Opinion is a shambles -- a discussion led by its favorable conclusion.

Is "strict lawyer oversight" and "client agreement after disclosure" enough to dispel the ethical problems?

Because the Indian legal education system is different and the duty of confidentiality to clients is narrower than in the United States, it is dangerous to assume an Indian lawyer's understanding of applicable professional standards is the same as his or her American counterpart's, according to the Professional Lawyer (PDF), an ABA Center for Professional Responsibility publication.

Aside from the ethical problems to the client, what about the lowest paid lawyer laborer, upon whose dues the ABA also feeds? Mr. Neukom is quick to support lawyers in Pakistan. Where is his rally for the lowest wage lawyer-laborer in the American market?

This is not simply a business issue. Why is it that Americans apparently have no desire to support their own? Who are the partners willing to forego some of their earnings so that more of their own people can be profitably employed? Are there any?

ABA's tacit agreement by silence to legal outsourcing is an ethical dilemma in itself.

An update on this story from 2007. Claiming thousands of pet deaths on Chinese imported gluten, adulterated with melamine, the U.S. Attorney's Office in Kansas City has indicted three companies on a variety of counts. Two are Chinese; one is a Nevada company located in Las Vegas. Felony counts were brought against the Chinese companies; misdemeanor counts against the American company. [Indictments here and here, courtesy of WSJ.]

The U.S. Attorney's Office claims that the manufacturer's custom's broker purposely mislabeled the gluten in order to deceive the Chinese government. The likely of success appears negligible at best -- there is scant, if any, cooperation between American and Chinese governments by law or by practice:

[U.S. Attorney John F. Wood] added that Chinese authorities took Linzhun into custody at the time his company was shut down, but he said he didn't know if Linzhun was still in custody.

The government's case against the sole American company also appears weak.

[Wood] added that prosecutors aren't alleging that the Millers and ChemNutra knew that the product was toxic, only that they were aware the product had been shipped into the U.S. under false pretenses and failed to notify their customers.

Is it possible for someone to be aware that a product has been shipped under "false pretenses," but not be aware of what those pretenses are?

Just as we see in television commercials, Robert Ruyak insists that margarine is butter:

"It's not outsourcing," insists Robert Ruyak, managing partner and CEO of Howrey, describing his firm's new office in India. Of course, it's not lawyering, either, since an American firm practicing in India would violate Indian law. Instead, it's a new attempt by an American law firm to cut costs by creating an office in India that will handle document management in litigation, IP and arbitration matters pending around the world.

I find it hard to comment on this. Is any necessary?

Someone has leaked this supposedly confidential WTO decision.

[Editor's Note: I'm pleased to post the first of a two-part article I wrote for 世界周刊 (World Weekly), the Sunday magazine section of the widely circulated 世界日報 (World Journal). It was originally published on page 80 of the Sunday, February 12, 2008 edition.

The second part of the article, which I will post in a few days, is written for the business reader who has uncollected debts and is unaware of the legal methods by which he may pursue them.]

《法律之窗》
美國聯邦討債法規與個人的權利
柯亦清(Richard Kuslan， Esq.)

（這一篇文章分成兩個部分。這一部分的題目從一般消費者的角度來討論美國討債法規制定的個人權力。 下一部份就以討債的反面：從商業界的角度來討論合法與公正的討債措施。）

早上6點半第一個電話進來， 把你吵醒了。怎麼回事？是誰? 這麼早可能是國外或緊急電話，你朦朦朧朧地把話筒拿起來。

「喂？」

“When are you going to pay off the money you owe me？ For that new car you bought and didn’t pay off?” （你借了錢買來的那部新車錢沒付，什麼時候付清？）

欠什麼錢？什麼新車？在十幾年前買的二手車早就付清了。對方打錯電話了吧！說了句“Wrong number”後，你就把電話掛斷了。

不到一分鐘，電話又響了。

“Don’t ever hang up on me again! I want my money and I want it now.” （不要再掛斷！我要你立即還錢給我。）

對方粗暴加凶悍，讓你感到害怕。你幾乎扔了電話過去，馬上掛了。 但不管你掛了多少次，電話一直進來，總共來了十幾通，讓你怕接電話，怕平白無故遭陌生人痛罵。到底是誰敢對你這麼粗暴無禮呢？

上班時你希望生活可以恢復正常。不幸的是，一進去辦公室老板大怒咆哮：「怎麼可以讓討債公司的律師打電話到我們這裡跟你算賬？」 律師怎麼會打電話到辦公室找你呢？感覺十分冤枉丟臉，但不知道該怎麼辦。

說實在的，類似這場小戲在美國經常發生。為了促使國家經濟不斷成長，美國金融機構放寬了個人信用。現在几乎誰也能夠申請得到信用卡，甚至在某些情況下破產過的人亦可。以信用來購貨的消費者確實比以現金買方便得多。只不過以信用就有債，而債不能不還。不還債的結果就是被討債。

理所當然，有了easy credit (放寬申請者合格參數的信用)，也會有少數消費者領了信用後不還債。對商業界而言，討債業所供應的服務非常重要。隨着信用業的繁榮，討債業也發展到不可思議的程度。讓消費者感到吃驚的是，討債公司所接到的未付賬單或應收帳款經常有錯誤。而且，少數討債公司採用非法或不公正的手段，損壞整個行業的聲譽。

美國聯邦法規與州法規定消費信用者有些保障。討債人的語言行為必須受嚴格的限制，而討債中違規者在某些情況下會導致懲罰，甚至包括消費者的賠償和律師費。

公正討債行為規範(Fair Debt Collection Practices Act簡稱FDCPA)是美國聯邦法律。幾乎每個州都有類似法規，但為了簡便起見，我們以聯邦法來討論，聯邦法行諸全國有效。

首先把專用詞(欠債人、債權人、討債人)解釋如下: 欠債人借了錢要還給債權人； 討債人幫債權人從欠債人收債回來。

FDCPA禁止某些討債行業常用的手段，並且指定對欠債人的公正處置和措施。不過，需要注意的是FDCPA只限於消費債，包括各類個人貸款，例如信用卡、房子、車子、醫療費用等債。FDCPA適用於第三人討債則不適用於債權人本人直接向欠債人討債。譬如說，你為了買家電跟商店貸款，卻不還錢，商店職員直接向你要錢與FDCPA無關。反而債權人本人通過討債的第三人，如討債公司或律師向你要錢，這第三人必須遵守FDCPA.

讀者應該有所警惕，若你欠錢，FDCPA不會讓你逃避。自己招致的債仍然不能不還掉。
FDCPA究竟幫助誰呢?

討債人允許以電話，傳真和信件聯繫，不過聯繫時間必須對欠債人方便。以電話通知的話，應該從早上8點鐘到晚上9點鐘。在深夜或清晨打電話聯繫違反FDCPA的規則。所以，在我們故事裡早上6點半打來的討債者違規了。

討債人也允許與別人聯繫來查詢欠錢者住處，電話與工作地點，不過不可以告訴別人與欠債之事有關。在上述故事裡，討債人打到工作場所查詢基本資料不成問題，但明顯地告訴老板你欠債，就違規了。故事裡的老板也說是律師打來的。因為FDCPA禁止假裝律師或信貸評級機構的身份，討債人也同樣違規了。

按照FDCPA規定，討債人不允許有以下行為：

●為了恐嚇，連續來電
●暴力威脅
●使用猥褻或粗暴言語
●宣稱對方不還錢將會被逮捕
●追取錯帳，或曲解非為實際欠債人的債

按照上述的限制，在上述故事裡討債人在電話中的口氣與說話內容明顯違規了。不過美國法律體系相當重視書面的記錄，口頭的對話則留不下證据。

那麼可不可以錄音呢? 電話錄音不一定合法。目前38個州規定，需要對話的雙方都同意才可錄音，對方不同意的話，只能保留自己書面的記錄。記錄越仔細越能夠組成有說服力的證據，每次有來電，千萬別忘記的事項包括：CallerID (顯示來電號碼)，日期與時間、對方姓名、對方的口氣、 說話內容與你的反應。每次有來電但不接電話時，記下所顯示的CallerID，日期與時間。

可以指定討債人停止所有以電話的通知，要求對方以書面的方式聯繫。關鍵的事，儘管此消息該在電話中傳訊，但以上所謂「指定」需要補充以書面的方式為最有效。收到信件後，討債人所允許的聯繫機會就變少了。郵寄也該有證據， Certified, return-receipt requested的郵件就可以得到對方收到信件而簽名的收據.

頭一次與欠債人聯繫後五天，討債人該照法律規定，寄信件列下欠款金額、債權人姓名與提交反證的過程。如果欠債人收到信後30天以內用書面方式表示未欠款，討債人只可以提供債務的證據，例如信用卡收據等。能夠呈現自己的證據來證明債已付清，為最恰當又有說服力的方法。

以上最基本的解釋似乎隱匿了FDCPA的複雜性。討債人自己也不一定了解，再加上債務資料經常錯誤百出，討錯債的可能性相當高。討債違規後一年，被討債人有權利提出訴訟，如果符合FDCPA條件的話，訴訟成功可以收回損失，附加以1000為最高的裁決金額，法庭費用和律師費.

總之，下次討債人來找你，別提心吊膽，每個平民都有法規上的權利。

© 2008 Law Office of Richard Kuslan LLC

[Editor's Note: I'm pleased to post the second of a two-part article I wrote for 世界周刊 (World Weekly), the Sunday magazine section of the widely circulated 世界日報 (World Journal). It was originally published on page 80 of the Sunday, February 12, 2008 edition.

Part One on consumer debt may be found here.]

美國聯邦討債法規與個人的權利 (Part 2): 商業討債

柯亦清（Richard Kuslan, Esq.）

追帳是商人最頭痛的事情。貨物已到客戶手上或服務項目已經成功結束了，但客戶無緣無故不付錢。因為我國早就拋棄了「cashsociety」 (以現金為主要付錢方式的社會)且依靠信用來刺激購物，想要擴展的公司不能不讓客戶掛帳。因此﹐賣方必須設好信用查詢制度，向每個信用申請者舉行盡職調查 (due diligence)。

儘管作了信用調查，有時還會有些問題出現。現在讓我們到某家公司老闆辦公室聽聽會議結果：
老闆﹕「壞帳怎麼這麼多﹖用什麼方法無所謂，只要把錢儘快追到手。趕快想辦法! 」

(作生意該符合道德與法律兩種標準。無法符合道德的時候，還是必得遵守法律。有些方法又非道德又非法律，所以老闆最好別叫職員「用什麼方法都行」。更何況老闆本人是負責人!)

