Attorney Shao Shiwei | How Should Enterprises Save Themselves in the Face of Profit-Driven Law Enforcement Akin to 'Deep-Sea Fishing'?

Introduction:

In April this year, the Internal Reference on Guangdong Provincial Conditions, authored by the Guangdong Provincial Conditions Survey and Research Center, circulated widely. The text pointed out that "Internet companies in Guangdong Province are subjected to cross-region profit-driven law enforcement, making their survival unsustainable."

Furthermore, an online image stating that "police from other regions must not illegally enter enterprises to handle cases" also sparked heated discussion among netizens.

Attorney Shao has observed that the long-criticized issues of "deep-sea fishing" and "profit-driven law enforcement" have recently reignited intense debate within the legal community.

The issue of profit-driven law enforcement has persisted for a long time. Especially as a criminal lawyer specializing in the Web3 sector, having handled multiple criminal cases involving the cryptocurrency circle and interacted with judicial authorities across various regions, I have deeply felt this reality. In my previous article,A Brief Discussion on the Phenomenon of Profit-Driven Law Enforcement in Criminal Cases Involving the Cryptocurrency Circle, Attorney Shao explored the causes of profit-driven law enforcement and potential solutions. However, effectively resolving this "chronic ailment" in the short term is no easy task.

Today, from the perspective of enterprises involved in criminal cases, we will discuss common scenarios of profit-driven law enforcement, its impact on enterprises, and finally provide relevant recommendations for prevention and response.

Author | Attorney Shao Shiwei

"Deep-sea fishing" is a vivid metaphor referring to the practice where certain local law enforcement agencies (hereinafter referred to as "deep-sea fishing teams") engage in cross-regional law enforcement, initiating cases, conducting investigations, and enforcing laws in other jurisdictions to generate revenue from fines and confiscations. The purpose of such "fishing" is typically to generate income for local finances, exhibiting a profit-driven nature.

A suitable target for such "fishing" usually possesses the following characteristics:

1. The enterprise is primarily a private company located in a different region

Private enterprises without political connections or involvement of state-owned assets are suitable targets for "deep-sea fishing teams." The distance from central oversight ("the sky is high and the emperor is far away") helps avoid many troubles typically arising in "acquaintance societies."

2. The enterprise possesses substantial economic strength

Law enforcement incurs costs. "Deep-sea fishing," particularly cross-provincial arrests, often consumes significant case-handling funds. Therefore, enterprises with assets worth tens of millions or even hundreds of millions are necessarily those that motivate law enforcement units from other regions to take action.

However, in practice, such "lucrative targets" may attract the attention of more than one law enforcement unit. Whichever "fishing team" secures jurisdiction first will handle the case.

3. The enterprise's business operations exist in a gray area

If an enterprise's business activities violate legal provisions and are suspected of constituting criminal offenses, this provides a legal basis for the law enforcement actions of "deep-sea fishing teams." Common charges include operating casinos, pyramid schemes, and illegal business operations, which allow for the collection of fines and confiscations. Consequently, businesses related to the cryptocurrency circle are high-risk areas for criminal liability. Law enforcement units typically rely on policies such as the "September 4 Announcement" and the "September 24 Announcement" as the basis for their enforcement actions.

For enterprises involved in such cases, once subjected to cross-provincial arrests by "deep-sea fishing teams," the negative impacts may trigger a series of chain reactions:

Financial Pressure and Asset Loss: Profit-driven law enforcement is often accompanied by high fines, property seizures, or confiscations, causing direct economic losses to the enterprise. This may even lead to a break in the capital chain, affecting the normal operation of the enterprise;

Business Interruption and Reputational Damage: Due to asset freezes, account blocks, or the detention of corporate executives, the enterprise's production, sales, and service operations may be forced to halt. Furthermore, once an enterprise is publicly reported for being involved in a case, its reputation suffers. This not only leads to customer loss but also affects the trust of potential partners;

