China’s regulators asked state-owned enterprises and companies listed in the mainland to ramp up security checks when choosing accounting firms to audit their financials, in a directive Thursday. Those companies should review their auditors’ ability to manage information security and insert separate clauses to prevent leaks by controlling sensitive information effectively, the regulators said.
New York-based Kroll, best known for its corporate investigations and risk assessments, has been reviewing local rules in China and the kinds of work it may take on in light of the actions on firms and the amended espionage law, people familiar with the matter said. “The definition of a state secret has always been loose in China,” Mr. Tong said. The country’s expanded anti-espionage law has made it more explicit that information that might be considered private business data in other countries is deemed privileged in the Chinese context—to be used only by Chinese or specific groups in the country cleared to access that information, he said.
One reason corporate due-diligence firms serve an important function in China is that there can often be questions about the background of potential business partners, said David Schlesinger, an independent China analyst. That heightens the need for the boards of Western companies to ensure a thorough vetting, he said.