CBLJ Forum Shanghai 2024

Wang Jun began the panel by emphasising that identifying criminal risk and strategising around it is crucial for sustainable business development. While criminal cases can be intimidating, understanding these risks can benefit the long-term growth of individuals and organisations. She noted many economic disputes were increasingly being treated as criminal cases, highlighting the blurring line between criminal and economic risks.

Han Zhaoyi illustrated how criminal risks can emerge within a business by discussing the recent case of a newly graduated employee caught forging an official seal. He argued that criminal risk prevention strategies should be tailored to specific job roles, clarifying the necessary training for different personnel. They should also be process-oriented, identifying essential procedures, and entity-specific, addressing proactive issues.

Legal practitioners must not regard criminal theory as an abstract concept. Any misconception needs to be addressed to enhance organisational risk management capabilities.

Zhang Junxin, head of a 29-year-old legal department, stressed the importance of establishing a risk compliance checklist to address job-related crimes at their root. He said that many management-level job crimes may stem from broken psychological contracts between individuals and their companies.

He suggested businesses implement fair salary incentive systems, foster positive corporate culture, and create multi-layered prevention systems that include employee self-discipline, mechanism controls and reporting channels.

From the perspective of a foreign enterprise and with the theme of “Criminal matters are never trivial”, Leo Zhou highlighted the dual importance of ideological education and practical deterrence. He emphasised a need for targeted risk identification based on industry characteristics.

As an environmental protection company, his company pays particular attention to preventing environmental pollution crimes and conducts risk assessments across areas including business operations and asset flows.

Cao Hui noted legal personnel must possess higher levels of knowledge and experience as Chinese companies expand globally. She said enterprises must comply with local laws and regulations when operating abroad, especially religious and common laws.

Initially, she believed criminal risk was not highly relevant to her business. She has since realised that some invested companies face not only prosecution but also parallel civil and criminal proceedings, making corporate governance and compliance management essential. Cao advised that focusing on criminal risk is a vital step in protecting one’s business. “The more cautious you are, the better; you can never be too careful,” she said.

Zhou Wanli provided an international perspective, analysing global trends in criminal risk. He discussed recent legal changes in the UK and US regarding the expansion of criminal liability for corporate executives. He said anti-corruption and money laundering were two of the primary compliance risks currently faced by companies.

He questioned whether whistleblower rewards in European and American companies, which have become more effective in recent years, might constitute obstruction of justice – a matter still under consideration.

Du Jiahong said enterprises should protect their governance and management through comprehensive risk prevention and control tools, integrating criminal, civil and compliance legal services. When discussing how businesses can manage overseas criminal risks, she referenced ISO standards and underscored the importance of the “plan, do, check, act” cycle. This approach enables enterprises to identify risks better and develop appropriate control measures.

Photos

Li Jingjue discussed the challenges Huayi Brothers has faced in copyright law, particularly punitive damages. In an infringement case involving the The Ex-Files film series, Huayi Brothers encountered difficulties in determining the amount of damages.

The firm proposed two approaches: measuring infringing profits through differences in publicity costs, and supporting their damage claims by comparing unusual box office receipts. Although these ideas were ultimately not upheld by the court, they provided a reference for similar challenges in the future.

Li Li shared insights on the challenges of pursuing punitive damages in China from a technical rights perspective. She noted a patent infringement case involving auto parts in the Shanghai High People’s Court, where a plaintiff successfully obtained punitive damages of RMB12 million (USD1.6 million). This was achieved by the court accessing the defendant’s sales records and industry profit margin data, providing a useful reference for other companies in determining damage amounts.

Zhao Faxi pointed out that even with a legal basis for punitive damages, practical challenges abound, such as evidence collection and communication. Each step is critical and often requires the support of a team of professional lawyers. He noted that, even when a court rules in favour of a plaintiff, relatively small damages may weaken the deterrent effect. He also cautioned that, in the US, defendants must remain vigilant against various plaintiff tactics.

