October 3, 2023
Chinese state-owned enterprises are using Australian law firms to advise on takeovers of critical local infrastructure and minerals projects according to a new report that exposes potential conflicts with other sensitive work the same companies complete at home.
The research also warns confidential client files held here could be accessed by authorities in Beijing, and controversially calls for Australia's Foreign Influence Transparency Scheme (FITS) to be adjusted to remove exemptions for "legal advice or representation".
"Law firms operating in Australia acting for PRC [People's Republic of China] entities simultaneously fulfil engagements for Australian government entities, including those responsible for national security and foreign policy," the report stated.
"PRC state-owned entities are engaging Australia's law firms as a legitimate means to achieving commercial and economic outcomes that advance PRC strategic and political interests, risking prejudice to Australia's national security without transparency."
One of the report's authors, Canberra-based cyber security expert Robert Potter, said some of the larger law firms they studied are completing sensitive Defence Department work while at the same time advising PRC-controlled companies.
Mr Potter warned firms were advising on things "as sensitive as government platform procurement", while using the same email servers to handle Chinese state-owned customers, without "any of what we would expect in terms of technical separation of their infrastructure".
"We've looked at the law firms in terms of their level of potential risk for exposing government data from Australia externally through what we can see as less than optimal cyber security practices on their systems," he said.
The report also examined risks associated with how quickly Australian law firms were growing their Chinese business and "the degree to which they're going beyond providing legal services", including promoting causes such as Beijing's 'Belt and Road' policy and semi-conductor industry.
"Australia's FITS laws do not capture legal advice or representation, posing risk that foreign principals can engage legitimate legal services to facilitate outcomes without
transparency that are prejudicial to Australia's national security interests," the document warned.
Mr Potter claimed that by partnering with organisations such as the China-Australia Business Council law firms could go beyond their regular legal work which is exempt from the FITS regime.
"We can see that their work goes significantly beyond just doing contract work to the point where they're advocating specific projects and specific policy positions which align with the Chinese Communist Party," Mr Potter said.
One of the Australian legal firms documented in the study is global company Ashurst, which completes Defence Department work while also representing Huawei locally, despite the federal government deeming the Chinese telco a "high risk" vendor.
An Ashurst spokesperson told the ABC it wasn't able to comment on individual clients, but "takes compliance with law and client requirements seriously, and has stringent systems and controls in place to assess risk, manage conflicts and safeguard client confidentiality".
Rival firm Allens was identified in the report as "among Australia's largest servicers of PRC state-owned enterprises acquiring Australian critical minerals assets, as well as renewable energy, mining, power, oil and gas, agribusiness and real estate".
The report detailed how a longstanding Allens client in China, Xinjiang Goldwind Science & Technology Co, was accused by the United Nations of using exploited Uyghur "labor exports", but a company spokesperson declined to comment when contacted by the ABC.
King & Wood Mallesons (KWM) is found to be "the second most represented law firm operating in Australia servicing PRC state-owned enterprises", with the report highlighting its work with Hong Kong's "Renminbi internationalisation" and "Belt and Road" initiatives.
"Our Swiss Verein structure enables us to operate as an international firm while maintaining separate local partnerships (KWM Australia, KWM China and KWM Hong Kong)," a KWM Australia spokesperson told the ABC.
"We have separation of IT systems between KWM Australia and other parts of the KWM network. We take our legal and fiduciary duties seriously and use robust conflict checking systems and business acceptance protocols."
Shadow Home Affairs and Cyber Security Minister James Patterson said it was a shocking report.
"Some of Australia's largest law firms are not even taking the most basic cyber security mitigations to protect the sensitive information they hold ... frankly it's negligent not to at the very least separate their systems," Senator Patterson said.
Senator Patterson added Australia's foreign influence laws were in need of "urgent" reform.
"It's very clear that the Foreign Influence Transparency Scheme is not working as intended ... there are people who should be registered on the scheme who are not registered on the scheme," he said.
A spokesperson for Attorney-General Mark Dreyfus said Australia's FITS laws were introduced by the Coalition government in 2017.
"The government is now awaiting the final report of the comprehensive inquiry into the scheme by the Parliamentary Joint Committee on Intelligence and Security," they said.
