December 04,2008

MoC Foreign Investment Corruption Case Involves Officials, Lawyers

By CSC staff, Shanghai
It has been learned that a number of officials in charge of the Ministry of Commerce’s (MoC) foreign investment approval process have been detained, throwing an ugly light on corruption in the approval of foreign investment in China and testing the integrity of multinational companies.

Guo Jingyi, an

inspector in Treaty and Law Department, has been under detention and interrogation for the past three months. Zhang Yudong, a lawyer, and Deng Zhan, former vice-director of the Department of Foreign Investment of the MoC, detained since August and September, respectively, have been formally arrested and are facing judicial proceedings.

To guarantee the trial won’t be disturbed, Zhang Yudong and Deng Zhan have been transferred to another city. Four other people involved in the case, including Guo Jingyi, lawyer Liu Yang, Liu Wei, former vice-director of the Foreign Investment Bureau of State Administration for Industry and Commerce, and Du Baozhong, a senior official of the Treaty and Law Department, are also being removed to other cities for inquest and sentencing.

The investigation is grinding on. A source revealed that more lawyers and companies are being investigated.

The Guo Jingyi case, involving companies and closely connected lawyers and officials, is regarded as a typical case in the foreign investment area. The whole chain runs like this: a foreign company bribes officials in charge of approving its investment through its lawyer ?officials, together with the lawyer, formulate the corresponding regulation and put the company’s wants into the law or leave loopholes in it ?the company submits its application to relevant department ?officials suggest the company "hire" the designated lawyer ?the company pays bribe through the lawyer ?with the help of the lawyer and officials, the company’s investment application is approved.  

Zhang Yudong was Guo Jingyi’s classmate when they were studying in the Law Department of Peking University. Deng Zhan is Guo’s close colleague. Liu Wei is not only Guo’s close friend, but also his neighbor. Liu Yang was originally Guo’s subordinate, and then transferred to Zhang Yudong’s law firm. Du Baozhong is also Guo’s subordinate.

The source mentioned above said that Zhang Yudong might be directly charged with bribery, while Deng Zhan might be charged with taking a bribe from a multinational direct selling company.

After Zhang Yudong and Liu Yang were detained, the business of the two law firms involved, Sifeng and Shanxin, was halted. According to reports, Shanxin director Wu Xiaochen is in Japan with his family.

Shanxin split off from Sifeng in March 2008. Wu Xiaochen, who once worked in MoC and is close to Guo Jingyi, Liu Yang, and Zhang Yudong, is considered the top anti-dumping lawyer in China.

Sifeng and Shanxin are not the only law firms being investigated. A partner of a foreign law firm with M&A business in China, who is close to Guo Jingyi and Deng Zhan, has also gone abroad recently.

As foreign investment must be approved by the MoC, lawyers such as Zhang Yudong, with good relationships with government officials, are very popular among multinational companies doing business in China. Many officials, after working in MoC for several years, transfer to law firms and specialize in foreign investment projects. Now, due to the exposure of the Guo Jingyi case, the approval of many applications is in suspension. 

Analysts commonly believe the recent arrest of Gome Chairman Huang Guangyu is connected here. It is also reported that more companies and law firms will be involved in the Guo Jingyi case.

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