Now it's Singapore's turn. The country's High Court has rejected PwC's bid to not produce audit papers related to its work with bankrupt Celestrial Nutrifoods, a Bermuda-incorporated company with Chinese assets and officers based in China.
Singapore-listed Celestial had issued bonds that it was unable to redeem in 2009. It was placed under liquidation in 2010. Celestial's assets in China are now controlled by new owners in that country.
PwC had claimed that turning over the documents to Celestial's liquidators in Singapore would cause it to violate China's secrecy laws. It was the same defense mounted by Ernst & Young in Hong Kong and five accounting firms in the US, in response to demands for them to produce documents related to their work with Chinese companies. Hong Kong and the US rejected the auditors' defense, though both cases are under appeal.
"I am not satisfied that an order for disclosure to the Liquidator of the documents and information requested would subject PwC to criminal sanctions in the PRC," Judge Judith Prakash ruled on August 6. She said PwC "provided no real evidence as to what state secrets there were in the documents or how revealing them would be against PRC law."
The judgment clarified what the courts in Singapore expect as burden of proof when accounting firms cite China's secrecy laws as reason for not complying with demands for them to produce audit papers to liquidators. It is not enough for accountants to assert potential prosecution in China; they must show evidence that it is indeed a real possibility.
It is not enough to assert, as PwC did, that the documents demanded by the liquidator may include loans or documents issued or signed by local governments in China, as well as documents referring or relating to certain governmental decisions and correspondence.
PwC has the right to appeal, but it has yet to decide whether to do so.