Chinese investment bank CICC Capital bans use of Capvision

Chinese investment bank CICC Capital has banned any internal use of Capvision for any due diligence-related services. That is according to a memo confirmed by Reuters on Wednesday, which reportedly made the ban effective immediately.

CICC Capital is the specialized investment arm of the partially state-owned financial giant China International Capital Corp (CICC).

Capvision offices in China were raided by police on 8 May as part of a multiagency police operation that is currently investigating foreign (mostly US) consulting firms that operate in China. Chinese state media revealed that authorities have accused Western companies of stealing intelligence across critical industries such as defense, finance, and health.

Capvision, founded in Shanghai in 2006 by former Bain & Company consultants together with Morgan Stanley investment bankers, is not a traditional consulting firm, but rather an ‘expert network’ that connects companies with experts in the field. Despite a heavy presence in China, the company is headquartered in New York.

The raid has again put a spotlight on due diligence work, a practice that involves conducting thorough assessments and analysis to uncover details about a business in order for another business to make an informed decision on any acquisition or investment.

In recent months, other US-origin consulting firms were also raided or put under investigation by Chinese police. Those included strategy outfit Bain & Company and Mintz Group.

While due diligence is common in the West and is seen in the business world as an essential part of many types of transactions, it has raised eyebrows among the ranks of the CCP. With many Chinese companies being state-owned (or partly state-owned), Beijing has begun likening the practice to espionage.

The internal memo by CICC Capital instructed staff to no longer use Capvision’s services. The use of other consultancies and expert networks is still permitted.

Both CICC Capital and Capvision did not respond to media requests from Reuters and other publications following both the raid and the news of the memo.

Capvision was accused on Monday of espionage and improperly handling sensitive information from state-owned Chinese companies. It was reported yesterday that the company had set up a committee to ensure compliance with Chinese anti-espionage rules, which have been recently beefed up.

Tensions between the US and China are at a relatively high point this year, with both countries accusing the other of everything from espionage to attempting economic sabotage.