Dentons has severed formal ties with Dacheng, the Chinese firm that made Dentons the biggest global legal practice by headcount when the pair aligned eight years ago. The move comes after the Chinese government tightened cyber security and data protection laws on national security grounds.
The 2015 Dentons/Dacheng tieup was structured not as a formal merger but as a verein, an association between partnerships that share a common name but remain financially independent. The only other such deal to that point - the 2012 tie-up between King & Wood in Beijing and Australia’s Mallesons Stephen Jaques - was also structured as a verein.
The deal’s structure reflected the fact that Western lawyers face tough restrictions on operating in China. Foreign law firms are strictly prohibited from advising on PRC law and must establish a representative office in order to conduct business there. They also require approval from the Chinese Ministry of Justice.
In a statement, Dentons said: ‘In response to recent Chinese government mandates on Chinese law firms, including those relating to cybersecurity and data protection, Dentons is modifying its relationship with Beijing Dacheng Law Offices, the Chinese legal partnership that has been a member of the Dentons Group since 2015. Moving forward, 大成 (Dacheng) will operate as a separate, standalone law firm that will serve as Dentons’ preferred law firm for clients with legal needs in China. While our legal relationship is changing, we will continue working together to meet our clients’ needs across China and the 80+ countries where Dentons does business.’
Dentons reportedly informed clients yesterday that it was making the move, citing the ‘evolving regulatory environment for Chinese law firms’, including new requirements ‘relating to data privacy, cyber security, capital control and governance’. Dentons' Hong Kong practice, which joined in 2013 before the combination with Dacheng, will remain an integrated part of Dentons.
Before the separation Denton said it had 12,000 lawyers in over 80 countries. Post-separation it has 5,970 lawyers in over 80 countries, which the firm said means it remains the world's largest law firm.
According to the Law Society, more than 30 UK-headquartered law firms operate in more than 40 offices in Beijing and Shanghai. Other firms are understood to be reviewing their operations in the country.
A Society spokesperson said: 'This decision reflects an increasingly complex regulatory environment in a market that is already relatively restrictive for UK law firms.
'We have seen positive developments in recent months, with foreign firms being permitted to establish joint ventures in the southern city of Shenzhen. However, expanding cybersecurity and data protection laws in China are making it more difficult for foreign law firms to practise in the country.'
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