On a Saturday afternoon this month, I was part of a team of four faculty members from Emory University Law School’s Center for Advocacy and Dispute Resolution participating in a training dialogue with Shanghai financial fraud prosecutors. The topic of the training was investigation and prosecution of insider trading cases.
The session was conducted as part of an ongoing relationship between Emory Law School, a nationally ranked law school based in Atlanta, Georgia and Shanghai Jiao Tong’s KoGuan Law School, a nationally ranked law school in China.
Crossing a river one stone at a time
This was my sixth visit to China and with each visit I learn more about the culture and how cultural and language differences impact the application of law. While China has laws that mirror those in the United States, procedure, interpretation and the lack of a common law tradition make legal analysis and compliance enforcement complex. On an earlier visit to China I learned the saying, “You cross a river one stone at a time.” This two hour session on a Saturday afternoon was best described as a step on the first stone toward a path that may lead to greater commonality in approaches toward addressing securities dereliction.
Economic reality is the driver
While US law schools and legal institutions frequently send delegations to China to talk about western legal traditions as part of what are commonly referred to as Rule of Law programmes, the Emory-KoGuan programme, with an emphasis on investigation of facts and advocacy, is something different. Its securities fraud training component particularly shows it to be a programme driven by economic reality.
With investment opportunities in China growing, both the Chinese and their US counterparts see a need to invest in mechanisms to strengthen market integrity. At the same time, more and more Chinese companies are reaching across the ocean to trade their stock on US exchanges – making familiarity with US securities laws and accounting practices an economic necessity. Chinese companies that issue stock on US exchanges are of course subject to the full panoply of securities laws including fraud on the market cases brought by private investors.
A two way street
Education is a two way street. As much as the Emory-KoGuan programme is about sharing the US experience, it also presents an opportunity to learn about the Chinese legal system, keeping in mind that cultural differences may give different meanings to words that are precisely translated. This is no longer just an intellectual exercise for curious academics who have trekked back and forth to China.
A physical presence is a must
Back in the United States a few weeks ago, the Chief Judge of the Delaware Chancery Court, Leo Strine, had some choice advice for counsel representing the interests of corporate directors of a coal company doing business in China. In a hearing on a matter In re Puda Coal, Inc. Stockholders Litigation, C.A. No. 6476-CS (Del. Ch. Feb. 6, 2013), the Chancery Court noted:
‘If you’re going to have a company domiciled for purposes of its relations with its investors in Delaware and the assets and operations of that company are situated in China that, in order for you to meet your obligation of good faith, you better have your physical body in China an awful lot. You better have in place a system of controls to make sure that you know that you actually own the assets. You better have the language skills to navigate the environment in which the company is operating. You better have retained accountants and lawyers who are fit to the task of maintaining a system of controls over a public company.
If the assets are in Russia, if they’re in Nigeria, if they’re in the Middle East, if they’re in China, you’re not going to be able to sit in your home in the US and do a conference call four times a year and discharge your duty of loyalty. That won’t cut it. There will be special challenges that deal with linguistic, cultural and others in terms of the effort that you have to put in to discharge your duty of loyalty.’
Compliance enforcement is no longer just a question of understanding the laws within a geographic boundary and asking a limited range of questions about corporate compliance. Rather, it is a much deeper task as the Delaware Chancery Court noted.
Moreover, as multinational corporations transact business globally, they subject themselves to foreign laws. Compliance with those laws may be a condition of compliance with laws at home, particularly where corporate articles of incorporation proscribe engagement in unlawful conduct or representations are made to securities regulators about overall legal compliance.
While cultural and political differences may still set nations apart, multinational corporations and cross-border legal enforcement seem to be leading to what can perhaps be characterized as cross-pollination of legal systems. Making sense of the new global legal norms may very well be the role played by the Emory-KoGuan relationship in the days ahead.