助手﹕「沒問題! 我會為公司盡力。」因為他從來沒追過帳，發現自己也無所是從。再加上他對討債之事極反感，也害怕被拒絕，於是開始研究情況。

公司生意包括零售與批發渠道，所以客戶範圍較繁雜。有州內外和國際客戶，有個人消費者，有小店面的零售商，也有規模校大的廠商。對討債來講，各有各的困難。以下是兩個壞帳案子。

公司討消費債

公司讓住在州內的消費者以分期付款方式購貨。付了第一筆以後剩下未付金額達到1500元。令助手驚駭的是，三個月後公司才注意到，第一筆付了以後，一毛錢也沒收到。助手當天與客戶聯繫時，客戶把電話掛斷了，讓助手火大，連續撥五、六通電話，最後聽到電話錄音。

助手大怒說﹕「If I don't get my money, I'll have the police arrest you and put you in jail!」 (你馬上付清，否則我叫警察把你逮捕，送去監獄!) 可惜，助手不曉得客戶是生重病不能工作也沒有收入的老年人。客戶通知了律師（客戶的親戚）有關電話內容。律師認為可能成立訴訟因由就開始研究有關法律。

美國法律體系主要包括聯邦法 (federal law)、州法 (state law)與地方法 (local law)。聯邦法在全國有效，州法與地方法在該州或該地方有效。這就是說，紐約的法庭會引用紐約法來裁判案子，而不會引用其他州的法規。美國公正討債法 (簡稱FDCPA)管制追討消費債的職業商與律師的聯邦法。此限制意味著公司自己職員追討公司被欠的債牽連不到FDCA。所以上述助手直接對公司的客戶追討未付應款與FDCPA無關。但這不是說消費者沒有任何法律上的保障。

由於助手的說話行為粗暴，很可能違反討債以外的州法而成立侵權或刑事訴訟因由。追債必須要保持不達目的決不罷休的態度，但為了避免法律上的問題，要對欠債人講話有分寸，表現出一定的禮貌。

助手討債方法沒成功後，就找到討債公司 (collection agency)辦案子。一般來講，美國職業討債公司收不到錢不收費。討債公司領取與委託公司雙方事先同意所收回債額的百分比為費用，其範圍為一成至五成。實際費用取決於案子的情況，如債的總金額、欠債人的地點、多久以前的債務等條件。通過討債過程還是收回不到壞帳，事情就變得嚴重了。為了進一步進行討債，最好讓律師依法律來解決。

公司討商業債

助手發現欠債的客戶不限於消費者而已。原先位於州內批發商與公司交易原則是每次購貨先付清現金才拿貨。當批發商訂單增大時，批發商要求付款方式為先付一部份現金，餘額等貨物運出60天後付清。因為從前批發商一直作生意可靠，老闆沒那麼擔心。他也認為ceditcheck(信用查詢)不值得花費，就決定不經過查詢就同意了﹐收了總金額的一部份就把貨送出去了。Big mistake! (犯了很大的錯誤!)過了90天，剩下金額的一部份還沒收回。該公司該有信用查詢制度。不經過查詢，風險太大。

討債商沒收到錢就轉交給律師解決。討商業債與消費債的重要區別之一就是所能引用的法律與討債措施不同。討商業債主要牽連到州法，尤其是商法，如合約法等，而且商業債與FDCPA無關。若討消費債，以上所述的消費者享受的特別保護，商業債並沒有。商業欠債人在外州的話，收錢的過程平常需要較長時間而可能導致較高的費用。無論是州內州外，民事訴訟的目的是一樣﹕說服法官下法令 (judgment)強制對方付錢。因為一般訴訟會迅速消耗資本，雙方能夠通過商量得到和解而迴避法院為最有經濟效果。但為了和解而省錢，欠債人可能要讓步並且接受總債額的一部分。在協商方面較有技巧的律師就顯得重要起來。

若得不到和解的話，要好好考慮下一步策略。為了取得法令必須先上法院提出申訴 ( lawsuit)。對方敗訴後才有最終裁定，但還有機會上訴 (appeal)。在某些情況下，上訴駁回了還可以上訴到州最高法院或聯邦法院。有了裁定，法院就會發佈法令。對方不照樣履行，就可以引用州法所認許的強制措施，如留置權 (lien)、扣押(attachment)、資產拍賣(sale of assets)，甚至強制對方公司申請破產等方法。

在上述故事裡，律師剛開始與對方協商。他是否能夠得到理想的結果，就視多種難以控制的因素而定，包括能引用的法律、案子的具體情況、對方的反映與資產、公司老闆的態度、律師自己的商量技術等等。有經驗的律師知道所謂理想的解決就是客戶能夠接受的成果。

© 2008 Law Office of Richard Kuslan LLC

[Editor's note: The safety of consumer products imported from China now makes national news. But what of national security? Directly after 9/11, news reports on poor security oversight of major American ports flooded the media. Many federal programs, it seemed, were proposed to combat the gaping hole in American armor. Then silence.

The firm practices exclusively in the areas of customs and international trade law. Ms. Schwartz was joined in this article by colleagues Elon Pollack, Jason Li and Brian Murphy.]

China signaled its willingness to enter into an MOU [Memorandum of Understanding] on C-TPAT validations in late 2007, following Customs Commissioner Ralph Basham's meeting with his Chinese counterpart, Mu Xinsheng. [Editor's note: “A C-TPAT validation is a process through which the U.S. Customs and Border Protection (CBP) C-TPAT program meets with company representatives and visits selected domestic and foreign sites to verify supply chain security measures contained in the C-TPAT participant’s security profile are accurate and are being followed.”]

However, it does not appear that a final agreement has yet been reached. Negotiations are, ostensibly, ongoing, so an announcement later in the year may be forthcoming. Since 2003, however, there has been a cooperative agreement between the United States and China in place with respect to the Container Security Initiative (CSI). As implemented, the program affords CBP [US Customs and Border Protection] limited access to participating ports upon information that certain containers are high risk.

When these identifications are made, CBP may request that General Administration of PRC Customs (GACC) liaisons conduct electronic inspections of U.S. bound cargo. (CBP officials, however, are not allowed to perform law enforcement functions, including such inspections, directly.) The CSI program has been operational in the ports of Shanghai and Shenzhen since 2005. See this page.

Initially (for obvious reasons, given China's sensibilities), Chinese officials bristled at requests to permit factory inspections under the auspices of C-TPAT. Partially in response to this reluctance (and partially due to CBP personnel constraints), U.S. Customs developed a pilot program to outsource factory validations in China to private, third party companies that are properly vetted. There is nothing controversial about this program; many companies openly engage in similar in-house practices to secure their supply chains, anyway.

But while this solution may circumvent Chinese concerns about national sovereignty/extraterritoriality, the program remains underutilized; only eleven importers have registered under the pilot program. If China does enter into an agreement on CBP validations with the United States, C-TPAT inspections could potentially become as routine as, say, U.S. Department of Commerce visits made in the course of anti-dumping investigations.

Nonetheless, unless C-TPAT participation becomes mandatory, Chinese suppliers generally have little incentive to comply with C-TPAT requirements -- especially in view of the large number of intermediaries, such as trading companies, involved in China trade. In cases involving large U.S. buyers registered for C-TPAT, such entities have the bargaining power to force its suppliers to allow onsite inspections, but cost allocation (of validation fees, security upgrades, etc.) remains problematic. Anecdotally, the firm has at least one client that has confronted this realization as a result of its experience with C-TPAT.

In short, the prospects for greater C-TPAT acceptance in China are less than rosy. This projection notwithstanding, it is not the case that only those few ocean containers subject to C-TPAT requirements will be under increased scrutiny from U.S. Customs. In January of this year, CBP announced its proposed rule on the Advance Data Elements Project (a.k.a. "10 + 2" Security Filing), in which U.S. importers must supply ten additional data fields through electronic manifest, including, for example, the "container stuffing location." See this page. Under the proposed rule, failure to provide complete and accurate information may result in "no load" instructions.

Given the fluid and -- from the importer's perspective -- nebulous sequence of export processing functions in China, such an onus could pose a considerable challenge to parties on both ends of the transaction.

Keep your eyes peeled for what looks to be an old scam decked out in sexier apparel. What appears to be a persuasive e-mail, purportedly from the Shanghai Representative of a Hong Kong machine-tool company, is making the rounds of some American attorneys. I and several other attorneys in the U.S. received them yesterday. (I have removed names and phone numbers.)

Dear Counsel,

I have previously sent you an email that was not acknowledged hence the need for me to forward this correspondence to you again; your urgent confirmation will be highly appreciated. If you are not in position to represent us at the moment kindly advise us immediately.

I am (Name), President/CEO of (Name) Co. Ltd., Hong Kong. We got your contacts from the United States Chamber of Commerce Directory through the Hong Kong Trade Development Council. (We) specializes in manufacturing fasteners, industrial parts, machine components, hardware kits and other general assemblies for virtual any finished goods delivered in retail-ready packaging to our customers.

The management of (Name) Co. Ltd., HK, requires your Debt Collection and Legal Services representation for our Customers in the United States. We are of the opinion that the ability to consolidate payments from customers in United States will reduce the high rate of outstanding payments and the penultimate reduction in the net book value of bad and doubtful debts as indicated in our current trading position. After a careful research, we have been able to establish that delinquents or past due accounts are settled when reputable and aggressive firm or professional(s) represents an organization in collection of debts or possible litigation that may arise thereof. In addition, it is our ultimate goal to employ your services for the eventual formation of our subsidiary office in your geographical business riding because over a long period of time, we have observed that the economy, environment and policies issues in your state (among the rest) are highly stable and conducive to business.

