- Inside the recent raids on U.S. private consulting firms
- Insiders at Chinese companies are selling information related to national security secrets
- There’s a flow of sensitive information to foreign entities via third parties
Dear Reader,
China’s recent national security raids on private consulting firms Bain, Capvision, and Mintz have raised alarms among the foreign business community.
- Fears are high that the raids form part of a broad campaign targeting foreign businesses.
Recap:
- In March, authorities raided the Beijing offices of US corporate investigations firm Mintz Group, detaining five of its staff.
- In April, authorities raided the Shanghai offices of US consulting firm Bain & Co, questioning employees.
- This month, officials confirmed they had raided multiple offices of the New York- and Shanghai-headquartered research company Capvision for counterespionage reasons.
Adding to the panic: An official information vacuum.
- Chinese officials have not publicly commented on the raids.
- Domestic media has been mum on the Mintz and Bain raids, while the Capvision probe has so far only been the subject of a 15-minute CCTV documentary.
- And we’ve not heard much from the companies themselves.
So what’s going on? There are still many unknowns, but we have a reasonable idea of what the campaign is and isn’t about.
Let’s get this out of the way first: The campaign isn’t targeting foreign businesses.
Instead, it is focused on a specific activity:
Namely, insiders at Chinese companies or quasi-government bodies are selling sensitive information related to national security or commercial trade secrets to firms…
Who then sell that information to foreign companies or governments.
CCTV’s Capvision documentary backs up this view.
It noted that the company had persuaded Chinese experts to advise foreign clients “in sensitive areas including national defense, military industry, and cutting-edge technology.”
- It provided the examples of a former senior researcher at a state-owned enterprise, and a former postdoc at a military research institute, as examples of experts who had shared sensitive information with foreign clients.
Whether the firms brokering the passage of the information are Chinese or foreign is irrelevant.
- What is relevant is that there is a flow of sensitive information to foreign entities via third parties.
Previously, this trade took place in an unregulated gray zone:
However, against a backdrop of growing tensions and competition with the US and its allies, stamping the trade out has become a national security priority.
- The major concern is that critical information obtained through this process could be used to sanction or outcompete Chinese companies.
This helps to explain why China recently updated its counterespionage law.
The update expands the law’s coverage from state secrets and intelligence to “documents, data, materials or items related to national security and interests.”
The good news: Foreign companies can breathe a sigh of relief.
- The recent raids are not part of a broad campaign targeting foreign businesses.
The bad news: The raids are examples of the broadening concept of national security in action – with authorities desperate to plug information leaks across the board.
- The practical implications of this broadening are still unclear.
- Firms must tread carefully to avoid setting off recently laid national security tripwires.
More bad news: Getting business-critical information on China is only going to get harder.
And that makes life tough for companies considering whether to increase their China exposure or reduce it.
Thanks for reading,
Freedom Financial News
