Foreign Law Firms Under Attack In China

by Mary Swire, for LawAndTax-News.com, Hong Kong

17 May 2006

A memorandum published by the Shanghai Bar Association has urged the government authorities to crack down on foreign law firms, which have been accused of overstepping their jurisdictional remit by practicing Chinese law in contravention of current rules.

According to the memorandum, foreign law firms are accused of poaching local legal experts with high salaries and then employing them to to provide legal services, such as drafting and interpreting contracts, project investigation, or providing interpretations and opinions of Chinese laws - services which foreign legal companies are banned from undertaking.

Currently, rules governing the activities of foreign law firms operating in China stipulate that they can provide information about the legal environment in China, but not interpretation of the applicability of Chinese laws. This has limited foreign law firms to providing consultancy services regarding foreign laws and international treaties, or handling the legal affairs entrusted to them by their Chinese clients or Chinese law firms in the country in which the lawyers of the foreign law firms have obtained licenses.

However, the Shanghai Bar Association says that in reality, many foreign law firms have been overstepping their jurisdictional remit, and the memo stated that: "the legal services offered by foreign law firms in China have far exceeded what is allowed and the situation is becoming more and more severe."

The memo goes on to state that the situation has "not only has deterred the creation of a fair and sound legal environment in which Chinese law firms can develop," but also poses "a threat to the justice and economic safety of China" because of "severe" tax evasion.

The majority of the revenue earned by the foreign law firms in China is from multinationals and therefore realized overseas.

Citing 2004 statistics the memo said that the current year revenue of 84 foreign law firms in Shanghai was approximately RMB673 million (US$81.4 million); but the actual billings of these foreign law firm representative offices is said to be "way higher than the revenue reported for tax purpose."

The Bar Association urged the authorities to use "powerful measures" to ensure that foreign law firms adhere to restrictions on the type of work they can undertake, and has set up a telephone hotline to allow lawyers and members of the public to tip off the authorities where they suspect illegal activity by foreign legal firms.

There were 98 overseas law firms with representative offices in Shanghai in 2005. Of these, 16 were established by law Hong Kong law firms.

Recommended