Zhou Hao offered a broader perspective, arguing that greed and fear were core drivers of human behaviour, including all legal and commercial actions. He suggested that the punitive damages system should align with both legal and commercial realities to deter infringement more effectively. He emphasised the importance of learning from historical experience to inform current legal practice, advocating for adaptability as international conditions evolve. He said standards “will become better suited to our system and specific projects as the international situation changes”.

Lu Yuping shared his experiences of working with Japanese enterprises, highlighting the importance of collaboration between legal departments and external lawyers. He said effective communication and co-operation can significantly enhance the protection of intellectual property, and discussed strategies for administrative and criminal rights protection to combat counterfeiting.

Roundtable moderator Qu Xiaofeng concluded that further exploration of the punitive damages system in China was necessary. He suggested studying successful foreign case law, and pointed out the need for in-house counsel departments to work closely with external law firms to effectively address each case.

Photos

Chen Yan spoke with enthusiasm about the fusion of law and artificial intelligence (AI). He said in-house counsel often use tools such as ChatGPT, Tongyi Farui, PowerLaw AI and Meta Sota.

Chen emphasised the potential of intelligent agents as AI tools that combine custom prompts with proprietary knowledge to address specific and specialised needs. These tools not only facilitate quick adoption but also demonstrate significant efficiency gains within certain domains.

He cited an example of his KE.com legal team creating an AI intelligent agent for business annual inspection and reporting, based on KE.com’s self-developed large language model (LLM), Bella, and external tool Kimi. While a particular task usually took experienced in-house counsel two to three hours to complete, the agent allowed a novice to complete the same task in just 30 minutes, greatly enhancing work efficiency.

On the compliance front, Chen stressed the importance of starting from the source by establishing an internal framework to ensure frequent communication with R&D and AI teams. He mentioned compliance considerations such as model selection, corpus sources, identification rules and contract disclosures. During LLM application, attention should be given to matters like model filing, qualifications, real-name authentication, and timely updates to external agreements.

“Under today’s Chinese data compliance regulations, drawing on effective content and specifics from GDPR [the EU’s General Data Protection Regulation], we internalise compliance work into a set of rules applicable to specific business scenarios,” said Chen.

Fan Lei underscored the importance of legal compliance in AI, from the perspectives of both internal legal personnel needs and company tools. He said understanding global regulations and international situations, especially in AI, was crucial. AI tools play a role in contract review and risk management, but attention should be paid to data security.

He said AI could be used for systematic work and business risk analysis, stressing that risk management was not about eliminating risks but about balancing resources, strategies and risks. “In the development process of any enterprise, risks are constantly present, and the larger the enterprise the higher the risks,” said Fan. He said managers at different levels had different focuses, and responses to their inquiries from in-house counsel should be tailored to specific circumstances.

Fan said that, due to critical data exchanges with clients, suppliers and others, B2B enterprises were more concerned about data security and network security issues. During development, he focuses on data sources, intellectual property rights and data security.

Xu Pu said AI tools play a key role in legal research and specialised issue exploration. In emerging fields or situations with limited legal resources, AI searches can rapidly assist in gathering information and extracting core issues. In daily consultations, attention should be paid to maintaining the confidentiality of company information and providing advice only on general issues. When handling disputes, approaches such as case analysis may be used to provide support, but caution is needed when dealing with contract reviews and company business information.

She shared viewpoints from the user end, emphasising that companies should consider the application of AI technology based on their needs. While advanced AI technologies may not yet be widely used, companies can extract key information through big data analysis to support decision-making.

Xu said companies should consider the management efficiency and cost implications of AI, as well as the uncertainty of external regulatory environments. When deciding whether to adopt AI, different management models’ uncertainties should be weighed, especially in determining where AI can be applied within various business lines.

