Chinese Arbitration Official Arrested

The international arbitration community is abuzz with the news that Dr. Wang Sengchang, one of the top officials at the China International Economy and Trade Arbitration Commission (CIETAC) was arrested. CIETAC has a virtual monopoly on arbitrations that occur in China and it has had a checkered history of success in securing investor confidence in the dispute resolution mechanism. I also have received an email from a prominent arbitrator indicating that upon receiving the news of Dr. Wang’s arrest, many of the leading arbitration institutions around the world, including the AAA, sent letters to the Chinese authorities expressing their concerns about the situation and praising Dr. Wang’s efforts on behalf of international arbitration.

Here is an excerpt of a story from the South China Morning Post:

The most prominent official at China’s top legal arbitration body has been arrested and detained on charges of financial irregularity.

Wang Shengchang, secretary-general of the China International Economy and Trade Arbitration Commission, was arrested on Monday when he arrived at the offices of the China Council for Promotion of Foreign Trade in Beijing for a meeting, sources said.

On the same day, the Audit Bureau and Ministry of Finance ordered that the commission turn over its funds to the government.

After his arrest, Wang was transferred to Tianjin to await trial for illegally distributing state assets to staff, a charge that carries a sentence of three to seven years in jail. The charges apparently relate to case handling fees paid to commission employees.

Although the commission is essentially a government agency, it has been formally designated a non-governmental civil organisation since its establishment in the mid-1950s.

Veteran government arbitration officials and international lawyers said Wang was a scapegoat for a problem that had arisen due to the commission’s ambiguous status as a semi-governmental entity, the miniscule fees earned by mainland arbitrators and the hundreds of millions of yuan the commission earned for its services.

Until three years ago, the commission was the only arbitration body permitted to deal with arbitration cases with international dimensions, and while foreign firms prefer to conduct proceedings in Hong Kong or abroad the commission is still seen as preferable to mainland courts.

Foreign investors have been under a lot of pressure to use the commission as their arbitration tribunal for years, said Sharon Mann, a partner at law firm Dewey Ballentine.

The investigation into its finances began a few months ago but until recently Wang was very confident that there was no problem with the payment of fees to staff and anyway the practice was established long before he took over, said an arbitration lawyer who knows him personally.

The commission’s director is Wan Jifei, the son of former vice-premier and National People’s Congress chairman Wan Li. He has not been arrested and sources say he has not stepped in to help Wang.