A global law firm separates from its Chinese partner, citing cybersecurity and data rules

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This article was published 10/08/2023 (817 days ago), so information in it may no longer be current.

BEIJING (AP) — One of the world’s biggest law firms said Thursday it is separating from the Chinese firm that was part of its global network for eight years, citing changes in cybersecurity and other rules that have rattled foreign companies.

The decision by Dentons follows warnings by business groups that global companies are postponing or shifting investment away from China due to concern about an expanded anti-espionage law, tighter controls on business, a data security crackdown and raids on foreign consulting firms.

Dentons said it was separating from Beijing Dacheng Law Offices due to changes in cybersecurity and data protection but gave no details. Dentons said in a statement Dacheng will be a “separate, standalone firm” that is its “preferred law firm” for clients with needs in China.

Dacheng joined the Dentons network in 2015. Dentons, which says it has more than 10,000 lawyers in some 80 countries, added the Chinese characters for Dacheng to its logo used worldwide.

The arrangement was unusual in China because it made Dacheng part of an integrated international network, unlike other foreign firms that have contractual relationships with Chinese affiliates that remain separate entities.

Such an arrangement might conflict with China’s data controls by giving foreign lawyers or firms abroad access to information, according to Lester Ross, the partner in charge of the Beijing office of Washington law firm WilmerHale.

“I suspect that this would have made it very difficult for such firms to continue to operate through such structure,” Ross said in an email.

The ruling Communist Party has tightened restrictions on the handling and protection of data about Chinese citizens and companies and what can be sent abroad.

The ruling party launched a data-security crackdown on Chinese tech companies in 2020. Consulting firm Bain & Co. said in April its staff in Shanghai were questioned by police. A corporate due diligence firm, Mintz Group, said its Beijing office was raided and five employees detained.

Unease about tighter controls has hampered efforts by Chinese leader Xi Jinping’s government to revive foreign investor interest following the lifting in December of anti-virus controls that blocked most travel into and out of China.

The British Chamber of Commerce in China appealed in May for “greater clarity” on data restrictions in the auto and other industries.

Foreign law firms can operate representative offices in China, but legal representation must be done by Chinese firms, which are tightly controlled by the ruling party. Since 2012, lawyers have been required to give an oath of loyalty to the Communist Party. Every firm must have a party committee.

“The presence of the party makes it hard to integrate the cultures and governance of foreign and Chinese firms,” said James Zimmerman, a partner in the Beijing office of Perkins Coie and a former chairman of the American Chamber of Commerce in China, in an email.

“In my view, this is the key reason it’s incompatible to have a true merger between a foreign and Chinese law firm,” Zimmerman said.