Zhou Xin summarised two major characteristics of generative AI: creativity and knowledge extraction. She said AI applications needed to be integrated with business scenarios to fully leverage their creative and knowledge processing abilities. Despite not being able to code, coming from a legal background she could use ChatGPT to quickly build table structures by writing circle orders for simple data analysis tasks and generating corresponding statistical analysis basic forms.

Zhou said AI was not a magical tool but a part of a complex engineering process. Understanding business needs and pain points deeply and utilising its capabilities in automatic execution, rule interpretation, and efficient processing are essential. She stressed the importance of having the right expectations for AI – not forcing its use but selecting appropriate tools based on business scenarios.

Lu Jing said Shihui Partners placed importance on AI development, having an in-house team of programmers dedicated to developing products against lawyers’ needs. What would traditionally take two interns three to five days could now be accomplished in minutes with the help of AI technology, with senior lawyers reviewing documents in half a day during the review stage.

In practice, Lu observed that “valuable data is non-compliant, and compliant data is valueless”. Therefore, he called for legal professionals to collectively promote legislative and regulatory reforms to address the contradiction between data compliance and value. Lu said China, being a treasure trove of data, should promote effective data utilisation while ensuring data security. Through reforms in legal frameworks and the establishment of guidelines, data can unleash its maximum potential, driving industry and AI development.

Photos

Kicking off the session, host Zhang Xiuxiu shed light on the importance of the year 2030, as highlighted in the theme. The Paris Agreement aims to limit global warming to less than 1.5°C by 2030, coinciding with China’s target year for its carbon peak.

Liu Fang introduced the audience to some strict EU emission standards, such as the corporate sustainability reporting directive. The directive requires companies to disclose both the environmental and social impacts of their corporate management, and the financial impact of environmental and climatic risks to themselves.

“In the long run, asset management and systematisation of carbon data are indispensable for proper ESG and carbon dealings,” she said.

Gui Shiqiao summarised the opportunities from ESG as: social and environmental benefits; encouraging companies to look at not just short-term profit, but also long-term rewards and risks; and job and business opportunities.

Riva Lin said that to achieve their carbon objectives, companies should adopt multi-pronged strategies while ensuring that they are fine-tuned to their target markets. To illustrate her point, she shared the differences in glass recycling between countries. In Europe, a top-to-bottom platform called Close the Glass Loop exists to improve the recycling rate but in China glass packaging is often mixed with daily garbage, which increases recycling costs.

Wang Yu forecast that in the next five to 10 years, regulation would become more refined and list-based, chain management such as carbon footprint would pack more urgency, and environmental daily records, ledgers and other data would more closely resemble financial information.

“It comes down to rules at the terminal market,” he said. “The differences between domestic and Western rules here are too different to align anytime soon, but internal corporate management, when it comes to data and information, is more or less the same, being financialised.”

Zhao Ruoyu said that, regardless of whether the main driver was sustainability development goals or ESG, one must first adopt integrated thinking with “carbon” at the core. She said green finance empowerment, in the context of China’s “double carbon” goals, was something to benefit every party.

Underlining this, she described a bankruptcy reorganisation case where a technology provider supplied technological prowess, the bankrupt company saw its project value grow due to the inclusion of carbon asset, lawyers provided legal support, and the Green Technology Bank helped design the carbon asset structure.

Tony Dong cautioned certain scenarios might cause the validity of carbon emission rights contracts to be questioned – such as when on-site trading was not actually conducted on site, or when one of the parties had not completed qualification registration.

Dong said transformative investment – a recent hot issue – did not mean arbitrarily shutting down businesses traditionally considered to have high carbon emissions; instead, it meant improving carbon performance with long-term investment and equipment updating, among others tactics, thereby achieving sustained finance.

Photos

AnJie Broad partner Song Ying led guests in a discussion on antitrust investigations and dawn raids.

Kenneth Zhou strongly advised companies with high market share to protect their rights upon facing antitrust investigations by the State Administration for Industry and Commerce.

“Ten years ago I worked in a top company which was investigated by the State Administration for Industry and Commerce (SAIC),” he said.