We understand that a proper Client Retainer Relationship will provide the necessary actualization and authorization and we are most inclined to commence talks as soon as possible. We are seeking for collection approach that is one of negotiation not confrontation as we wish to continue the cordial business relationship with our customers and we will expect these customers to be treated with due care; and properly attended to without losing them to our competitors. But, we shall NOT hesitate to be firm under certain constraints.

We are open to negotiation as per your working terms as regards benefits and commission.

On behalf of (Name) Co. Ltd., please accept my sincerest appreciation for your willingness to render your services to us as I look forward to your prompt response. Do not hesitate to contact us if you have any questions or concerns as we are very open to suggestions and advice towards this relation. Indicate your response to us by email (URL) or by fax (telephone number with an 852 prefix) stating Ref. No.: BMTC/ATT/US/08/03A.

Note the suspect indicia:

• Right off the bat, the writer offers a retainer!
• China is hot -- and now they're coming to me! (As I've written many times, try to avoid being sucked in by the purported sexiness of anything Chinese without applying first a skeptical attitude which constantly questions until satisfied.)
• The e-mail is fairly well-written, but with the errors one might expect from a Hong Kong Chinese with a good deal of education. That said, it reads as boilerplate written for a mass audience.
• The domain name of the e-mail leads to a fully developed and persuasive website of a company with ostensibly Hong Kong and Shanghai contact information. But the website whois information displays a Toronto administrator with a misleading e-mail address.
• The e-mail does not refer to me by name at all.
• The claim is made that the writer came across my name in the directory – a Chamber of Commerce directory -- in which I am not listed
• The personal e-mail of the “President” of this company is info@[domainname].com.
• The writer claimed that he had contacted me once before by e-mail, which he had not.

A barrister in Canada comments:

This sounds like a variation on a familiar scam that targets attorneys. From what I have heard, it goes something like this:
1. Attorney goes to do collection. The alleged debtor caves in and agrees to pay a settlement amount to attorney in trust.
2. Attorney receives a certified cheque to deposit into trust in satisfaction of debt.
3. Attorney then is to disburse settlement amount to client from trust funds. Attorney wires settlement amount to client.
4. Turns out the certified cheque is a forgery. Client disappears with money. Debtor also disappears. Attorney has to repay monies back into trust out of attorney’s own pocket.

This article, “Fraud Scam Alert," published in LawPro magazine, provides some background. [Editor's note: Kudos to the barrister...] The purported China affiliation may make this scam more appealing. In fact, since I do both “litigation and collection” work for Chinese businesses in the United States, and did not know early yesterday morning that other attorneys had received the same e-mail, I initially thought the request might be legitimate. But be advised -- do your due diligence first. If it smells bad, it stinks.

In law, are gray market imports equivalent to pirated works? [Read this journal article on the implications for American libraries of imported pirated works from China.] Gray market imports are lawfully produced with the permission of the copyright holder, sold to a customer in a foreign country and then imported into another, often the country of origin, at far lower prices than new product on the shelves. Pirates, however, are copies produced without the copyright owner's permission and sold for next to nothing. In both cases -- resale into the gray market and sale of pirate copies -- the copyright holder does not benefit from repeated sales. Only in the gray market sale does the copyright holder benefit at all -- from the first sale. So, which is lawful? Pirated works generally constitute copyright infringement. What about gray market imports?

A young technology entrepreneur (read EBay seller) comes into the office with a software CD, asking if he can legally resell it. The copyright holder gave permission for the publication of the software and the client purchased it lawfully. Quite likely he can. I mean, common sense, he can sell a lawfully published, copyrighted book that he purchased, right?

Vernor v. AutoCAD, has just issued in support of that affirmative answer. Attorney John Mitchell writes:

A seller of lawfully made copies of AutoCAD software, fed up with use of bogus copyright claims to suppress his competition authorized by the Copyright Act, sought a declaratory judgment that his sales are just fine. AutoCAD sought to have his claim dismissed, and lost. In Vernor v. AutoCAD, Judge Richard Jones, of the U.S. District Court for the Western District of Washington, did the sensible thing, ruling that even if Vernor breached some duty imposed by license, such breach would, at best, violate a contractual agreement, and could not be the basis for a claim of infringement where Congress authorized the very activity complained of.

Why? Because of the "first sale doctrine." Generally speaking, once one has purchased a lawful copy of a copyrighted work, one may resell it, barring, as noted by Judge Jones above, some breach unrelated to copyright infringement.

"Once the copyright owner places a copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution,”In other words, gray market " Quality King Distributors v. L’anza Research International

Those merchants whose sales are undercut by gray market imports would attempt to argue piracy without success. (See this post.) Ten years ago, Delco had a significant problem with Korean distributors rerouting auto batteries into the Chinese market at profit margins higher than could be gotten in Korea and yet at prices lower than Delco's China distributors charged for the same product. Hmm, fire Jackson in the Global Pricing Department...

The undercurrent of the gray trade moves wherever expensive or difficult to source product is in high demand: pirated DVDs from China into the US, iPhones gray marketed into China from the US. Gray market imports from China back into the U.S. are cause for concern, certainly by American equipment manufacturers, who claim, for example, non-compliance with U.S. environmental and safety regulations. Of course, American medical equipment manufacturers had no qualms selling used devices to China, untill their import was banned in the 90s. Need for equipment, insufficient capital, etc. Yes, the money was bubbling up at that time.

On the subject of bubbly, one is led to understand that a delightful gray market exists in Champagne. ...as long as the bubbly itself isn't grey...

Now, here is a court order worth reading. Texarkana?

[Many thanks to James Tyre and Peter Shafran, attorneys, for this file.]

It is a scary day in June when a justice of the United States Supreme Court insists upon the value of looking to foreign law and practice as an aid in the interpretation of American law.

Curiously, Justice Breyer, in yesterday's brief defense of this argument at Brookings, adapts the shabby and insubstantial construct of "displacement," offered in explanation by his wife, a psychologist, to dismiss out of hand the purportedly few critics of this world-consultative approach. And for that matter, he tells us, American judges are already consulting with other judges in various nations. So what's the big deal?

Justices Scalia and Breyer have debated this issue previously. Justice Scalia:

Why is it that foreign law would be relevant to what an American judge does when he interprets -- interprets, not writes -- I mean, the Founders used a lot of foreign law. If you read the Federalist Papers, it's full of discussions of the Swiss system, German system. It's full of that. It is very useful in devising a constitution. But why is it useful in interpreting one?

Isn't Justice Breyer's notion simply another iteration of the radical "one-world" stance -- that hyper-democratic and globally populist ideal -- which assumes we all choose to be governed similarly, despite our valuable and often profound differences?

Justice Scalia, again:

...what does the opinion of a wise Zimbabwe judge or a wise member of the House of Lords law committee, what does that have to do with what Americans believe, unless you really think it's been given to YOU to make this moral judgment, a very difficult moral judgment? And so in making it for yourself and for the whole country, you consult whatever authorities you want. Unless you have that philosophy, I don't see how it's relevant at all.

Justice Breyer:

Well, it's relevant in the sense that you have a person who's a judge, who has similar training, who's trying to, let's say, apply a similar document, something like cruel and unusual or -- there are different words, but they come to roughly the same thing -- who has a society that's somewhat structured like ours. And really, it isn't true that England is the moon, nor is India. I mean, there are human beings there just as there are here and there are differences and similarities. And so one is not trying to figure out the meaning, really, of the words "cruel and unusual punishment," one is trying to deal with their application.

It is terrifying to hear that law enacted under systems not archetypally defined by and through the American Constitution may, through this Justice, become influential to the decision-making of the highest American court.

While global judicial cooperation may assist in the streamlining of international dispute resolution, the recent institutional decisions within a judicial block, such as the EU -- that awful federalizing, steamrolling behemoth which the English have rightly spurned -- make even that approach questionable. What is essentially ours we would choose to keep that way.

Many small and mid-sized manufacturers in the United States are unaware that their exports may be subject to Export Administration Regulations (EAR). The implementation of those regulations is overseen by the Commerce Department’s Bureau of Industry and Security (BIS), and enforced through that bureau's Office of Export Enforcement (OEE). BIS is joined by several other federal departments with various responsibilities in the area of export control.

Not only are dual-use products -- items with military and commercial uses -- subject to the EAR, but many solely commercial products as well. Does your export require a license? The answer to that question is not necessarily straightforward, given the complexity of the regulations, which have been strengthened since 9/11. However, the importance of reviewing your export in light of the EAR cannot be understated.

To that end, I've devoted today's post to several China-related enforcement actions from the BIS website, which make for pretty interesting reading. More on export control law -- especially the topic of “deemed export” about which I've written here -- in future posts. I have dealt with China export issues and welcome inquiries from companies dealing with that and related issues.

WMD and Missile Proliferation

Industrial Furnace to China – On October 4, 2006, William Kovacs, president of Elatec Technology Corporation, was sentenced to 12 months and one day imprisonment, three years’ supervised release, and 300 hours community service in connection with the export of an industrial furnace to a proliferation entity of concern in China. On May 28, 2004, Kovacs and Elatec pled guilty to charges that they conspired to violate U.S. export licensing requirements in connection with this export. Elatec’s export license application for this transaction had previously been denied by BIS due to missile technology concerns. An associate, Stephen Midgley, separately pled guilty on January 10, 2005, to falsely stating in export documents that the furnace did not require an export license when the goods were shipped to China. Midgley was sentenced to one year probation, 120 hours community service and a $1,500 criminal fine. BIS assessed Midgley a $5,000 ($4,000 suspended) administrative penalty as part of an agreement with Midgley to settle charges related to this unlicensed export. OEE and ICE jointly conducted this investigation.

Nickel Powder to Taiwan – On October 11, 2007, Theresa Chang was sentenced to three years’ probation and to pay a $5,000 criminal fine. On June 21, 2007, Chang pled guilty to one count of making false statements related to the export of nickel powder controlled for nuclear proliferation reasons to Taiwan without an export license.

