Since last year, the SEC and Deloitte Touche Tohmatsu have been engaged in a discovery dispute that ultimately caused the SEC to ask a U.S. court to order Deloitte to produce certain documents.  On Wednesday of this week, Deloitte argued in court papers that if it is forced to comply with the SEC's subpoena, its partners may be sent to prison for life in China. On the WSJ's Corruption Currents blog, C.M. Matthews writes that Deloitte fears that in addition to possible prison sentences, its entire Shanghai unit could be dissolved by Chinese authorities if the firm is forced to produce workpapers to the SEC.

Deloitte's lawyers argued this week that if the firm "were to defy the [China Securities Regulatory Commission's] command and produce the workpapers directly to the SEC, the severest of sanctions could be imposed on DTTC and its personnel: China regulators would be authorized to dissolve the firm entirely and to seek prison sentences up to life in prison for any DTTC partners and employees who participated in the violation.” These harsh penalties could be imposed by Chinese authorities if the information disclosed is deemed to be a Chinese "state secret," and the WSJ notes that in China, almost any piece of information can be viewed as such. 

Indeed, Deloitte says, Chinese authorities have already indicated that they do not consent to the production of the workpapers in question. Deloitte has accordingly asked the court to require the SEC to seek any documents through the procedures of the Hague Convention.

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