Staying out of jail in China (and other developing countries)

Another Australian businessman has landed himself in jail in China, according to a report in The Australian Financial Review today. His name is Carl Mather, and he is married to a Chinese national, Xie Qun, who went to the press over the incident against the advice of the Australian consular office in Shanghai, according to the report. Qun says the case was fabricated as part of an attempt to extort money from her wholesaling business. Mather has been convicted of injuring two men during an altercation in 2011.

Niranjan Asaratnam, a partner at law firm, Allens, says: “It is one of those things you need to be aware of when doing business in China or other developing countries: the law and the criminal justice system might be used as a tactical negotiating tool.”

Mather is the fifth Australian known to be jailed in China over business disputes. Other high-profile cases include the former Rio Tinto employee, Stern Hu; business leaders Charlotte Chou and Matthew Ng, and cardiac surgeon Du Zuying.

However, Asaratnam, who is a member of the Australia China Business Council’s Victorian state executive committee, says such incidents are not common. “You shouldn’t overstate the issue as well. There are Westerners in jail in China, but there are a large number of foreigners doing business in China.”

It is hard to know exactly what has happened in the various cases affecting Australians. Mather says he was acting in self-defence of himself, his wife and three-year-old child when he waved a knife at two men and two women when they “barged into his home”.

Asaratnam says the legal system in China is hard for Westerners to understand. “It is hard to comment on whether proper justice has been done because the Chinese legal system is not transparent, not what we would know in Western liberal democracies as transparent. That is the big issue: when the law is brought against foreigners or Chinese nationals for that matter, we don’t know what is going on.”

Court cases are not usually held in camera in China, however the rules of evidence differ from Western rules. In addition, the commercial and criminal laws can intersect. Asaratnam says: “There are fairly broad laws that deal with actions against the state, and sometimes commercial dealing might push the boundaries. Once you are into actions designed to harm the state, that brings in the criminal justice system and that is where they intersect.”

For leading companies, there are lessons.

Providing cultural training is important, but not enough, says Asaratnam.

China and other developing countries have rigorous corporate regulations, he says, “but a practice that might depart from them. And it is trying to navigate that tension where people can come unstuck. There are the more high-profile cases, such as Stern Hu, but you hear of issues in the Middle East and south-east Asian countries.”

The best protection is to have a mix of locals in any new jurisdiction, who know and understand the system, and ex-patriots, who have been on the ground in the jurisdiction for a while, but bring the culture of the organisation and business practices from Australia. He says: “In that way, leaders don’t insist on business practices that mean you get nothing done, but the company does not engage in activities that might be considered normal practice, but are not legal.”

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