Thermal Insulation Blankets to China – On May 17, 2005, Vladimir Alexanyan, owner of Valtex International, was ordered to pay a $12,000 criminal fine, was sentenced to three years’ probation, and was ordered to refrain from any international activities or trade for the term of his probation. Valtex International was ordered to pay a $250,000 criminal fine. In February 2005, Vladimir Alexanyan and Valtex pled guilty to export violations and false statements in connection with the attempted export of satellite/missile insulation blankets to the Chinese Academy of Space Technology in Beijing. BIS had previously rejected Valtex’s application for an export license for these items. The goods were seized in San Francisco before their shipment from the U.S. BIS assessed Alexanyan an $88,000 administrative penalty and Valtex a $77,000 administrative penalty to settle charges related to this attempted unlicensed export. Both Valtex and Alexanyan are also subject to five year denials of export privileges to China. Further, Valtex agreed to implement an export management system. OEE and ICE jointly conducted this investigation.

Computer Chips with Guidance System Applications to China – On October 6, 2004, Ting-Ih Hsu, a naturalized U.S. citizen and president of Azure Systems, Inc., and Hai Lin Nee, a Chinese citizen and an employee of Azure, were sentenced to three years’ probation for false statements in connection with the illegal export of low-noise amplifier chips to China. The defendants falsely described the goods as “transistors” in export documents. These goods have application in the U.S. Hellfire missile. OEE and ICE jointly conducted this investigation.

Unauthorized Military Use

National Security Controlled Items to China – On May 1, 2006, criminal sentences were handed down against four former employees of Manten Electronics in connection with their illegal exports of millions of dollars worth of sensitive national security controlled items, with applications in radar, electronic warfare and communications systems, to state-sponsored institutes in China. Weibu Xu, aka Xu Weibu, aka Kevin Xu, was sentenced to 44 months’ imprisonment and two years’ probation. Hao Li Chen, aka Ali Chan, was sentenced to 30 months’ imprisonment and two years’ probation. Xiu Ling Chen, aka Linda Chen, was sentenced to 18 months’ imprisonment and two years’ probation. Kwan Chun Chan, aka Jenny Chan, was sentenced to six months’ home confinement and two years’ probation. OEE, the FBI, and ICE jointly conducted this investigation.

Attempted Export of Encryption Modules to Taiwan – On March 7, 2006, Ching Kan Wang, President/owner China May, Inc. of Hollywood, Florida was sentenced to prison for one year and one day. Wang pled guilty to conspiracy to violate the IEEPA for his role in attempting to acquire sensitive communication encryption modules for export to Taiwan without the required BIS export licenses. OEE and ICE jointly conducted this investigation.

National Security Controlled Electronic Equipment to China – On January 18, 2006, Ning Wen, operating Wen Enterprises, was sentenced following his conviction at trial on September 21, 2005 to 60 months’ imprisonment, two years’ supervised release and a $50,000 criminal fine for conspiracy to illegally export more than $500,000 worth of controlled electronic components to Beijing Rich Linscience Electronics in China. On December 21, 2005, Hailin Lin was sentenced to 42 months’ imprisonment and a $50,000 criminal fine; and on July 25, 2005, Jian Guo Qu was sentenced to 46 months’ imprisonment (later reduced to 22 months), and two years’ supervised release for their roles in these exports. OEE, the FBI, the Internal Revenue Service, and ICE jointly conducted this investigation.

Satellite and Radar Technology to China – On September 28, 2005, Zhaoxin Zhu of Shenzhen, China was sentenced to 24 months’ imprisonment and three years’ supervised release for conspiring to purchase controlled satellite and radar technology for illegal export to China. Zhu negotiated with undercover federal agents to purchase a variety of sensitive goods, including traveling wave tubes with satellite and radar applications, for export to China. OEE and ICE jointly conducted this investigation.

Low Noise Amplifiers to China – On August 17, 2005, Univision, operated by Zheng Zheng, was sentenced to a $1,000 criminal fine for false statements in connection with the export of low noise amplifiers, controlled for national security reasons, to China without obtaining the required license from the Department of Commerce. On June 28, 2005, Zheng was also sentenced to a $1,000 criminal fine for this violation. OEE and ICE jointly conducted this investigation.

False Statements on Export Documents; Microwave Amplifiers to China – On August 22, 2007, Norsal Export and its President Norman Spector agreed to pay administrative fines to settled charges that between November 9, 2000 and January 9, 2003, Norsal and Spector each committed forty-four violations of the Export Administration Regulations by exporting microwave amplifiers to the China with knowledge that violations of the EAR would occur in connection with the items. BIS also charged that the parties filed false Shipper’s Export Declarations in support of the unlicensed exports. To settle the charges, Norsal agreed to a $462,000 administrative fine, all of which will be suspended for a period of one year, and then waived, provided that no future violations of the EAR occur. Spector also agreed to an administrative fine of $462,000, of which $442,000 will be suspended on the same terms, and $22,000 is due in payment. In addition, both Norsal and Spector have been subjected to a twenty-five year denial of export privileges. In February 2005, Spector International, dba Norsal Export, was sentenced to a $57,000 criminal fine in connection with providing false information on Shipper’s Export Declarations regarding unlicensed exports of microwave amplifiers with potential radar applications and controlled for national security reasons, to China.

Deemed Exports

Video Amplifiers to China/National Security Controlled Technology to Chinese Nationals – On July 25, 2005, Charlie Kuan, former president of Suntek Microwave, Newark, California, was sentenced to 12 months and one day imprisonment and two years’ supervised release for failure to obtain required export licenses for shipments of detector log video amplifiers (DLVA), items controlled for national security reasons, to Chengdu Jeway Microwave Telecommunications, a company controlled by the Chinese government. Suntek, which was also charged with failing to obtain export licenses under the deemed export provisions of the EAR, was sentenced to a $339,000 criminal fine. BIS additionally assessed administrative penalties of $275,000 against Suntek, $187,000 against Kuan, and 20 year denials of export privileges against both parties in connection with these violations.

National Security Controlled Technology to Chinese and Ukrainian Nationals – In November 2004, BIS assessed Fujitsu Network Communications, Inc. an administrative penalty of $125,000 as part of an agreement with Fujitsu to settle charges related to unlicensed deemed exports to foreign nationals. In particular, BIS alleged that Fujitsu failed to obtain the export licenses required for transferring commercial digital fiber-optic transmission and broadband switching technology to Chinese and Ukrainian nationals. The applicable technology is subject to national security controls.

National Security Controlled Items and Technology to China – In September 2004, BIS assessed a $560,000 administrative penalty against Lattice Semiconductor Corporation as part of an agreement to settle charges of unlicensed exports of extended range programmable logic devices and technical data to China and the deemed export of controlled technology to Chinese nationals. The items and technology are controlled for national security reasons.

National Security Controlled Technology to Chinese and Iranian Nationals – In April 2004, BIS assessed New Focus, Inc., an administrative penalty of $200,000 as part of an agreement with New Focus to settle charges related to unlicensed deemed exports to foreign nationals and other exports. In particular, BIS alleged that New Focus failed to obtain the export licenses required for transferring technology to two Iranian nationals and one Chinese national who, in the course of their employment in the U.S., were exposed to national security controlled manufacturing technology. BIS also alleged that New Focus failed to obtain the required export licenses for shipments of national security controlled amplifiers to the Czech Republic, Singapore, and Chile.

Last year, Chinese legislators enacted a new corporate income tax, effective January 1, 2008. Just before the close of 2007, the state Council approved regulations regarding its implementation. A number of circulars, attempting to further clarify the law and regulations, have issued since the law has become effective. Compared with American tax law, it's Chinese counterpart isn't nearly as voluminous. That doesn't make the job of the accountant or attorney any less difficult because the law itself is, typically, rather a lot less specific and its implementation often haphazard.

The goal of tax equalization -- which Chinese regulators have promised since the 1980s -- between domestic and foreign corporate taxpayers will, in principle, vanish at a rate of 25%. That said, certain firms may transition to that rate over the course of several years. In addition, the law exempts certain industries -- agriculture, forestry, for example. -- and provides a variety of incentives, including a 15% tax on certain high-technology companies. Some of the tax concepts introduced by the corporate income tax law are new to the Chinese environment -- giving one pause as to how they might be handled by administrators. The new law also deals with transfer pricing, a withholding tax on dividends and a thin capitalization rule, which may tend to work against overseas investors.

The main difficulty, as with all Chinese law, is its generality, leading to a good deal of confusion as to the law's implementation and application to one specific situation.

Strafford Publications has announced the following online audio seminar to be presented on Thursday, August 7, 2008 at 1:00–2:40pm Eastern:

China's New Business Income Tax
Shielding Non-China Income From the Expansive Enterprise Income Tax
Plus: The Impact of IRS Contract Manufacturing Regs for U.S. Operations in China
A Live 100-Minute CPE & CLE Teleconference with Interactive Q&A

Speakers:

Peng Tao, Of Counsel, DLA Piper, New York.

Melanie Chen, Managing Director of China Group, UHY Advisors, New York

Alan Granwell, Partner, DLA Piper, Washington, D.C.

For more information and to sign up for what promises to be a seminar of great interest to corporate management, their attorneys and accountants, click this link.

Chen Liang-yu (陈良宇) was Shanghai Party Secretary (上海市委书记) until removed in 2006 following an alleged scandal involving Social Security. [In Chinese.] Was the Social Security scandal the fundamental reason for his removal?. His swift rise to the Politburo in 2001 as a protégé of Jiang Zemin and the Shanghai faction preceded an even swifter fall following the presidency of Hu Jin-Tao in 2003.

Whether or not Chen Wei-li (陈维力) was a fundamental participant in his father's corruption or the innocent son of a guilty man, it is clear from this discussion that the simple fact of his family connection to the accused was an important bargaining chip upon which prosecutors relied to induce "a good attitude" (良好态度) in both men in the courtroom and most likely with the prosecution's investigation. [In Chinese.] If it is true that $400 million was appropriated from the Social Security program as alleged -- and, who knows, it may have been a lot more than that -- how much has been returned? Little mention {none...) has been made of that aspect of this case. Where did all those great gobs of money really go?

For some background on the scandal itself, see this page. [In Chinese.]

