Foreign Law Firms Face Potential Crackdown in China, Legal Fallout Could Follow
(Source:Interfax-China)
Mainland legal groups are urging the government to crack down on foreign law firms that exceed their legal operating authority by practicing Chinese law, which could lead to the sanctioning and closing of some foreign law offices, or even the voiding of business and legal transactions, a legal expert told Interfax.
A memorandum published by the Shanghai Bar Association accuses foreign law firms of engaging in illegal activities that constitute “severe” threats to “the justice and economic safety of China” such as providing Chinese legal services, hiring Chinese lawyers and tax evasion.
“My understanding is that it’s bad enough that some [foreign law] firms could be shut down,” Steve Dickinson, a lawyer with Harris & Moure, who made the memorandum public on his Web site China Law Blog (http://www.chinalawblog.com/), said.
The most worrisome allegation made in the memorandum is foreign firms hiring Chinese-licensed lawyers and using legal assistants to provide legal services, such as drafting and interpreting contracts, project investigation, or providing interpretations and opinions of Chinese laws.
Many legal documents, such as opinions on how Chinese law applies to a transaction, can only be rendered by a Chinese attorney, which foreign law firms are prohibited from employing.
Potentially, all transactions that have taken place to date, including contracts, financing agreements and IPOs, that have used documents drafted by foreign law firms as their legal basis could be declared null and void by the government on the grounds that the firms lacked the authorization to issue such documents, said Dickinson.
Several foreign law firms declined to comment on the possibility of a crackdown when contacted by Interfax.
Work concerning Chinese law can only be done by a Chinese law firm, with which the foreign firm is authorized to establish a cooperative relationship. Representative offices of foreign law firms can provide consulting services regarding laws and practices in countries where they have obtained a license and handle legal affairs of Chinese firms in foreign countries.
Dickinson said foreign firms should be worried about a government crackdown and, while it is unlikely agreements will be voided, it’s possible a couple of firms could be shutdown and made an example in order to send a message.
The current situation has a historical basis. When foreign firms began operating in China, there weren’t any domestic firms that were capable of providing the services required by foreign firms in China and local firms were too immature to challenge the actions of foreign firms.
As the capabilities of domestic firms have strengthened, they are now pushing for their fair share of the work and demanding foreign firms comply with the law, said Dickinson.
The Shanghai Bar Association urged the government to take “powerful measures” against foreign firms in the memorandum and has already begun urging lawyers and the public to report illegal activities to the Shanghai Justice Bureau.
Vice Secretary Liu Yungeng of the Shanghai Municipal Committee initiated an investigation into representative offices on March 17, and has required the Shanghai Bar Association to make proposals regarding the problem, according to the memorandum.
“This is far more organized and severe than anything I’ve seen before, but it doesn’t mean anything will happen,” said Dickinson.
The Shanghai Bar Association spokesperson was unavailable when contacted by Interfax.
Interfax-China
http://www.interfax.cn/
May 17, 2006
