China Just Put A Financial Punishment Benchmark For Consulting Firms Who Breach Their Operational Boundaries

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By Chris Devonshire-Ellis 

China has fined the US consulting firm Mintz Group about US$1.5 million for doing “unapproved statistical work,” according to a Beijing Municipal Bureau of Statistics notice, after a raid of its Beijing office earlier this year.

The fine sets a precedence, in that the bureau said Mintz conducted 37 unapproved investigations in China between March 2019 and July 2022. Mintz were found to have received some RMB 5.34 million (US$732,289) for this work; and confiscated this money. They also imposed a fine of the same amount, resulting in a total loss to Mintz of about US$1.5 million. 

The ruling is significant as it sets a benchmark for fines levied by China for breaching an agreed ‘scope of business’.

The ‘scope of business’ is a defined term (differing from sector to sector) that outlines what a foreign investor in China can and cannot do. It is written onto the foreign firm’s business license when issued.

Mintz’s mistake was not to check – or otherwise ignore – what their permitted activities in China were.

It is possible that certain ‘scope of business’ activities could be in a ‘grey’ area, in which case clarification should be sought with the Chinese authorities. Mintz would certainly have known this was the minimum issue here.

Mintz, were, in addition to several other American firms, carrying out research into US manufacturers’ supply chains in Xinjiang Province, in response to the United States Uyghur Forced Labor Prevention Act, a US federal law that changed U.S. policy on the Xinjiang region, with the goal of ensuring that American entities were not funding forced labor among ethnic minorities in the region.

It was signed into law by US President Joe Biden on December 23, 2021, and stated that commencing 21 June 2022, any company that imports goods from the Xinjiang region needed to certify that those goods were not produced using forced labor in order to avoid US penalties.

However, Mintz’s work in undertaking US manufacturing briefs in doing so breached China’s own privacy and internal security laws, resulting in the firm now being punished. We discussed the issue in our previous article How To Get Your China Consulting Business, China Compliant.

The lesson is – what foreign firms in China are able to do in China is dependent upon the agreed scope of business, and if in doubt – check.

The United States and the West, in general, have blown the issue up instead to be about China’s openness to foreign investment. In reality, Mintz breached their operational scope, either through total ignorance, or more likely, given the sensitive nature of the work, quite deliberately.

Beijing’s Bureau of Statistics said in their ruling that the firm had carried out “foreign-related statistical investigations” without seeking or obtaining approvals. Mintz has 60 days to file an appeal and six months to file an administrative suit. It is noticeable their business operational license has not been rescinded and the firm is able to continue its business in China.

However, now there is a benchmark.  Foreign investors should comply with their scope of business in China or expose themselves to the financial risks involved: a fine equivalent to any ‘illegal’ money earned.

Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates. He may be reached at asia@dezshira.com

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.

Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, Dubai UAE, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.