Low Employee Morale and Talent Drain: Law enforcement incidents may cause internal unrest within the enterprise, dampening employee morale. Core talent may resign due to uncertainty about the enterprise's future, potentially triggering a series of labor arbitration and other employee rights protection events;

For instance, the voice chat platform Banban issued a "Notice of Suspension of Operations" on its official Weibo account on April 21, 2024, due to the "Blind Box Gambling Case." The notice stated that the Shunde Public Security Bureau in Guangdong conducted illegal cross-provincial profit-driven law enforcement akin to "deep-sea fishing" against the company. RMB 300 million of the company's funds were forcibly transferred, resulting in the inability to pay wages to all 1,600 employees and legitimate earnings to hundreds of thousands of platform streamers and partners. Hundreds of thousands of individuals who relied on the platform for their livelihood were left without means of subsistence.

Increase in Legal Litigation Cases: As criminal cases lead to restrictions on the personal freedom of senior management and the suspension of company operations, performance risks with external partners may arise, exposing the enterprise to a series of judicial cases;

Long-Term Market Impact: After encountering profit-driven law enforcement, an enterprise's image and credit rating in the market may decline, increasing financing difficulties. It may even face consequences such as increased bank loan interest rates, cancellation of financing qualifications, or termination of listing plans;

As mentioned earlier, a certain company in Guangdong submitted an application for listing in Hong Kong in late June 2023. However, due to the "deep-sea fishing" conducted by police from another region, the company's listing plans fell through, its business became paralyzed, and it faced imminent bankruptcy.

Resolving the issue of profit-driven law enforcement requires a multi-pronged approach involving legislation, law enforcement, taxation, and fiscal policies. We can also observe that the issue of profit-driven law enforcement is receiving broader attention, which has positive significance. After all, attention is the first step toward solving a problem.

In February 2024, the Supreme People's Procuratorate issued the Work Plan for the "Procuratorial Protection of Enterprises" Special Action, deciding to launch the "Procuratorial Protection of Enterprises" special action starting from February 2024.

In late September 2024, a meeting of the Political Bureau of the Central Committee emphasized helping enterprises overcome difficulties and proposed regulating law enforcement and supervisory behaviors involving enterprises.

On October 8, 2024, Zheng Shanjie, Director of the National Development and Reform Commission, stated that administrative law enforcement behaviors involving enterprises by administrative law enforcement units must be regulated, and irregular cross-regional law enforcement and profit-driven law enforcement must be firmly prohibited. On the same day, a symposium hosted by Premier Li Qiang of the State Council also emphasizedstopping irregular cross-regional law enforcement and profit-driven law enforcementand other issues.

On October 9, 2024, the Supreme People's Procuratorate held a Party Group meeting. The meeting emphasized that procuratorial organs must always align procuratorial policies, measures, and work with the direction of macro policies, solidly and effectively advance the "Procuratorial Protection of Enterprises" and "Procuratorial Protection of Livelihood" special actions, fully perform procuratorial functions, handle cases strictly in accordance with the law, ensure judicial fairness, andeffectively prevent and supervise the correction of profit-driven law enforcementin judicial practices, as well as issues such as illegal sealing, seizing, and freezing of enterprise assets, thereby promoting standardized law enforcement and judicial behaviors involving enterprises.

On October 14, 2024, a seminar on the prevention and governance of profit-driven law enforcement was held in Beijing, aiming to explore the causes, harms, and governance recommendations for the phenomenon of profit-driven law enforcement.

However,Rome was not built in a day. According to reports[i], recently, an audio recording circulated widely online containing statements such as "It is too simple to bring down an enterprise; seize on a minor issue, amplify it, and the enterprise is finished," "Whether provided or not, if negotiations fail, everything is considered void," and "The annual performance target is 50 million; 21 million has been completed, leaving 29 million remaining." Reports indicate that these remarks were made by law enforcement personnel from a certain Market Supervision Administration in Shandong Province while communicating with the enterprise involved in a case concerning a medical company.

