Lawyers Caught Between U.S. Elections, Chinese Politics

Last month, U.S. President Barack Obama cited national security concerns in blocking Chinese company Ralls Corp. from buying four wind farms in northern Oregon. Obama?s Republican challenger, Mitt Romney, says that if elected, he would label China as a currency manipulator on his first day in office. Last week a U.S. congressional committee labeled two major Chinese companies national security threats and urged the Committee on Foreign Investment in the United States (CFIUS) to block any attempt by them to acquire U.S. companies.

As U.S. politicians from both major political parties increasingly take a get-tough attitude toward China, American law firms trying to do business there are feeling caught in the middle.

?If you take one view and not the other, there could be serious ramifications for lawyers,? says Michael Preston, a Hong Kong partner with Cleary Gottlieb Steen & Hamilton. ?Nobody wants to be on the wrong side of U.S. or Chinese authorities.?

Lawyers have already been pulled into the debate though. On October 8, the U.S. House Intelligence Committee released a report labeling two Shenzhen-based telecommunications companies?Huawei Technologies Co. Ltd. and ZTE Corp.?as threats to American national security because of their possible ties to the Chinese military. The two companies both make networking equipment that the committee claims could be used for surveillance purposes.

Huawei is now the world's second-largest provider of telecommunications equipment, and it does 70 percent of its business outside China. The company had $1.3 billion in sales in the United States last year. ZTE has a smaller presence in America, primarily through sales of devices like smartphones. Its sales in the U.S. were $30 million last year. Both companies issued statements last week denying the thrust of the committee?s report.

But the investigation?s impact was first felt by firms a month before, when committee member Sue Myrick of North Carolina and congressional colleague Frank Wolf of Virginia issued a letter blasting DLA Piper for unspecified work it has done for ZTE.

"By publicly representing and advising the ZTE Corporation your firm is indicating it values the retainer of one contract over the legitimate cyber security and supply chain concerns of the United States government,? the two Republican politicians wrote in the September 13 letter addressed to DLA Piper Washington, D.C., managing partner Frank Conner and international trade partner Richard Newcomb.

In April, Wolf wrote two similar letters to Sidley Austin chairman Carter Phillips urging that firm to drop Huawei as a lobbying client, citing the company?s sales to Iran and, earlier, Saddam Hussein?s Iraq and Afghanistan under the Taliban.

?How can an American firm like Sidley Austin represent a company that has provided our enemies with equipment?? wrote Wolf in an April 30 letter to Phillips. ?How does Sidley Austin reconcile working for a company that is empowering the world's worst governments to monitor and repress their own people? Certainly this must give you pause.?

Both DLA Piper and Sidley Austin declined to comment but lawyers involved in China practice leaped to their defense.

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Source: http://www.law.com/corporatecounsel/PubArticleCC.jsp?id=1350212700905&rss=rss_cc

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