While it may be true that tax collector is one of the two oldest professions, no pejorative comment affects the fact that tax collection, wherever it may occur, will put its hand in one's pocket and scrounge around for even loose change. The multinational, whose pockets are considered fertile territory for treasure hunting, feels the touch of many-fingered hands of all nationalities.

Thus, when a national tax code changes dramatically, as in the case of China's new corporate income tax, not only does the multinational itself encounter often obscure changes in reporting requirements and the amount of tax it must pay, but its effect upon the tax law of other nations in which the multinational reports taxes can be complex and ill-understood.

For example, the IRS has issued new guidances on how non-US companies controlled by US persons can achieve deferral of income tax. Specifically with regard to American businesses operating in China, how does one rationalize Chinese and American corporate tax regulations so as to minimize the total tax paid to both? What is the effect of the changes to the tax regulations upon transfer pricing? Should US subsidiaries operating in China conduct themselves in a certain way with regard to third-party subcontractors so as to ensure minimization of corporate tax, both in China and the US?

To answer these important questions, Strafford Publications has announced the following online audio seminar to be presented on Thursday, August 7, 2008 at 1:00–2:40pm Eastern:

China's New Business Income Tax
Shielding Non-China Income From the Expansive Enterprise Income Tax
Plus: The Impact of IRS Contract Manufacturing Regs for U.S. Operations in China
A Live 100-Minute CPE & CLE Teleconference with Interactive Q&A

Speakers:

Peng Tao, Of Counsel, DLA Piper, New York.

Melanie Chen, Managing Director of China Group, UHY Advisors, New York

Alan Granwell, Partner, DLA Piper, Washington, D.C.

For more information and to sign up for what promises to be a seminar of great interest to corporate management, their attorneys and accountants, click this link.

The scam I wrote about here has found success with at least three attorneys, one of whom may now be in the hole for $200,000:

Atlanta securities lawyer Gregory Bartko said he is the victim of an Internet fraud scheme that is apparently targeting law firms throughout the country and the banks where lawyers have their escrow accounts.

Read about it here. This article should be standard reading for any attorney doing business internationally.

The ABA has issued an ethics opinion dated August 5 and apparently unpublished, but procured by the New York Law Journal.

Asiabizblog will post on this shortly.

[Editor’s Note: I’m pleased to be a member of this year’s ABA Planning Subcommittee for this event .]

One of the most prestigious legal sponsorship and exhibition opportunities awaits your law firm or corporation: the ABA Section of International Law Spring Meeting. Download this file now to learn more.

The 2009 Spring Meeting is a “Must-Attend” meeting for international lawyers to be held at the Fairmont Washington, DC. Over 1,000 international law practitioners will gather at this 5-day event to take advantage of a unique opportunity to network and more than 70 cutting-edge CLE programs.

The meeting is a superb opportunity to increase your name recognition among the crème of the international bar over the course of a week. Here are only two of the many sponsorship opportunities:

As DIAMOND Celebration Sponsor
(subject to availability)

• Your firm will be the primary sponsor of the Wednesday Breakfast, the official opening of the Spring Meeting, and;

• A USB drive with name and logo recognition and a “Save the Date” postcard will be sent on your firm’s behalf to over 22,000 ABA International members.

Sponsor a CLE program track such as

• Dispute Resolution/Litigation
• International Trade/Customs
• Corporate/Transactional
• Public International Law
• Regional
• Rule of Law
• Taxation
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…and, other benefits, receive recognition on a variety of Spring Meeting promotional materials used for marketing programs to over 30,000 ABA International members and other interested individuals.

Download this file now to learn more.

As we celebrate the 130th anniversary of the Section, we also acknowledge over 22,000 members which include over 5,400 private practitioners, 1,200 in-house counsels, over 800 U.S. lawyers living abroad, and more than 1,000 non-U.S. lawyers in 88 countries.

American Bar Association, Section of International Law
2009 Spring Meeting, Washington DC
April 14-19, 2009

A respectable showing of Chinese and Japanese creditors, along with the amount claimed, now vying for the assets of bankrupt Lehman Brothers.

Totals (in US million) by institutional location:

Japanese 1,521
Hong Kong 275
Taiwan 110
Singapore 93
China 59
Korea 46

Here's the original bankruptcy filing.

Following up to yesterday's post, the International Herald Tribune reports:

Three Chinese banks hold a total of US$297.4 million in Lehman Brothers bonds, two of the banks and a state news agency said Wednesday, but analysts said China's total exposure to the failed U.S. investment house should be limited.

Industrial & Commercial Bank of China Ltd., the country's biggest state-owned commercial lender, holds US$151.8 million in Lehman bonds, the Xinhua News Agency said.

Bank of China Ltd., the country's No. 3 commercial lender, said on its Web site it owns Lehman bonds valued at US$75.6 million. It said that includes holdings by its Hong Kong and foreign branches.

[Editor's note: Doug Jacobson has graciously provided the text of today's post. I recommend readers visit his International Trade Law News blog, well-written, informative and worth your time. Doug Jacobson is a partner in the Washington, DC office of the law firm of Strasburger & Price (www.strasburger.com) and serves as chairperson of the firm’s international trade compliance practice. Doug has extensive experience representing companies in a wide range of international trade regulatory and enforcement matters, including dual-use and defense-related export controls, trade sanctions, customs, Foreign Corrupt Practices Act and and antiboycott issues. Doug is also the founder and editor of the International Trade Law News blog (www.tradelawnews.com).

The Air Force did not like the idea of a Chinese national working on top-secret unmanned drone technology. The Department of Justice prosecuted the research student's professor, who had assigned him his work. The professor was convicted this month. What next? Our guest author today takes up the story from there.]

Attorneys for Convicted Professor File Motions for Judgment of Acquittal and New Trial

The attorneys for former University of Tennessee Professor J. Reece Roth, who was recently convicted of violating the Arms Export Control Act (AECA) and wire fraud, have filed motions for a judgment of acquittal and a new trial under Rules 29 and 33 of the Federal Rules of Criminal Procedure. Such motions are routinely filed by defendants who have been convicted in order to set up the legal issues for appeal, but are rarely granted.

Summary of Arguments for Judgment of Acquittal

Roth's Motion for Judgment of Acquittal is based on two grounds. First, defense counsel claims that the data generated by the contracts that Roth and his graduate students were working on was neither a “defense article” or “technical data” relating to a “defense article” as those terms are defined in Category VIII of the United States Munitions List (USML). Second, defense counsel contends that the evidence presented in this case was not sufficient to convict Roth for willfully violating the AECA.

The crux of the defense argument is that the certifications made by the Directorate of Defense Trade Controls (DDTC) regarding the classification of the data and other items that Roth was working on and exported to China were incorrect. For example, the Memorandum of Law in Support of the Motion for Judgment of Acquittal notes that the DDTC staff member that made the certifications initially determined that "none of the items which were subject to the Indictment were included on the USML and thus were not defense articles or technical data relating thereto." Specifically, counsel stated that the defense articles and technical data at issue in this case were not "directly related to an aircraft specifically designed, modified, or equipped for military purposes," the test for determining whether an item is subject to the jurisdiction of the ITAR or not.

Defense counsel noted that it "is fair to say there was less than unanimity in the proof regarding the particular defense article that the data and [defense article] fell within, although the jury was charged and returned a verdict premised solely on Category VIII."

In addition, Roth's counsel contends that the provision in the AECA that precludes judicial review of the "designation of items as defense articles or services" (22 USC 2278) does not exempt certifications from the State Department that particular articles or technical data are within USML Category VIII. In addition to discussing a few cases where the courts appeared to exercise judicial review of State Department certifications, counsel also noted that a "construction of section 2778(h) that would preclude judicial review of the adequacy of the evidence that an item constitutes a defense article would violate the Constitutional due process requirement that criminal statutes provide 'fair warning.'"

Finally, Roth's attorneys stated that the evidence presented in this case was insufficient to establish that Professor Roth acted willfully and with specific intent, the requirement for a conviction under the AECA and wire fraud statutes. For example, it was noted that in addition to there being considerable uncertainty as to whether the defense articles and technical data were defense articles or not, Roth's "efforts to comply with his inaccurate understanding of this complex regulatory scheme demonstrate a lack of understanding of the law that persisted throughout the time period in question."

Summary of Arguments for New Trial

In arguing for a new trial, Roth's counsel claimed that a new trial should be granted because the trial judge did not include in the jury instructions a proposed instruction on ignorance of the law and the file to include such an instruction "resulted in prejudice to the Defendant." The proposed jury instruction read as follows:

In order for the government to show that Defendant violated the Arms Export Control Act, it must prove beyond a reasonable doubt that Defendant knowingly and willfully violated the Arms Export Control Act. Defendant acted knowingly and willfully if he knew he was unlawfully exporting technical data on the United States Munitions List. An innocent or negligent mistake by the Defendant is insufficient to support a finding of a knowing and willful export. So if Defendant was ignorant of the requirements of the Arms Export Control Act or was aware of the requirements of the Act but believed that he was complying with those requirements, he did not act knowingly or willfully, and you must find him not guilty.

Citing several cases as precedent, defense counsel argued that because ignorance of the law is a defense to the AECA, the issue should have been put before the jury and failure to do so is grounds for a new trial.

Needless to say, the U.S. Government will present a different version of the law in their responses to Roth's motions. Assuming that these motions are not granted and the convictions are appealed by Professor Roth, the appellate decisions could lead to important legal precedent and clarification on these issues for companies and academic institutions subject to export controls.

Author's Note: Thanks to a loyal reader for providing copies of the motions filed by Roth's counsel.

The so-called Nigerian scam turned its attention to attorneys, as we reported in prior posts, at that time purportedly emanating from Hong Kong. Already, in the past year, several attorneys, in California and Georgia, are on the hook for six-figure debts.

This morning, I received another scam e-mail, this time purportedly from the China Luoyang Glass Company. There is such a company, but this e-mail without a doubt does not come from that company. How does one tell that an email business lead is a scam? In this case,

1) The English text appears to be too competent for a Chinese company located in Henan Province. Press releases may be sent out to be translated, but e-mail is generated in-house, and contains errors which are not seen in the e-mail below.

