Global consulting firms with China operations are increasingly adopting arrangements that industry and legal experts say push the limits of Western sanctions regimes and Beijing’s tightening controls over foreign participation in sensitive domestic sectors.
Since 2023, multiple episodes documented in company communications and described by company insiders show tensions between compliance obligations and commercial pressure in China’s slowing market. Among the examples are a China office contract to assist a sanctioned Russian lender with establishing a local presence, a separate pitch in which the use of an intermediary was discussed after the consultancy said it could not be paid directly by a sanctioned entity, and an instance where local staff relied on a domestic intermediary to bid for work from a state-owned bank.
These episodes illustrate how consultancies are attempting to reconcile two competing constraints: Western sanctions that bar or restrict services to certain foreign entities, and Chinese measures that limit the work foreign firms can carry out for state-owned enterprises and place new curbs on cross-border data flows.
Specific engagements and pitches
One documented engagement involved KPMG’s China unit and a major Russian bank. An engagement letter dated November 6, 2023 lays out work to help the bank set up a branch in China, with assistance ranging from licensing and government inspections to IT assessments and tax filings. The letter specified a fee in excess of $400,000 for the work.
Representatives of KPMG stated that the engagement "was accepted and conducted in accordance with all applicable laws and regulations" and that KPMG China performed sanctions checks consistent with its normal procedures. KPMG said the bank’s representative office in Beijing directly engaged KPMG China and also directly paid the firm for its services. No information has been presented that contradicts those descriptions.
U.S. restrictions on the bank in question date back more than a decade and were tightened following Russia’s 2022 invasion of Ukraine. Those restrictions prohibit U.S. persons and entities from providing goods, services or technology to the bank and include provisions for secondary sanctions that can reach non-U.S. parties providing material support to sanctioned entities.
Sanctions specialists emphasize that doing any work with a sanctioned entity carries reputational and regulatory risk. "If you are a non-U.S. entity but doing business with an entity that’s sanctioned or under a U.S. program with secondary sanctions, then you are taking on a tremendous, tremendous risk," said Daniel Glaser, global head of jurisdictional services at risk-advisory firm K2 Integrity. Glaser, who previously served in the U.S. Treasury Department, noted that whether a particular engagement would amount to a breach depends on the engagement’s details.
Legal advisers observe that determinations about breaches hinge on whether support is deemed "material" and that authorities responsible for sanctions enforcement possess significant discretion in those assessments. Meg Utterback, a partner at King & Wood Mallesons, said that navigating transactions with sanctioned entities may be possible in certain circumstances but is contingent on factors such as the transaction’s nature and the currency used. She cautioned that the U.S. sanctions regime has broad reach and warned parties to avoid any appearance of evading those restrictions.
In another instance involving the same Russian lender, the China arm of a U.S. consultancy, Bain & Company, proposed a market-analysis project on China’s electric vehicle sector. Communications dated September 2024 show Bain pitched to help the bank understand the industry’s development stage, penetration, key players and to provide forecasts. Bain’s proposed fee was over $400,000 for a three-week engagement.
During discussions, the Bain team communicated that it could not accept direct payment from a sanctioned entity and the possibility of using an intermediary to receive fees was raised. The pitch did not succeed and the project did not proceed.
In a separate arrangement involving a domestic state-owned lender, staffers associated with EY used a Chinese intermediary to bid for a strategy contract in April 2023. The contract, which was between the intermediary and the state-owned Chongqing Rural Commercial Bank, listed 24 team members who were employees of EY China and EY Parthenon. Publicly available details corroborated the identities of several of the individuals listed on the contract.
While it is not illegal in China for a company to use an intermediary to carry out work that the firm cannot undertake directly, industry figures describe such an approach as a way to gain access to projects that might otherwise be restricted by regulators or disallowed by a parent company’s policies.
Broader regulatory and commercial context
The commercial calculus for global consultancies in China has shifted markedly in recent years. After the turn of the century, foreign consultancies expanded rapidly in China as demand rose for advisors to help multinational and local companies navigate newly opened markets. That expansion accelerated after China joined the World Trade Organization in 2001.
More recently, several developments have narrowed the opportunities that once favored foreign firms. Local competitors gained market share by offering lower prices and stronger familiarity with domestic regulations and business customs. At the same time, Beijing’s policy emphasis on self-reliance and national security has made it harder for foreign consultancies to compete in certain areas.
China’s listed data-security measures, introduced in early 2025 as part of the Network Data Security Management Regulations, impose security assessments on companies that handle online data about individuals or organizations and add restrictions on cross-border transfers of information without government approval. Chinese authorities have framed the move as a national-security safeguard.
Those rules, together with deepening geopolitical tensions between Washington and Beijing and continuing Western sanctions linked to Russia’s actions, have placed consultancies in a delicate position. "The deepening U.S.-China tensions have left global consultancies walking a 'tightrope' in China," said George Yip, emeritus professor of marketing and strategy at Imperial College London and a visiting professor at Northeastern University. As the official policy environment tightens, consultancies face dwindling revenues in a large market and increased compliance burdens from multiple jurisdictions.
Consequences, enforcement and company responses
U.S. authorities have the power to impose civil fines for primary sanctions violations that can reach into the hundreds of thousands of dollars per violation; criminal cases carry higher penalties and potential jail terms. Despite the regulatory risks described, the U.S. has not imposed sanctions on any global consultancies for their work in China.
The European Union and Britain have also placed sanctions on the Russian bank and prohibit some professional services to it, including management consulting. EU and UK authorities have not offered comment in the matters described here.
Companies directly involved in the example engagements have provided varying responses. KPMG affirmed its compliance checks and said the engagement was carried out in line with applicable laws and that the bank’s Beijing office directly engaged and paid KPMG China. Bain declined to comment on the pitch. The intermediary involved in the Chongqing tender said it had pitched for the work together with "foreign experts" but that it had not been accepted. The state-owned bank and other Chinese regulators did not provide comment on the examples described.
What industry insiders say
Ten current and former consulting industry figures interviewed for the reporting, along with a review of engagement contracts and internal communications, described a shift toward the use of intermediaries and other structures that can shield local consultancy teams from scrutiny by either Chinese or Western regulators. Sources emphasized that the precise legal exposure for a firm will depend on the detailed facts of any engagement.
One theme that emerges from the documented cases is that consultancies under pressure from slowing China revenue growth and from limitations on the types of permissible work will explore alternative commercial paths. Those approaches can include direct contracts with local representative offices, reliance on domestic third parties to carry the formal contractual relationship, or discussing third-party payment channels where direct payment by a sanctioned entity is not feasible.
Industry and legal specialists advise caution. Beyond regulatory enforcement risk, firms face reputational consequences and the operational complexities associated with managing cross-border compliance in an environment of competing legal obligations. In the view of those experts, any determination about violations depends on granular details - a reminder that the regulatory landscape remains fraught and evolving.
Reporting on these matters drew on interviews with industry figures and a review of engagement letters and company communications. The examples cited reflect the materials and interviews available to the reporting team and the firms involved have provided the statements noted above.