“Today, were I still working for them, I would suggest that the company consider carefully whether to challenge the investigation, so as to prevent an unfavourable situation where any subsequent lawsuit is jeopardised by predetermined judgment.”

Zhao Jin, who has extensive experience in dealing with US antitrust investigations, suggested that companies should require each employee to create a list that records all the files on their computers, especially those involving overseas information.

During dawn raids, when authorities request employees to provide information about the company, he said staff should notify in-house counsel of the information that has been collected by taking photos of the digital files, and staff should have prepared backups in advance.

Victor Shen suggested that legal departments should suggest that management-level staff conduct mock dawn raids. They should also actively participate in their company’s business meetings so that lawyers can nip inappropriate or non-compliant proposals in the bud as soon as possible.

Susan Xia said European companies attached importance to countering dawn raids, and many were equipped with company-level response measures. She advised in-house counsel to localise dawn raid countermeasures and turn legal jargon into business-friendly words.

On the topic of antitrust, Cheng Guochuan described the automotive sector as a “veteran” of antitrust as relevant guidelines have been available for more than a decade. Still, the emergence of telecoms technologies in vehicles has brought new challenges for the industry as automakers have to keep an eye on the patent pool operator who controls the patent licencing price for 4G and 5G patents.

Tracy Wu said antitrust regulations applied to the automotive industry were worth studying by legal professionals in the medical sector. For example, the role of middlemen in vertical monopoly agreements. She suggested that in-house counsel should clarify to their colleagues in other departments whether middlemen are bound by legal responsibilities and warn them about businesses that are not exempt from antitrust laws.

Photos

Wang Xiaocheng was the moderator of the panel. He pointed out that along with the economic advancement, high-net-worth individuals are focusing more on the wealth succession and management while creating wealth. He referred to Grandall’s product portfolio for family business succession, which observes the family constitution for strategic design and integrates major tools including family trust, charitable fund, incentive plan and testamentary trust.

From the perspective of private entrepreneurs, Hang Dongxia believes that the core of family wealth inheritance lies in the people, especially the competence of the second generation. She emphasised that the succession is highly systematic. In addition to the investment portfolio, it also involves benefit distribution, family relations and other strategic designs. Lawyers and service providers were suggested to offer full-package solutions from the macro point of view.

Li Guoqi also considered people as the core of inheritance, and therefore underscored the inheritance of spirit. He proposed to anchor the family spirit in the family constitution with the family trust and the incentive mechanism as supporting tools, so as to count on the people instead of the possessions.

With experience in integration of industry and finance, Tian Na believed the efforts of making the business bigger, stronger and better should outweigh the people. In summary, the structure of family wealth succession could be generalised into four aspects, namely, business development, personal relationship, financial stability and spiritual inheritance. She concluded that entrepreneurs should pass down to the second generation a sound system.

In response, Zhou Tao further asserted that the distributions of rights should also be carefully balanced, including the ownership, the control right and the right to yields. Advisably the family trust and the new Company Law stipulating “different rights on the same shares” offer an effective solution by well balancing the three rights.

Zhou Xuan, on the other hand, interpreted the succession scheme as settling the relationship between people and wealth, as well as that between the people. While the family constitution and family charity were considered part of the soft structure, she believed the equity trust should serve as an excellent hardware tool. “And a combination of the two makes a complete succession scheme.” she said.

Ni Shoubin affirmed the critical role of trusts in family wealth succession, thanks to its stability, privacy, flexibility and diversity. But he also pointed out that China’s current legal framework is insufficient to support the tools required in a succession scheme, “To meet the demands of family trust in China, the next step should be to improve the registration system, the tax payment system and other institutional provisions.”

To wrap up the session, Wang Xiaocheng added that a testamentary trust could be used as a backing tool for family wealth succession, as it serves to ensure the equity is finally transferred to the designated successor by appointing a natural person as the trustee.

Photos