2) My name is nowhere stated. That is because this email was sent out as a mass e-mail to many potential suckers. Chinese who are contacting you personally will address you by name an e-mail.

3) The return e-mail address displays a domain name of aol.com. However, the company uses its own domain name for e-mail. Notice at the company's website that the "contact us" link spawns an e-mail with the company's own domain name as the target, i.e. abc@clfg.com.

4) The properties of the e-mail itself display the e-mail origin: an account called presiden@floyd.nswebhost.com. Hmmm..... Surely doesn't look like it came from the company.

Just five minutes of due diligence removes doubt. This is not a genuine business lead.

Luoyang Glass Company Limited, No. 9 Tanggong Zhong Lu, Luoyang City, Henan Province, China.

Attention: Counsel

Request for Legal consultation services.

This is an official requisition for your legal consultation services on behalf of Luoyang Glass Company Limited.

We are based in China and our activities are the production and sale of float sheet and flat glass and reprocessing of automobile glass. Other activity includes the exploration of minerals.

We got your contact information from your office site. We looked up your qualification and experience from your profile and we think that you are capable of providing legal services as requested.

Please accept my sincerest appreciation on behalf of Luoyang Glass Company Limited in advance, for your willingness to render your services. We look forward to your prompt response to our request.

Thank you.

From: Liu Yixiong

Further to this Asiabizblog post, WSJ reports:

Chinese regulators said the finances of foreign banks in the country are sound, a message that appeared aimed at reassuring local banks that have been reluctant to lend to their foreign counterparts because of concerns about the U.S. financial crisis.

The China Banking Regulatory Commission said in a statement posted on its Web site late Friday that the Chinese operations of foreign banks it monitors have "healthy fundamentals, good asset quality as well as adequate provisions, liquidity and capital bases."

Part of my law practice includes immigration, primarily for Chinese.

The incidence of cervical cancer among Chinese women, according to a recent study, is relatively low in comparison to world statistics, but is, nevertheless, the fifth most prevalent cancer among women in China.

Section 212(a)(1)(A)(ii) of the Immigration and Naturalization Act requires certain vaccinations -- including polio, rubella, etc. -- of all immigrant visa and adjustment of status applicants. Beginning August 1 of this year, all women aged 11 to 26 who wish to apply for immigrant visas or an adjustment of status must be vaccinated against cervical cancer -- an expensive proposition -- but the decision to make HPV vaccination mandatory has created a good deal of confusion, even among the medical authorities upon which USCIS apparently relied. (Gardasil may cost as much as US$120 for a series of three shots.) Even though the Center for Disease Control (CDC) "routinely recommend[s] the vaccine:"

[...] even some of the CDC physicians and experts who promoted Gardasil [the brand name of the vaccine] in the U.S. say they never intended to make the vaccine mandatory for young female immigrants.

"If we had known about it, we would have said it's not a good idea," said Jon Abramson, who was chairman of the CDC's Advisory Committee for Immunization Practices when the body recommended the vaccine for U.S. citizens last year.

Why?

WSJ answers the question with a snippet from another interviewee:

"We don't want someone coming into the U.S. who hasn't been vaccinated against measles or chickenpox," said Dr. Abramson, who is currently chairman of the department of pediatrics at Wake Forest University School of Medicine in Winston-Salem, N.C. "HPV can only be communicated by sexual contact....This is not something that endangers kids in a school setting or puts your population at risk."

(I find of questionable worth the practice of offering the words of a second interviewee to fill in what the writer should logically have asked of the first interviewee.)

Given the rather surprising storm of controversy -- read the entire WSJ article for the predictable immigrant advocate groups --, it remains to be seen whether and for how long this latest vaccination requirement will remain on the books.

The American Bar Association Rule of Law Initiative China Program is currently hiring for the following positions (click each link for a job spec):

- Deputy Country Director

- Program Officer

- Staff Translator/Interpreter

These positions are available immediately.

Many thanks to Hyeon-Ju Rho (卢炫周), Country Director, China Program, for this information.

As we in the U.S. find ourselves inching ever closer to the nationalization of private banks -- despite Treasury denials -- let's take a break in the turmoil for some humor and at least an instance of successful self-preservation. Here is another example of the attorney scam with an Asian, about which I've written many times. Click this link to save it to your desktop and view it large enough to read it clearly.

The URL is linked to a server in Mumbai. Saitama is nowhere near Shanghai. The text is completely unpersuasive. DON'T visit the URL -- might be a malicious website. Many thanks to my colleague who sent it in.

Asiabizblog kicks off a new season of podcasts with an interview of Stanley Lubman, China law scholar and practitioner. Mr. Lubman has, over 40 years, been witness to and participant in China's veritable earthquake of changes.

Whether as student of Chinese law at Columbia University School of Law in the 1960s, as delegate to the earliest Guangzhou trade fairs in the 1970s, as attorney for energy deals in the 70s and 80s, as scholar/practitioner at Harvard, SOAS or Allen & Overy in the 80s and 90s, Stanley Lubman always seems to be one step ahead of the pack.

Such also seems to be the case with his journal article, "Looking for Law in China," available here. While much of the world, including academia, seems to approach China with an "irrational exuberance," a subject upon which I have discoursed a often (see below for links), Stanley Lubman's take on China's development is nuanced, endowed with a subtlety of understanding that comes only with experience. Many thanks to Stanley for his willingness to share his expertise with the Asiabizblog audience.

An in-depth interview with Stanley Lubman, China law scholar and practitioner, on the uncertainties lawyers and businessmen face when dealing with China.

* * *

The Irrational Exuberance Series (from 2005):

Quick links to Rich Kuslan's "Irrational Exuberance, or, Should You Enter the China Market?" series:

* Should You Be Doing Business In China? (Text only)
* What Do You Wish to Accomplish? (Text / Audio)
* Where's the Beef? (Text / Audio)
* A Handsome Bit of Documentation (Text / Audio)
* Says Who? (Text / Audio)

Here's yet another example of a scam-the-attorney email. I guess you can call me a collector.

Crudely conceived email. Its properties:

from Rising Sun
reply-to WLung@aggies.com
to sunr35@yahoo.com
date Wed, Nov 5, 2008 at 11:54 PM
subject Your Service Needed (Attorney at Law)
mailed-by yahoo.com
signed-by yahoo.com

The From and To are identical. In other words, mass email. Here's the text

Rising Sun (HK) Limited
7/F The Grande Building
398 Kwun Tong Road
Hong Kong
Phone/fax: (852)3010-1786

Attention: Counsel,

We the management of Rising Sun Industrial, Hong Kong require your legal representation for our North American Customers. We are of the opinion that the ability to consolidate payments from North America will eradicate delays due to inter-continental monetary transaction between Asia and North America.

We understand that a proper Attorney Client Retainer will provide the necessary authorization and we are most inclined to commence talks as soon as possible. Your consideration of our request is highly anticipated and we look forward to your prompt response request.

Sincerely,
William Lung Chin

Not addressed to me personally. But -- google the phone number and you get a complete webpage for the Rising Sun company. DO NOT go to that webpage. I was able to view a cached version through the google search, but the original may be a phishing site.

Another scam mail targeting lawyers. Similar content to previous scams: delinquent accounts in the U.S. requiring your legal services to recover.

You'll notice, however, that, in this email, the author has inserted my name, as if to reassure me that his request is genuine.

He may have pulled the info on the company from Hoovers. My hunch is that this email was created by someone with access to Hoovers, perhaps at a university library in Hong Kong.

Wouldn't you agree that a domestic steel company in Anhui is very unlikely to have debt collection work in the U.S.? The yahoo.com.hk address listed in the email, does not agree with the AOL.com return email address in the email's properties tab, making this solicitation completely unpersuasive.

Delinquent account services in USA. Attn: Richard Kuslan This is an official requisition for your legal consultation services on behalf of Maanshan Iron & Steel Company Ltd.

We are based in China and our principal activity is manufacture and sale of iron and steel products. The production process of the Group mainly comprises cooking, sintering, iron smelting, steel smelting and rolling. The principal steel products come in four major categories: steel sections, wire rods, medium or thick steel plates and train wheels and tyres. It imports machinery and raw materials and exports steel products. It is also involved in the planning and designing of automation system, metallurgical, construction and environmental protection projects. Other activities include purchase, installation and repair of computers and communications systems; production, sale and transportation of slag products and provision of related consultation and technology services. We are presently incapacitated due to international legal boundaries to exert pressure on our delinquent customers in USA and we request for your services accordingly.

We got your contact information from the state of USA lawyers Directory as a result of our search for a reliable firm or individual to provide legal services as requested. After a careful review of your profile as well as your qualification and experience, we are of the opinion that your are capable and qualified to provide the legal services as requested.Please accept my sincerest appreciation on behalf of Maanshan Iron & Steel Company Ltd,in advance for your willingness to render your services as we look forward to your prompt response to our request.

Thank you.
Mr.Zhu Changqiu
Executive,
Maanshan Iron & Steel Company Ltd.
zhuchangqiu@yahoo.com.hk

________________________________________
You Rock! One month of free movies delivered by mail from blockbuster.com

Have we ever before seen such commentary on the Chinese court system? Or on China, from Westerners?

20 years ago, China was held the object of veneration -- perhaps because few knew anything about her. But she is now the target of and criticism, which grows ever more intense, and even ridicule. Watch this and you'll see what I mean.

The American Foreign Corrupt Practices Act seeks to criminalize bribery of foreign officials -- not of American officials -- by regulating and punishing the conduct of Americans doing business globally. In its "Report of the Committee on Banking, Housing and Urban Affairs to Accompany S. 305...May 2 (legislative day, March 28), 1977," the U.S. Senate noted:

The statute covers payments made to foreign officials for the purposes of obtaining business or influencing legislation or regulations. The statue does not, therefore, cover so-called "grease payments" such as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of duties.

The word "corruptly" is used in order to make clear that the offer, payment, promise, or gift, must be intended to induce the recipient to misuse his official position in order to wrongfully direct business to the payor or his client, or to obtain preferential legislation or a favorable regulation. The word "corruptly" connotes an evil motive or purpose, an intent to wrongfully influence the recipient. It does not require that the act be fully consummated, or succeed in producing the desired outcome.

