Business activities in China may be subject to the investigation of various government authorities, such as the Commerce Department, the Tax Bureau, or the Administration of Industry and Commerce (AIC). Naturally, businesses and the people who work there on a day to day basis do not have experience in dealing with government officers. They often feel confused about what kinds of materials are legally required or necessary. Companies or managers may be too frightened to react to the notice served to them, which may eventually result in additional fines for being “uncooperative” with a government investigation.
For the matter of fact, the investigation process is in most cases company’s best shot to prove innocence, compared with the possible hearing process later on. This is the stage where the government collects and ascertains evidence which will serve as the basis for their later administrative decisions. In addition to providing materials which are legally required, a company is also entitled to offer to the authorities materials which work in the company’s favor. However, such documentation must be well organized an officially formatted and submitted through legal procedures so that they may be considered in later stages of the investigation or hearing. Submitting such evidence in favor of your company is often the best defense in an administrative investigation.
In one of our recent cases, the firm assisted a client through the process of an AIC investigation in connection with the client’s advertising behavior. Our Client was reported to the regulatory authority for violating the Advertising Law, which carries a potential minimum
penalty of RMB 200,000 if the allegation is proven to be true. In addition to collecting evidence within the Client’s company, our China lawyers also guided the client through the process of obtaining additional evidence with the assistance of a reliable third party. Third parties such as independent testing organizations are often helpful to prove the claims made by a client about the performance of its product’s effect are not false or exaggerated. As the law does not prevent an investigated company from to submitting favorable evidence, the best efforts should be put to actively collect evidence from all legal and reliable channels. In the case above, the additional evidence provided was pivotal in convincing the AIC to drop the investigation without penalties.
If you have been notified of an investigation by a Chinese government authority, do not panic. Certainly do not ignore the issue or refuse to communicate with investigators. They will not go away. The first thing you need to do is to consult an attorney to evaluate your situation, and work with them to prepare all potential materials in support of your China company’s position.