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China Hems In Private Sleuths Seeking Fraud

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http://www.nytimes.com/2013/09/14/business/global/china-hems-in-private-sleuths-seeking-fraud.html?ref=business&_r=0

..

But any sense of relief was tempered by what they saw next: Mr. Humphrey, his face electronically blurred, his head bowed, confessed to a crime and apologized to the Chinese government.

The broadcast not only stirred immediate alarm among foreigners in China, but also cast a light on a murky corner of business life in the world’s most dynamic economy. Until they disappeared in July, Mr. Humphrey and Ms. Yu ran ChinaWhys, one of many firms in the hush-hush industry of consultants and investigators in Beijing, Shanghai and Hong Kong that promise to guide foreign corporations through China’s opaque and often treacherous business environment.

The companies sell services that are considered essential to doing business in China, including background checks, financial audits, fraud investigations and trademark protection. In most of the world, such work is fairly mundane. But in China, where public records are limited and corruption is rampant, it can be tricky and dangerous.

The arrests of Mr. Humphrey and Ms. Yu on charges of illegally acquiring private personal information, and the recent jailing of several other business researchers on similar charges, suggest the risks are rising. Taken together with the bribery investigation against GlaxoSmithKline, the increasing pressure on American car companies to lower their prices here, and the not-so-veiled threats against American technology companies to subcontract to Chinese companies, China appears to be throwing new obstacles in the way of foreign companies doing business in China.

..

Foreign investors — hedge funds, private equity firms and multinational companies — typically hire consulting firms like ChinaWhys to investigate potential partners and employees or keep tabs on current ones.

The goal is to uncover wrongdoing that could hurt investments, things like a hidden relationship with a supplier or a fraud that could sink a publicly listed company.

“Unfortunately, even as due diligence into the integrity of domestic enterprises in China has become more important in the light of perceived widespread fraud and misrepresentation, access to records has become even more difficult,” said John Kuzmik, a consultant and former partner-in-charge of the law firm Baker Botts in Hong Kong. “Investigators are working in a very gray and somewhat dangerous environment.”

...

I'm guessing the rewards for the work are quite high, meaning people are prepared to take the risks? I'll also guess if you make the right type of contributions to the local party network you might avoid getting arrested?

Amusing that China is demanding lower prices, inflation starting to get out of control?

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