Wednesday, December 7, 2011

Chinese Court Sentences Australian Businessman to 13 Years in Prison

Matthew Ng, an Australian businessman and CEO was sentenced Tuesday (December 6) to thirteen years in prison for embezzlement and bribery according to Australia's Department of Foreign Affairs and Trade. Ng plans to appeal the sentence which was handed down by the Guangzhou Intermediate Court at a hearing. Australian consular officials were also present at the hearing.

COMMENT: Mr. Ng is CEO of Et-China, a travel services company reportedly embroiled in a dispute with a local Chinese partner. Prime Minister Julia Gillard reportedly raised Ng's case with Chinese Premier Wen Jiabao in April, but thus far the senior levels of the Government of China (GOC) have given no indication consideration.

In a related development, THE SUNDAY MORNING HERALD reported that the chairman of Ng's company, Zheng Hong, was sentenced to 16 years in prison and Et-China's chief financial officer, Kitty Yang, was given 3 1/2 years, both on related embezzlement and corporate charges.

The case follows the arrest and conviction last year in Shanghai of four employees of mining giant Rio Tinto, including Australian citizen Stern Hu, for bribery and infringing trade secrets. Hu was sentenced in April to a total of 10 years in prison while three colleagues were imprisoned for seven to 14 years. At the time of his arrest, Hu was in charge of Rio Tinto's troubled iron ore price negotiations with China, and the case raised worries over the vulnerability of employees of foreign companies to often selective enforcement of the country's vague state secrets and corruption laws.

Ng was sentenced to 14.5 years in jail -- eight years for embezzlement, two years for corruption, 2 1/2 years for a false capital declaration, and two years for bribery -- but the sentenced was commuted to 13 years.

As I have regrettably learned from first-hand from experience, business disputes between multinational companies and Chinese firms are rarely handled equitably and fairly in Chinese courts. If anything, the GOC manipulates its legal system to the detriment of foreign companies who often find their executives either imprisoned for trumped-up charges or prevented from leaving China until such time as they accede to the demands of Chinese entities.

Ethnic Chinese executives of foreign companies operating in China are particularly vulnerable to the Chinese government's arbitrary legal system, yet ethnic Chinese execs are far more effective in managing enterprises in China than non-Chinese execs because of language fluency and cultural understanding.

Ideally, if ethnic Chinese are used by foreign companies inside China, they ideally should NOT be Chinese citizens and all written agreements between such companies and local partners, distributors and intermediaries should be drafted by attorneys who speak Chinese as a first language. Moreover, all such agreements should be well-detailed, articulate the conditions and penalties for non-performance and translated by a certified translator in the language of the foreign company as well as Chinese.

Unless foreign companies operating in China are significantly profitable, the risks of doing business there may far exceed the profit potential. Finally, a "handshake" is never a sound business practice when dealing with Chinese companies and business executives.

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