Recent cases of corporate accounting fraud in China have presented countries attempting to prosecute these cases with legal difficulty. When non-Chinese regulators have requested financial documents from the auditors of these accused companies for investigatory purposes, the auditors have refused to produce these documents, claiming that to do so would cause them to violate Chinese law. In response, regulators in multiple countries have sued these auditors to try and force them to produce the documents, and also threatened Chinese companies operating in their jurisdictions with delisting and other sanctions. This has resulted in a counterproductive stalemate in which there exists no clear set of guidelines for foreign regulators or accounting firms to follow in obtaining necessary information for prosecution and rectification of corporate fraud. This Note will argue that it is in the Chinese government’s best interests to formalize a process that satisfies the needs of both Chinese and foreign regulators without trapping accounting firms in the middle. This Note will also analyze the current state of cases regarding this issue and the potential consequences of a failure to resolve the issue.