Although the involved law enforcement officer responded that the enterprise took the statements out of context and that he had been disciplined for making inappropriate remarks, this incident reveals that despite the continuous issuance of relevant policies by the state and repeated prohibitions against profit-driven law enforcement by case-handling personnel, the effectiveness at the level of implementation by grassroots personnel in various regions may still be lacking.

In the face of profit-driven law enforcement by public security organs, it is necessary for enterprises to adopt a series of response measures, ensuring proper preventive actions beforehand and responsive and handling measures during and after the incident.

1. Pre-incident Prevention

In cases handled by Attorney Shao's team, the platforms involved often did not pay sufficient attention to potential legal risks during their operations. At the time of criminal detention, they were unaware that their business activities posed problems. Even regarding key facts alleged by public security organs as constituting criminal offenses, the failure to preserve relevant documents during operations made it difficult for them to prove their innocence. These factors hinder the formation of favorable evidence during the investigation by public security organs. Therefore, pre-incident compliance prevention is far more important than responses during and after the incident. Attorney Shao offers the following recommendations:

• Cultivate Compliance Awareness and Strengthen Enterprise Compliance Construction

Maintain close contact with legal professionals during daily operations to ensure that internal company systems and business activities comply with relevant laws and regulations. Conduct regular legal risk assessments.

• Proactively Mitigate Legal Risks

Enterprises should maintain complete financial records, contract agreements, and tax filing materials during daily operations to avoid lacking strong evidence when facing law enforcement actions.

Ensure business dealings with partners who have strong compliance awareness and good reputations to avoid being implicated by the illegal activities of partners.

• Maintain Good Relations with Local Government Departments

Within the framework of legality and compliance, enterprises should maintain positive interactions with local governments, participate in community public welfare activities, demonstrate their positive contributions to society, and cultivate a better public image.

Additionally, according to regulations, public security organs handling cases in other regions should request collaboration from local public security organs or delegate execution to local police. Therefore, during daily operations, if enterprises encounter unreasonable law enforcement issues, they can actively provide feedback to local law enforcement departments and engage in effective communication.

2. Response and Handling During and After the Incident

Response during the incident refers to the emergency measures that an enterprise involved in a case needs to take when facing investigation by judicial authorities. Post-incident handling refers to the process where, after the case-handling unit determines the nature of the alleged offense, defense lawyers formulate reasonable defense strategies based on the facts and evidence available, striving to minimize the adverse effects on the enterprise caused by the case.

• Safeguard Legitimate Rights and Interests

In the face of sudden investigations by law enforcement agencies, the persons in charge of the involved enterprise may find it difficult to respond correctly in a timely manner. At this point, guidance and advice from legal professionals are essential. For example, if an enterprise's accounts are suddenly frozen cross-regionally by law enforcement agencies from another location, it is necessary to communicate and negotiate with the case-handling unit regarding whether the freezing measures are lawful, whether statutory procedures were followed, and when the freeze will be lifted. In such situations, a lawyer's familiarity with relevant policies can help the involved enterprise communicate more smoothly with the case-handling unit.

• Proactively Seek Legal Remedies

Once criminal proceedings are initiated, it is advisable to engage a lawyer immediately, communicate promptly with the case-handling unit to bridge the information gap between the party involved and the case handlers, collect evidence relevant to the case that can prove the party's innocence or lesser culpability, and communicate legal opinions to the judicial authorities.

• Handling of Property Involved in the Case

If the property sealed, seized, or frozen by public security organs is unrelated to the case or exceeds the scope of the alleged crime, complaints can be filed, and supervision can be requested from the procuratorial organs, striving to lift the investigative freezing and seizure measures taken by the case-handling unit in violation of legal procedures.

[i] A law enforcement officer claimed, "It is too simple to bring down an enterprise." Such "defiance of prohibitions" must be thoroughly investigated! https://m.gmw.cn/2024-08/17/content_1303824449.htm

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