Did you too see the word? I had to read it twice to make sure "evil" was not a typo. Hmmm.... This is, without doubt, activist legislation that seeks to influence global behavior indirectly by holding Americans to account. Does that sound right to you, when many of the nations it seeks to indirectly regulate employ bribery as a common and ordinary way of life? Isn't it their responsibility to clean up their own mess? Why am I to be punished for behaving as they would in their own land?

The EU and its member countries have enacted similar legislation. For those doing business globally, especially in the third world, where "gifts" are expected, anti-corruption leglislation in one's home country is a serious obstacle. In China, one of the most corrupt nations, those who require the assistance of government walk the wire of violating US and EU anti-corruption leglislation.

Once thought to be safe from the same level of scrutiny, payments to charities are not immune. Schering Plough's $76,000 contribution to a legitimate charity -- the favorite of a senior Polish official -- resulted in a $500,000 fine in June 2004 when the company failed to account for the payment as the bribe that it was deemed to be.

Government enforcement, at least in the U.S., will apparently be redoubled.

The U.S. Securities and Exchange Commission expects in the next two to six months to slap larger penalties than in the past on a number of companies that have allegedly violated the Foreign Corrupt Practices Act, reminding lawyers in the field that the regulator is taking a tougher stance today on international bribery.

"The dollar amounts in the cases that will be coming within the next short while will dwarf the disgorgement and penalty amounts that have been obtained in prior cases," said Scott Friestad, the SEC's deputy director for the Enforcement Division.

I have never understood why the American government has made -- over three decades -- the extraordinaty effort to reach into its taxpayer funds to prosecute the bribery by Americans of foreign officials. Where will the money come from to increase enforcement efforts of global activities? Ah, timing, timing, never to be forgotten -- this must be part of the Obama stimulus? Clean up the world, in our image, and have the American government pay for the enforcement of it. A missionary purpose, one with which I find it hard to agree.

But that is the law as it stands and we must follow it. Businesses dealing with China must thoroughly understand the effect FCPA has on even something as seemingly unrelated as its client development efforts. Thinking of showing the Import/Export Development Official of City X and his colleagues around your factories in the US and then taking them for a weekend jaunt in some city where you have no business interests? What are you going to pay for? Do you plan on giving them "spending money?" Do you risk going afoul of the FCPA? To answer those questions, the extent of your exposure needs to be determined up front. Your business activity needs to be vetted by your company counsel.

Here's fish for thought: are the activities of Chinese national employees of American subsidiaries, who may never have left China in their lives, also regulated by the FCPA? We will deal with that question in a forthcoming post.

Cliff Burns at ExportLaw Blog recounts the tale of Chinese operatives, who'd set up a front company to buy export-controlled items, ensnared by American operatives who'd set up a front company to catch front companies doing precisely that.

Front companies of foreign intelligence services are most likely a dime a dozen, but it is rare when they are discovered, no less made public and prosecuted publicly. During the mid-1980s, I was working in Osaka for a Japanese electronics company. A friend of a friend (both Chinese resident in Japan) approached me looking to appoint me U.S. representative of his company, the Japanese subsidiary of Sea Gull Co. (Hai Ou 海鷗).

Specifically, I was asked to find and conclude deals with American manufacturers of gluing machinery, which applies glue between the fibers and the base cloth of oversized carpeting. This seemed like a delightful opportunity. I'd visited carpet factories in Tianjin -- while selling electronic components to Chinese factories for another Japanese company in Tokyo, sort of a solo jaunt, shall we say, during which I searched and did not find product worth exporting to the U.S. -- so I knew the machinery was needed.

Through friends, I discovered Sea Gull's connection to Chinese naval intelligence. While I thought it possible that a unit of naval intelligence was indeed looking to go into the carpet business, the mere possibility of my being used as a front swore me off the deal really fast. With friends like these...

On the subject of spies, I recommend two books -- lots of fun reading.

我杀死了张作霖 -- the record of a Japanese spy who in September of 1931 helped plan the murder of warlord, Chang Tso-lin (available in digital form in Chinese; originally published in Japanese)

Vespa, Amleto, Secret Agent for Japan. Wikipedia entry here.

The Validated End User (VEU) program, about which we wrote in June, will soon become but a bad memory, according the Washington Times.

The program allowed the companies to obtain dual-use technologies without the formal security checks required for an export license. Congressional investigators recently raised concerns that the program lacked safeguards, and that the Beijing government is refusing to allow U.S. officials to conduct full inspections at Chinese facilities to see whether companies are diverting U.S. high technology to the military.

And good riddance! Who, except those with high hopes and little experience with China, would believe that the Chinese government would agree to "full inspections at Chinese facilities?" [I think I'll produce a TV program entitled, "Whose Sovereignty is it Anyway?"]

The other shoe may drop soon. Let us not forget that the FDA recently opened an office in Shanghai, about which we wrote last month, specifically with the expectation that inspections will be conducted on Chinese facilities.

[Thanks to Carol Kalinoski, Esq. for the tip-off.)

Van Etten v. Mitsui, 09-cv-1071, brought in Federal Court in Manhattan, alleges that the Japanese company practice of installing a "glass ceiling" above which only Japanese may rise constitutes an unlawful practice of discrimination. [Download the complaint..]

“Mitsui USA and Mitsui Japan have a strict policy requiring that the top positions and virtually any position managing personnel at the company be filled by the all Japanese/Asian staff,” according to the complaint.

Japanese routinely informed me, working in Tokyo and Osaka in the 1980s, that no Gaijin would ever be permitted to manage a Japanese. One Englishman, fluent in Japanese with Japanese wife, had spent 20 years with a major local securities firm. He was promoted to Senior Manager of his department with its one direct report-- himself.

Only within the past 10 years has this taboo been broken in Japan. In 2005, Sony, where I once worked, appointed Howard Stringer as top dog, raising hackles throughout the rank and file. And Sony is regarded within Japan as a company which routinely breaks new ground in HR practices.

However, this suit alleges a glass ceiling in Japanese companies operating in the U.S. Sad to say, I have no recent personal experience directly on point here, i.e. in the U.S.. But, it is, at first glance, an entirely believable claim, based on strongly-held cultural ideas and traditional practices.

Is the executive management of Mitsui and its subsidiaries in the U.S. entirely Japanese? Does the plaintiff speak Japanese? How will the plaintiff prove an unspoken rule -- a silent convention, as it were -- that may no longer be applicable in Japanese companies in the United States? Let's keep an eye on this one.

Very briefly this morning, another article on the scam affecting American attorneys, originating in "East Asia."

"I've had clients from Taiwan and Hong Kong who I've never laid eyes on, and collected unclaimed property for them without any trouble," Sack said. But when a call to Citibank proved this check was invalid, Sack called Eagle Power Equipment. He said he got a laugh from that company's controller, who said he was not only not paying any debts to Tomen, but that he'd been getting calls from small firm lawyers across the country.

Not sure I understand the first sentence. Think I get the middle part. Amazed to read the final sentence. How many "small firm lawyers across the country?"

Times are tough and guilds are supposed to protect their own, as the Japanese Bar has done, here requiring all foreign attorneys operating in Japan, even, apparently, employees supervised by gaiben partners, to register as gaiben

A requirement that all foreign lawyers be registered as gaiben would fundamentally change the landscape of firms operating in Japan. To qualify as a gaiben, a lawyer must have practiced for at least three years, two of which have to have been outside Japan. The registration process can also take anywhere from six months to two years.

Sponsor: Shanghai Chapter of the American Bar Association International Section, China Committee

Blurb: Come mix and mingle with attorneys with diverse backgrounds from our legal community here in Shanghai and learn more about the ABA and China Committee activities.

Date: Thursday, March 5, 2009
Time 6:30-8PM
Venue: Mesa Manifesto, 748 Julu Rd (east of Fumin Rd), 巨鹿路748号(富民路东侧)
Tel: (86-21) 6289-9108
URL: www.mesa-manifesto.com
Cost: 120 RMB for members and non-members. Cost includes 2 cocktails/beverages and appetizers

Please RSVP by sending an email to jzhang (at) orrick.com on or before Friday, February 27, 2009.

To download the van Etten v Mitsui complaint discussed in this post, click this link.

I've now had a chance to review the complaint in Van Etten v. Mitsui, 09 CV 1071, a reverse discrimination class-action suit brought by an American executive of Mitsui USA fired in 2006.

While I was originally favorable toward the idea of such a claim, the complaint itself tends to move me in the other direction. Avoiding the legal issues for the moment, let's look at a number of relevant cultural issues indicated in the text which render much of the complaint less persuasive than hoped for.

Hackle #1

The first hackle on my sensitive spine raised itself in profound discomfort in only the second paragraph of the first page:

Plaintiff brings this action to challenge a pattern and practice of race and national origin discrimination and retaliation committed by Mitsui USA and Mitsui Japan against current and former non-Japanese/non-Asian employees.

This last phrase -- non-Japanese/non-Asian -- is curious in itself. Does this equate Japanese with all Asians? Or does it make a distinction between the two?

And besides, what is an "Asian?"

For several centuries, the word “Asia” referenced a geography of indistinct determination, stretching from Syria to Japan, and from Siberia to the Andaman Islands, encompassing all nations, races, skin colors, languages, cultures. Essentially, a mishmash, due in large part to the impoverished understanding of Western explorers and mapmakers.

However, no Chinese I know would wish to be lumped together with a Japanese, or mistaken for him, and vice versa. Nor would a Taiwanese wish to be lumped together with the Shanghaiese, etc. But Westerners who didn’t know better, for no fault of their own -- they were only just coming in contact -- essentially classified everyone who lived in basically the same place: faraway.

Along comes 20th-century America, with its increasingly fractious ethnic and racial "melting pot," the elements of which, despite their occasional averments to the contrary, make strong demands for what they see to be their own people, community, tribe, but not for the community at large. Over time, the law recognizes certain races and ethnic groups, providing benefits to those with specific attributes. A census must be taken every decade and various groupings are statistically analyzed. It is a convenient shorthand to group Indians, Chinese, Japanese, Papua New Guinean aborigines, Uzbeks and Fijians into one mother lode of a political grouping, the sheer weight of which would seem to have somewhat nearly the political capital other large groups like blacks and Hispanics would have.

