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‘Everybody is worried’: China raids offices of consultancy firm Capvision in widening industry crackdown

<i>Qilai Shen/Bloomberg/Getty Images</i><br/>China raids the offices of consultancy firm Capvision
Bloomberg via Getty Images
Qilai Shen/Bloomberg/Getty Images
China raids the offices of consultancy firm Capvision

By Nectar Gan and Juliana Liu, CNN

China’s state security authorities raided multiple offices of international advisory firm Capvision, state media reported Monday, part of a broader crackdown on the consulting industry as Beijing tightens control over what it considers sensitive information related to national security.

Officers raided Capvision’s office in the eastern city of Suzhou, questioned its employees and searched office devices, a Jiangsu provincial television station reported Monday. The company was a so-called expert network, which connected its clients with people who provided specialist knowledge, largely in mainland China.

The report did not give an exact date of the raid, but said it was part of a coordinated, nationwide operation carried out simultaneously targeting the company’s branches in cities including Beijing, Shenzhen as well as Shanghai, where Capvision was founded in 2006.

The consultancy firm, which is headquartered in Shanghai and New York, adds to a growing list of global consulting companies that have been ensnared in Beijing’s widening crackdown on what it perceives as national security risks.

Over the past weeks, Chinese authorities have questioned staff at the Shanghai office of US consultancy Bain & Company, and closed the Beijing office of Mintz Group, an American corporate due diligence firm, while detaining five of its local staff.

State security police said Capvision frequently contacted personnel with access to classified information in the Chinese Communist Party and the government, as well as in industries such as national defense and science, according to the Jiangsu TV report.

Police also accused Capvision of hiring consulting experts with “high remuneration to illegally obtain various types of sensitive data” and “posing a major risk” to China’s national security, the report said.

Capvision said on its official WeChat account on Monday it would “firmly implement national security development” and “take a leading role in regulating the consultancy industry.”

CNN has reached out to Capvision for comment.

A former client of Capvision, who works in due diligence in Hong Kong, told CNN the raids took place late last year.

“Everybody is worried about what’s going on,” said the source, who requested anonymity due to the sensitivity of the issue. “Things have just been getting worse and worse and worse [for the consulting industry].”

The American Chamber of Commerce in Shanghai said Tuesday it was concerned by recent reports about investigations of US due diligence and consulting companies in China.

“It would be helpful if the authorities would more clearly delineate the areas in which companies can or cannot conduct such due diligence,” its President Eric Zheng said.

Growing risks

The recent raids have raised alarms in the international business community, at a time when the Chinese government is trying to woo foreign investment to help revitalize a slowing economy after three years of self-imposed Covid isolation.

“Clamping down against foreign companies, and raids, are going to make it harder for Beijing to convince foreign executives that not only is China a safe place to do business, but a good place to do business and grow, and a place for opportunity,” said Shehzad Qazi, chief operating officer and managing director of data and advisory firm China Beige Book.

Companies “are now starting to see that their actual operations on the ground are getting interfered with and interrupted,” he added. “So I think it’s certainly raising a lot of alarm bells, and it’s creating a lot of concern.”

The legal risks for foreign companies to operate in China are growing.

Last month, China broadened the scope of its already sweeping counter-espionage law to expand the definition of espionage from covering state secrets and intelligence to any “documents, data, materials or items related to national security and interests” — a move that further spooked foreign businesses.

The consulting industry in particular has fallen into the crosshairs.

The Jiangsu television report said some companies in the fast growing industry have ignored national security risks and failed to fulfill their responsibilities and obligations of counterespionage.

State security authorities will strengthen law enforcement against illegal consulting activities that endanger national security based on the counter-espionage law, police told the TV station.

“Leaking state secrets”

In a separate report Monday, Chinese state broadcaster CCTV said national security authorities had found in multiple investigations that overseas institutions have used domestic consulting firms to steal state secrets and intelligence on China’s key areas.

In the report, Capvision was singled out as a “leading company” in the industry.

Started by former Bain consultants and Morgan Stanley investment bankers, Capvision offers consultations to over 2,000 clients and boasts a network of more than 450,000 experts, according to its website.

The former client of Capvision described the company as the “top name” in expert networks in China.

According to the former client source, Capvison charges just over $1,000 per hour for speaking with an expert in its network, and keeps the majority of the fee.

“It’s a key Chinese intermediary providing research services,” he said. “They’re the biggest fish in the space.”

“From an investing perspective, it’s a watershed moment…The whole information environment [in China] has kind of frozen up now,” he added.

The CCTV report said some consulting firms have “lured and deceived” experts in sensitive industries into providing internal secrets and eventually becoming “accomplices” for foreign forces to obtain state secrets and intelligence.

State security investigations found that Capvision accepted a large number of consulting projects from overseas companies — including some firms with close ties to foreign governments, military, and intelligence agencies — on industries sensitive to China, the report said.

A senior researcher at a state-owned company who worked as an expert for Capvision was sentenced to six years in prison for providing “state secrets and intelligence” to foreign forces, according to CCTV.

The researcher, who held a position in his company with access to privileged information, was not allowed by his company to do external part-time work, according to the report. But he accepted Capvision’s offer in 2015 and conducted more than 100 consultations since, with 60% of them for foreign clients.

According to state security police, he downloaded 5,000 documents from his state-owned company’s internal network. Among them, three were designated “state secrets” by authorities, while another 13 counted as “intelligence” and 18 were considered “commercial secrets.”

Another Capvision expert, a former employee of a Chinese military enterprise, was accused of “leaking sensitive information in the military industry” to foreign forces, CCTV said.

The expert started working for Capvision in early 2020. In one consultation, he was asked about the number of a specific type of military aircraft that China keeps, he said in the report. The authorities said he had provided clients with six pieces of information that were classified as state secrets, CCTV said.

™ & © 2023 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

CNN’s Michelle Toh contributed reporting.

Article Topic Follows: CNN - Business/Consumer

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