How do Chinese corporate executives guard against the “U.S. trap”?

Jan 10, 2020

Meng Wanzhou’s encounter is not a case. More Chinese businessmen may be arrested for alleged wrongdoing that did not occur in the United States, but they can take measures to prevent “American traps.”

Updated on June 17, 2019 10:17 Canadian lawyer David Lesperance writes for FT 中⽂ ⽹

Would you like to read this is Chinese? Click here. 

During a recent interview about the arrest of his daughter, Meng Wanzhou, journalists noticed a telling book on the desk of Huawei Technologies founder Ren Zhengfei. The book was a Chinese translation of The American Trap, the story of the 2013 arrest by the US Department of
Justice of French businessman Frederic Pierucci.

Pierucci, a senior executive at French rail transport company Alstom, was prosecuted and convicted under the American Foreign Corrupt Practices Act. This law allows the US to pursue corruption cases no matter where in the world the crime took place, as long as the transaction at the core of the investigation was made in US dollars or relevant emails passed through US-based servers.

Pierucci’s story has striking parallels to that of Meng Wanzhou. Nor are they alone. Pierucci argues that the US targets companies in strategic industries, including telecommunications, pharmaceuticals, oil and gas and technology. If that’s true, then many more Chinese businesspeople could also fall into the American trap and be arrested for alleged crimes that did not take place in the US. This is a serious risk for high-ranking Chinese entrepreneurs and executives. There are, however, steps they can take to protect themselves from falling into an “American Trap.”

I devised these strategies a decade ago. At that time, the Las Vegas casino industry saw online gaming as an existential threat and persuaded American lawmakers to criminalize it. Given that American residents could easily access international gaming sites, the US claimed the authority no matter where the operating companies were located, even countries where gaming was legal.

In July 2006, the American trap was sprung on David Carruthers, the British CEO of a major, publicly traded British gaming company. He was arrested as he transited through an American airport on his way from the UK to his home in Costa Rica That is when several other on-line gaming companies retained me to legally help protect their company’s executives from the US government’s extra-territorial machinations to maintain its competitive economic edge in gambling.

First, Huawei could have ensured it had access to better business intelligence. Huawei was certainly aware of the heightened rhetoric coming out of the US about alleged unfair business practices. Targeted intelligence gathering might have alerted Huawei to the threat to executives like Ms. Meng.

Even publicly available information would have pointed to the likelihood that the US had already issued an arrest warrant, or would soon do so. As far back as 2013, the Reuters news service reported on the Meng case’s central issue, that Huawei and Meng had close ties to Skycom, and that Skycom allegedly tried to sell US equipment to Iran despite US sanctions.

On the basis of this intelligence and an analysis of extradition law around the world, Huawei could have moved onto the second strategy, which is to sort the countries of the world into one of three categories: “red” for off limits, “yellow” for visit with caution, and “green” for safe.

As soon as corporate leadership recognized that the possibility of detention by the US may have become a risk, key executives like Meng should have become very cautious about their movements. Even if their jobs required extensive business travel, they should have only traveled to countries deemed to fall into the “green” or “yellow” categories. For as long as the risk persisted, they should not under any circumstances have visited countries in the “red” category, not even to change planes while in transit between two other countries.

The case of Pierucci and his employer Alstom shows that even the largest companies can be extremely vulnerable when a key senior executive is in confinement and the company faces large fines. Alstom had to pay $722 million as a result of its guilty plea in the case. It found itself subsequently acceding to a $10 billion takeover that it had previously resisted by the
American company General Electric.

The third best-practice strategy is for at-risk executives to obtain passports from second and even third countries and to use these when traveling to protect their identities from the US authorities. This is not difficult to do, given the variety of citizenship by investment and residency by investment programs now offered by countries around the world. Meng herself apparently has Canadian residency but not citizenship.

Executives who need still further protection should take an additional step. They should legally change their name in their countries of second citizenship, so that their second passport bears a name different than the name by which they are known to US authorities. Legal name changes are
common in situations ranging from marriage and divorce to simply not liking your name. Chinese executives often change their names when operating in countries which are not familiar with Chinese pronunciation. The process is legal, simple, and inexpensive.

Holding a passport from a second country that also is in a different name makes it more difficult for American authorities to track an executive’s movements. If they don’t know where she is going, they cannot lay a trap by arranging for her arrest, as they did for Meng in Vancouver.

In Meng’s case, the American authorities were aware before her trip that she would be traveling thru Vancouver on her way back from Mexico. Their knowledge of her travel gave them an opportunity to lay their trap by informing Canadian officials that they had issued an arrest warrant and requesting her detention.

So far, we have discussed the first three of the best practices that senior Chinese entrepreneurs and executives can use to prevent themselves from falling into an “American trap” and being arrested like Meng or Pierucci.

First, have good intelligence. Second, know which countries pose a risk. And, third, obtain a second and possibly a third passport, perhaps in another name. While this may sound like the stuff of spies and gangsters, all of these steps are entirely legal and above-board. They are in fact not at all uncommon.

While the first three strategies should help a worried executive to avoid an arrest or detention, the fourth and final strategy focuses on the team who will go into action when all the other planning has failed and an executive has been arrested overseas. Just as law enforcement forces use SWAT teams for quick, powerful action in a moment of crisis, executives who fear they may be at risk of unwarranted arrest by a foreign government should have their own “SWAT team” in place in advance. This team should consist of at least five components.

The SWAT team needs lawyers who are specialists in extradition and criminal law, a public relations expert who can act as the official spokesperson for the defense, someone with good relations with diplomatic officials both in China and in any other country where the detained executive has obtained citizenship, and someone with the authority and the resources to fund the SWAT team’s work and to be prepared to post bond if necessary.

Finally, like all good teams, the SWAT team needs a designated captain. This advisor ensures that the team members act in a coordinated and strategic manner on behalf of the Chinese company and the detained executive.

Given the current state of geopolitical affairs and the unpredictable manner in which US President Trump in waging the trade war, there are many Chinese companies and executives who should be taking all of these precautions.

Yes, some expense is involved. In truth, like all insurance policies, these may ultimately prove to not have been needed. But the cost pales in comparison to the monies that could be required in a detention crisis. Think what her defense is costing Ms. Weng and Huawei in direct expenses, business disruption, and lost goodwill and opportunities.

As the great Chinese general Sun Tzu writes, “The art of war teaches us to rely not on the likelihood of the enemy’s not coming, but on our own readiness to receive him; not on the chance of his not attacking, but rather on the fact that we have made our position unassailable.

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