Home -> Law Blog Directory -> International Law Blogs -> China Law Blog

International Law

: China Law Blog

China Honey, You Are An Adulterer. Can You Stand By YOUR Labels?

By Dan Harris and Steve Dickinson

A couple of Chinese "executives" were recently found guilty in Seattle Federal Court of having imported and distributed adulterated (well it at least sounds like adulterer) and mislabeled honey into the United States. The honey contained "ciproflaxin, an antibiotic that is used to fight bacterial infections but in rare cases can cause tendon damage and is barred from the food supply." The honey was also mislabeled as having come "Russia, Ukraine and possibly Poland" even though it really came from China. This all reminds me of a couple very good clients who were subjected to full on federal investigations. To camouflage the client, I am going to be very vague here, but I assure you that you will get the gist. Here are the stories: Client 1 is engaged in a very profitable business shipping food product to China, where it is combined with other product, processed, and then shipped to the United States. One day, around a dozen federal agents (from various agencies) show up, armed, and take all of the company computers. An investigation goes on for years and the company and many of its executives have to hire top flight white collar criminal attorneys to defend themselves. By the time the matter is resolved, the client has spent well over a million dollars defending itself. The charge was that my client knew that one of its products was X, even though it had been labeled Y. The Feds eventually became convinced that my client did not know it was getting X product and the matter was closed. It helped tremendously that my client was able to show that the price it paid for product Y was actually the much higher price that it would have paid for product X. Client 2 is in the high tech hardware business. It has more than 100 employees and has been in the business of producing and selling its own hardware and that of others for many years. One day, about twenty federal agents (from various agencies) show up, armed, and tell everyone to clear out. The agents spent the next 48 hours (non-stop) going through my client's computers. We later learned that the Feds had been called to investigate my client for selling counterfeit product of a very well known hardware manufacturer. This powerful hardware manufacturer had reported my client as a counterfeiter and that was enough for the Feds. My client immediately admitted that it had, many years before, inadvertently sold less than ten counterfeit products, but as soon as it realized that the product (from China of course) was counterfeit, it ceased. It helped tremendously that my client was able to show that the price it paid for the less than ten counterfeit products was the price it would have paid for the real thing. My client had to retain lawyers for itself and for a number of its executives. Fortunately, this investigation was nipped fairly early in the bud and the overall cost to my client was only around $100,000. The point of this post is that two innocent companies went through hell because they unknowingly received misleading product from their Chinese suppliers. Both of these companies had huge amounts of international and China experience before their problems arose and both of these companies are were and are very well run. What could they have done differently? I honestly do not know. What can companies do to prevent this same sort of thing from happening to them? I can call for increased diligence, but that is about all. What do you think?

Full post as published by China Law Blog on August 29, 2009 (boomark / email).