But there is no such thing as an "Asian." (Well, perhaps there is under federal law, but that fantasy I will avoid for the moment.) Things are too complex for this now rancid simplification.

In the complaint under discussion, the phrase “non-Japanese/non-Asian" is particularly troublesome.

Note this paragraph 18:

One of the central elements of the pervasive discrimination at Mitsui USA and Mitsui Japan is the use of and favorable treatment towards "rotational staff," who are employees of Mitsui Japan set to take tours or rotations with Mitsui USA, usually for a term of three to five years.

Rotations are common in international corporations, especially among Japanese companies, for whom the practical experience of in-country work and residence has always been held to be invaluable. It is a practice Americans have cut out of their budgets, much to their discredit and disadvantage. The bias away from direct in-country knowledge within the American company is, in my opinion, a substantial reason for American loss of market share globally. How is it, do you think, that the Japanese automakers have learned so much about operating successfully in the United States, while we now see the American automakers on bended knee begging for government assistance?

Generally speaking, who is rotated out of Japan? A young Japanese with some in-country skills or scholarship who shows promise -- someone who is marked for his potential to rise perhaps 10 or 20 years down the road.

I very strongly doubt that any non-Japanese -- the “Asian” referred to in the complaint -- would be drawn from India or China into a rotation into the United States. In fact, none is mentioned. No one without a Japanese surname, with the exception of a reference to two former complaints by Americans against the company, is even mentioned in the entire complaint.

To what classification is the complaint referring with the phrase "non-Japanese/non-Asian?" It is this ill-defined phrase, which recurs dozens of times in the complaint, that thoroughly confuses things for me. The fact finder may not find it so, relying upon the common Western conglomeration of all things "Asian."

But if I were the defense, I would attack it.

Hackle #2

My jaw dropped when I read paragraph 67:

Mr. Van Etten was also disadvantaged within Mitsui USA by the fact that Japanese was used to communicate, orally and in writing, throughout the day by top Mitsui USA/Mitsui Japan executives as well as with/by their underlings. This practice was rampant, notwithstanding the fact that non-Japanese/non-Asian employees would not be able to understand, leading to greater isolation and exclusion of non-Japanese/non-Asian employees. By way of example only, Mitsui USA held monthly, quarterly and annual business meetings where Mr. Van Etten's business was discussed, but the meetings were conducted in exclusively Japanese and no national staff were included.

This is an extraordinary assertion and, in my eyes, damns the plaintiff and not the defendant. Essentially, it makes the claim that, for purposes of employment discrimination claims, all communication must be made in the English language.

The plaintiff, thus, despite having worked for a Japanese company for 18 years, had never learned the language of its parent company. In his position, most likely, he would not have to. But what language would he speak if were he to become a top-level executive having to make his reports to headquarters in Japan? English? If the plaintiff had been thoroughly fluent in Japanese, had lived and worked in Japan and possessed the very significant in-country skills required of a top-level manager, I would give greater credence to his claim.

But it is entirely unpersuasive to suggest that an American employee of a Japanese subsidiary without such skills is thoroughly qualified to take on a senior role, which would include significant, perhaps daily, contact with headquarters, and an understanding of Japanese practices in the home office. Life is very different in the office in Tokyo than it is in Manhattan.

Hackle #3

By his own complaint, Mr. Van Etten was extremely accomplished -- a producer. He claims that his termination for discrepancies in expense reports dating to 5 years prior was, in a nutshell, trumped up because he complained vociferously about discriminatory practices.

In and of themselves, these factual allegations, as written, do not portray him as one particularly suited to the resolution of a major dispute within a Japanese company. He must have some skills, because he lasted in there a long time, and life is tough going in a Japanese company.

But the complaint shows him to be repeatedly complaining, over the course of several years, orally and in writing, while hinting at a distinct lack of respect for many of his colleagues. While the record of complaints may be necessary evidence to show notice, it, on the other hand, gives us a clue as to the tension in the office that appears to have surrounded this issue.

Read this from paragraph 84:

...Defendants admit that Mr. Van Etten complained that the rotational employees were not qualified for the positions they held and that the practice of bringing Japanese/Asian executives from Japan amounted to discrimination against non-Japanese/non-Asian employees could have been awarded these positions. They also admit that Mr. Van Etten complained that he should have been promoted to general manager and was not because he is not Japanese/Asian.

Numerous incidents, involving HR and executive management, are detailed in the complaint.

While Japanese are more likely to expect open friction within an American workplace, and rather more tolerant of it, it is still considered at the very least unpleasant. Often, when taken to extremes, it becomes a distinct mark against the one who breaches that etiquette.

This is not to say that resolutions are always possible in a Japanese company -- often not -- but simply that jousting is the art of remaining hidden, while advancing in plain sight. Mr. Van Etten may be a complete gentleman in an American sense and he may have comported with the law, but the facts as related by his attorneys give the impression that his repeated straightforward complaints to HR and, more importantly, to Japanese senior colleagues accelerated the movement of the grindwheel, upon which the ax was finally sharpened.

The complaint raised other hackles as well, including the assertion that discipline was more tolerant of Japanese than of Americans, which assertion I find -- based on my own experience and that of other foreigners I know in Japanese enterprises -- almost totally incredible.

I am eager to read Mitsui's answer. More on this case as it develops.

Recommended: this story -- Jailed Billionaires Show New Face of China as Markets Unravel -- rich in detail, like this:

Greaves hasn’t seen or spoken to Huang, 39, since. One morning in November, the dapper, baby-faced tycoon failed to turn up, along with his Maybach limousine, at Gome’s Beijing headquarters, where he normally worked such long hours that he had installed a double bed in the office adjacent to his own.

Well-worth reading.

For those of us who are collectors of attorney scam e-mail, yours truly included, here's another:

From: Mr. Qiming Wang.
Legal Representative/Owner,
Quanzhou Haitian Textile Co.,Ltd,
Address: Haitian Industrial Park,
Jiangnan Development Zone,
Quanzhou, Fujian
China.
Email: qimingwang41@gmail.com
Website: http://www.htt.cn

Dear Sir,

Request for Legal assistance.

This is an official request for legal representation on behalf of Quanzhou Haitian Textile Co.,Ltd. We are a textile company with principal business in garment manufacturing and trading.

We are presently incapacitated due to international legal boundaries to exert pressure on our delinquent customers and we request for your services accordingly. We got your contact information from the Online Lawyers Directory as a result of our search for a reliable firm or individual to provide legal services as requested.

After a careful review of your profile as well as your qualification and experience, we are of the opinion that you are capable and qualified to provide the legal services as requested.

On behalf of Quanzhou Haitian Textile Co.,Ltd, Please accept my sincerest appreciation in advance for your willingness to render your services as we look forward to your prompt response to our request.

Thank you..
Mr. Qiming Wang.
Legal Representative/Owner,.
Quanzhou Haitian Textile Co.,Ltd..
Website: http://www.htt.cn

Notice how the content is basically similar to all those that have come before it:

1) The recipient is addressed neither by name nor by firm.
2) The text is written in a slightly archaic English "we are presently incapacitated..."
3) The proposed legal service required is the collection of the debt.
4) The question an attorney may have -- how did you find out about me? -- is answered with the proffered validation that the contact information came from the "Online Lawyers Directory." But which one?

Note the use of a gmail account, which enables the sender to hide important information about the origin of the e-mail.

This one is so transparently badly done, no one should be fooled by it:

Attention:

We represent the management of G and T trading Company Limited, Tokyo Kotsu Kaikan Bldg. 7F. 2-10-1 Yurakucho Chiyoda-ku Tokyo 100-0006 JAPAN ,"Engaged in international marketing of Painting & Crafts Tools, Power Tools and Outdoor Equipment since 1992" G and T trading Company Limited, JAPAN have supplied Painting & Crafts Tools, Power Tools and Outdoor Equipment to many American and Canadian customers, total invoices in excess of US$3.6million since Last the year. Some of the American and Canadian companies have defaulted in their payment to G and T trading Company Limited, the Chairman of G and T trading Company Limited contacted me last month and through a Power of Attorney, appointed me to collect their overdue payments. I therefore require you'r legal representation in order to collect on the supplied invoices from the American and Canadian Customers.

We understand that a proper Attorney Client Retainer will provide the necessary authorization and we are most inclined to commence talks as soon as possible. Your consideration of our request is highly anticipated and we look forward to your prompt response.

Sincerely,

Raj Yaokeem
Yaokeem Consultants.
No 33-35 Queen Square BS1 7LU, London

Remember this post on attorney scams? The company from which it purportedly originated was stated to be

G and T trading Company Limited, Tokyo Kotsu Kaikan Bldg. 7F. 2-10-1 Yurakucho Chiyoda-ku Tokyo 100-0006 JAPAN

We now have first-hand evidence that this company does not exist at that location.

Brian Johnson, who works in Tokyo for a patent law firm, graciously sauntered over to that address, located near the Yurakucho Station (有楽町駅). He reports:

Here's what I found:

There are five businesses on the 7th floor. They are

1. Mitsubishi Shuji Logistics -- Known in English as Mitsubishi Corporation LT, Inc
Transport Equipment, warehousing & transport

2. Kyocera Contax Salon -- a photo gallery for Kyocera/Contax

3. Kabushi Kaisha Hitachi Hoken Service -- Seems to be some kind of insurance company related to Hitachi

4. Kaigisu Musubikai -- can't find out anything about these guys but no G or T or trading in their name.

5. K.K. Gakujo -- an employment agency

Thus:

...it appears that there is no company called G and T Trading on that floor.

Heartfelt thanks to Brian Johnson for his willingness to take time out of his day for Asiabizblog readers!

A former divisional merchandising manager in charge of Home Depot's hard flooring products was sentenced to 63 months in prison for tax evasion and wire fraud, and ordered to pay $1.1 million in restitution to Home Depot. You can read the brief blurb about it here.

He is one of three former executives who have pleaded guilty to receiving millions of dollars in kickbacks from foreign sup