The Rise of Exit Bans and Hostage-Taking in China

Foreign entities doing business in China are facing increasingly grave risks. On top of the high-level geopolitical and economic risks to consider, the growing incidence of exit bans, which prevent foreign executives from leaving China if their company becomes involved in a dispute, imposes a very individual human risk. While there has been widespread media coverage of a few cases — the exit ban placed on a Singaporean executive from U.S. investigations company Mintz Group and the detention of five of its Chinese employees; the tit-for-tat detention of two Canadian businessmen in retaliation for U.S. fraud charges brought against a Huawei executive arrested in Canada — many companies operating internationally confront the reality of exit bans and commercial hostage-taking in relative obscurity.

This risk is increasing and unlikely to abate soon. Little in the ordinary course of business is more disruptive or volatile than the detention of company executives or employees abroad. Companies operating in China should prepare for these potential scenarios in advance.

Exit bans can arise from civil business disputes as well as more serious legal entanglements. Recent amendments to China’s counterespionage law, including vague, open-ended prohibitions on possessing “documents, data, materials, or items related to national security,” could easily encompass everyday business activities in any industry, exposing foreign executives to greater risk of arrest. The U.S. Department of State recently warned that the Chinese government “arbitrarily enforces local laws, including issuing exit bans on U.S. citizens and citizens of other countries, without fair and transparent process under the law.”

Someone subject to an exit ban for business reasons often receives no advance notice before being prevented from boarding an international flight at the airport. The person is typically interrogated but not given information about the reason for the exit ban or how to contest it.

Exit bans in cases of business disputes are typically lifted only after the foreigner accedes to the demands of their Chinese counterparty — which gains enormous leverage in the dispute by limiting the individual’s personal freedom. Even if the foreigner is willing to spend the necessary time and money to pursue the case in court while remaining trapped in China, a Chinese court is unlikely to rule in favor of the foreign party.