BEIJING, China: As geopolitical tensions harden and regulatory barriers multiply, some of the world's biggest consulting firms are quietly experimenting with new ways to keep business flowing in China, approaches that industry and legal experts say push the limits of Western sanctions rules and Beijing's curbs on foreign advisers.

Since 2023, the China units of KPMG and Bain & Co have pitched for, and, in one case, completed, work linked to a sanctioned Russian bank, while EY staff used a Chinese intermediary to pursue a project for a state-owned client, according to company documents and four people familiar with the decision-making. Reuters is reporting these arrangements for the first time.

The manoeuvres reflect the growing strain on global consultancies operating in China, where Western sanctions tied to Russia's 2022 invasion of Ukraine have expanded compliance risks, while Beijing has tightened rules on what foreign firms can do for state-owned enterprises. In early 2025, China also rolled out sweeping data-security regulations that restrict cross-border transfers of sensitive information.

Interviews with 10 current and former industry figures, along with Reuters' review of engagement agreements and internal communications, show how three of the world's largest consultancies have sought to navigate these constraints amid slowing growth in the world's second-largest economy.

One example involves KPMG China's work for Russia's state-owned Sberbank. According to an engagement letter dated Nov. 6, 2023, seen by Reuters, KPMG China agreed to help Sberbank set up its China branch, including assistance with licensing, government inspections, IT assessments, and tax filings. The fee exceeded US$400,000.

KPMG told Reuters the engagement "was accepted and conducted in accordance with all applicable laws and regulations." KPMG China "conducted checks to ensure compliance with sanctions laws, consistent with its normal procedures," it said, adding that Sberbank's representative office in Beijing "directly engaged KPMG China and directly made all payments to KPMG China for its work." Reuters has no evidence to the contrary.

Sanctions risk

The U.S. imposed sanctions on Sberbank after Russia annexed Crimea more than a decade ago and tightened them following the 2022 invasion of Ukraine. The restrictions bar U.S. persons and entities from providing goods, services, or technology to Sberbank, and secondary sanctions could also penalize non-U.S. parties.

A breach of secondary sanctions occurs when a non-U.S. person or entity provides "material" support to a sanctioned firm, according to the U.S. Treasury. Determining what constitutes "material" support involves significant discretion, lawyers at Steptoe LLP noted in Global Legal Insights.

Several sanctions experts stressed they were not commenting on specific cases described by Reuters but warned that any engagement with sanctioned entities carries substantial 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 K2 Integrity.

Whether a breach has occurred depends on the details of the transaction, including its nature and currency, said Meg Utterback, a partner at King & Wood Mallesons, cautioning firms against arrangements that could be viewed as sanctions evasion.

In a separate case, Bain's China arm pitched in September 2024 for a Sberbank project analysing China's electric vehicle industry, according to communications seen by Reuters. The proposed fee exceeded $400,000 for three weeks of work. Bain discussed using an intermediary because it could not accept payment directly from a sanctioned entity, but it did not win the pitch, and the project never went ahead, a person familiar with the matter said. Bain declined to comment.

Scrutiny of Foreign Firms

Foreign consultancies expanded rapidly in China after its 2001 entry into the World Trade Organization, but their dominance has waned as domestic rivals gained ground and Beijing emphasised self-reliance and national security. Revenue growth in China for the "Big Four" accounting firms has slowed sharply since 2022, according to data from the Chinese Institute of Certified Public Accountants.

In this environment, some firms have turned to intermediaries, several industry figures told Reuters.

In April 2023, EY staff in China used a third-party firm, Jindian Information Technology, to pitch for a 100-day strategy project for state-owned Chongqing Rural Commercial Bank, according to an engagement contract seen by Reuters. The contract was between Jindian and the bank, but all 24 team members listed were EY China or EY Parthenon employees, according to a person with direct knowledge.

Using intermediaries is not illegal in China and can serve as a workaround for projects restricted by regulators or head office rules, industry figures said. Neither EY nor the bank responded to Reuters' questions. Jindian said it had pitched for the project with "foreign experts" from EY, but that it was not accepted.

As Sino-Western tensions deepen, consultancies are walking a "tightrope," balancing regulatory compliance, reputational risk, and shrinking commercial opportunities in China.