Humphrey and his Chinese-born American wife Yu Yingzeng were
hired by GlaxoSmithKline April last year to investigate an
email alleging that GSK
employees were engaging in an elaborate bribery scheme. The
detailed allegations also contained a video of GSK China head
Mark Reilly in what appeared to be his Shanghai apartment. Soon
after, GSK engaged Humphrey’s company ChinaWhys to investigate the
allegations and find out who may have broken into
Reilly’s home to make the video.
In July 2013 Chinese authorities arrested Humphrey and Yu.
It is believed that they are accused of illegally obtaining
private information during the course of their investigations.
Humphrey soon after
issued an apology on Chinese television for his
company’s actions and said that he never intended
to break Chinese law.
apologising for his actions on Chinese
Meanwhile, Reilly and two other GSK executives are accused
of paying and orchestrating RMB 3 billion ($485.3 million) in
bribes to doctors, hospital administrators and government
officials to increase sales. GSK has also
admitted that its executives have broken the law.
More serious charges averted?
Humphrey’s trial is scheduled to begin on
August 8 before the Shanghai Number One Intermediate Court. A
conviction of some sort seems all but certain (Last year,
Chinese prosecutors had a 99.93% conviction rate, with just
825 non-guilty verdicts out of 1.16 million criminal
defendants), and several factors, such as
Humphrey’s televised apologies, indicate that the
defendants may have come to some sort of deal or may otherwise
not be subjected to the most serious of charges.
"Fortunately, the prosecutor’s case against
Peter [Humphrey] did not include allegations of 'illegal
operations’ under Article 225 of the PRC Criminal
Code, which would have been the most obvious provision upon
which to target the private investigations industry," explains
Joe Simone of Simone IP Services.
Article 225 of the Criminal Code sets forth criminal
penalties for illegal acts in the operation of a business that
disrupts the market order. "Serious" cases may result in up to
five years of criminal detention and fines up to five times the
amount of illegal gains. Cases deemed "especially serious" may
result in more than five years of imprisonment as well as fines
and confiscation of property.
Simone says that the defendants’ lawyers have
been required to sign non-disclosure agreements so it is
unclear as to the specific charges.
"But from what I’ve heard, there is reason to
believe the level of buying and selling of protected
information may not have risen to the level of a crime," he
says. "Or at the very least, there is a high level of ambiguity
over the criteria for determining whether a crime has been
An industry on trial?
Humphrey’s trial is also raising questions
about the status of the private investigation industry in
China, an industry that international companies rely on for
everything from due diligence on potential investments to
screening possible business partners. Private investigation
firms are especially important for IP protection. For example,
Jimmy Kwok of HP told Managing IP that
his company used 12 private investigation firms in China with
up to 500 investigators in total. Tasks vary, but
investigators are commonly used to track counterfeits up the
supply chain in order discover and shut down the manufacturers
of the infringing goods.
The Humphrey case is drawing attention to the legal
ambiguity surrounding private investigation firms.
"The arrest of Peter and his wife has led many companies and
practitioners to revisit the question whether the operation of
a private investigations company in China is legal," Simone
says. "There is a 1993 notice from the Ministry of Public
Security suggesting it is not. But this is merely a notice, and
not a law or even a regulation."
A director at an international risk management firm also
told Managing IP that government scrutiny of the industry has
increased in the last two years. He notes that his and
colleagues in other foreign firms have been getting more visits
from regulatory officials, though he says that he interprets
these visits more as warnings than attempts to uncover
"It’s not as if these officials are coming with
accusations or demands for documents; it’s much
more subtle than that," he says. "They almost always show up
unannounced and they just ask pretty general questions about
how things are going. It’s a way of letting us
know that they’re watching."
"However, firms like mine are always aware of this. We know
we are in a regulated industry and we have to be clear about
what we can do and find legal workarounds to get the
information we need."
Regardless of the outcome, the Humphrey case will be closely
watched by private investigators and their clients. And like
recent scandal involving rotten meat supplied to
McDonald’s and KFC in China, investigators may
have to be extra careful about where it sources its information
"It may be that Humphrey may have tapped into this world of
subcontractors that provide information to investigators," says
the risk management director. "However, the old days of just
paying for information, no questions asked, are gone."
"Hopefully the recent enforcement campaign against the
companies that have leaked data to investigators like Peter
will put an end to the practice," says Simone. "But it remains
unclear whether lack of access to data on individuals and
companies under the current system in China will hamstring
investigators looking into bona fide targets."
UPDATE: Humphrey and Yu have been found
guilty, following a one day trial. Humphrey received a 30 month
prison sentence and a RMB 200,000 fine ($32,500), while Yu
received a two-year sentence and a RMB 150,000 fine. Humphrey
will also be deported.
Humphrey and Yu have 10 days to appeal.