It is the prerogative of government authorities—US and non-US alike—to demand information from individuals or organizations and seek the assistance of courts to enforce compliance. Although such demands take various forms, one of the most common is a subpoena, which is a formal legal request to obtain information from an individual or organization over whom or which the courts or government agencies believe they have jurisdiction. Subpoenas may be used in domestic as well as foreign contexts. The activities of Chinese companies continue to draw increasing regulatory scrutiny from the US government in the form of government agency, court or Congressional subpoenas. For example, in March 2021 the US Department of Commerce subpoenaed a number of Chinese companies, requesting information and materials to determine whether the companies’ activities posed a threat to US national security or foreign policy interests. Below we examine the key policy areas driving these types of demands, ways in which to prepare for such demands and what to do if you receive a subpoena.
The last five years have seen increasing compliance challenges for multinational companies with operations in the United States. US laws and regulations apply within the United States and, in select circumstances, abroad as well, in particular where US national security and foreign policy interests exist. This discretionary authority extends to individuals, activities and entities, at least where a US nexus exists.
Balancing Act: Global companies operating in the United States face myriad regulatory requirements. Navigating between competing and sometimes conflicting legal requirements necessitates strategic planning to address the application of national and sometimes extraterritorially applied laws in the various jurisdictions in which these entities operate. Given the fluctuating definition of national security, organizations face ever-increasing scrutiny when the balancing of these competing and conflicting requirements comes to the attention of government agencies. Changing geopolitical circumstances and conflicting governmental policy objectives also present challenges, as does navigating blocking statutes, sanctions, counter sanctions and counter prohibitions.
Privacy: Privacy rules and the manner in which information is shared across borders has become an increasingly prominent area of regulatory focus. A number of changes have set up “gates” that stand in the way of responding to the US government with respect to activities outside the United States or non-US persons in the United States.
COVID-19: The pandemic has interposed challenges ranging from data not being available in a timely fashion to resources being limited.
While receiving a subpoena or inquiry from US regulators is never a welcome development, responding to changing global dynamics and preparing for the unexpected are key principles for managing the potential risks associated with such investigative activity. As a best practice before the organization receives a subpoena, it is important to designate a primary point of contact for government inquiries and to develop internal policies around the desired protocols and processes following receipt of a subpoena. Messaging, communicating and substantive expertise regarding subpoena requests are key to addressing requests in a proactive and measured manner.
At a basic level, one of the most important elements when responding to a subpoena is to read and fully understand the scope of the request from the US government. Understanding the breadth and details of a subpoena allows an organization to effectively respond to it. For example, the organization should determine what is at issue with respect to statutes and regulations, conduct, documents and records being sought, and stated deadline for responding. The organization should engage outside counsel with relevant agency experience to assist it with assessing these preliminary issues. Notifying key stakeholders is also prudent.
Once counsel is engaged, some of the wide range of steps that should be considered are designated personnel should take affirmative steps to preserve documents and commence the investigation into understanding the corporate conduct at issue. Also, further considerations in assessing the subpoena should include whether to challenge the subpoena with a motion to quash in court or to negotiate to reduce the scope of what is being requested.
Noncompliance can result in enforcement and contempt proceedings against the company and/or individuals. Consequences include revocation or suspension of permits and licenses, administrative fines for noncompliance and the possibility of referrals to criminal authorities for investigation or pursuit of criminal charges alleging “Obstruction of Justice.” Such referrals are generally focused on egregious conduct, including the destruction, alteration or concealment of documents. Individuals can also face criminal charges for making false statements and/or certifications to a US government agency in response to a subpoena.
In recent years, the use by the US government of requests for information has risen significantly; it is likely that that we will see a growing number of subpoenas issued to Chinese companies from different industries, and the scope of the inquiry is expected to expand to other jurisdictions, with subpoena requests having an indirect impact on the interests of Chinese companies.
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