Chinese wall

Chinese wall is a business term describing an information barrier within an organization that was erected to prevent exchanges or communication that could lead to conflicts of interest. For example, a Chinese wall may be erected to separate and isolate people who make investments from those who are privy to confidential information that could influence the investment decisions. Firms are generally required by law to safeguard insider information and ensure that improper trading does not occur.

The origin of the phrase is the Great Wall of China. The term was popularized in the United States following the crash of 1929, when the U.S. government legislated information separation between investment bankers and brokerage firms, in order to limit the conflict of interest between objective company analysis and the desire for successful initial public offerings. Rather than prohibiting one company from engaging in both businesses, the government permitted the implementation of Chinese wall procedures.

A leading note on the subject published in 1980 in the University of Pennsylvania Law Review titled "The Chinese Wall Defense to Law-Firm Disqualification" perpetuated the use of the term.

In Peat, Marwick, Mitchell & Co. v. Superior Court (1988), Presiding Justice Harry W. Low, a Chinese American, wrote a concurring opinion specifically in order "to express my profound objection to the use of this phrase in this context". He called the term a "piece of legal flotsam which should be emphatically abandoned", and suggested "ethics wall" as a more suitable alternative. He maintained that the "continued use of the term would be insensitive to the ethnic identity of the many persons of Chinese descent".

Alternative phrases include "screen",, "cone of silence", and "ethical wall". "Screen" or the verb "to screen" is the preferred term of the American Bar Association Model Rules of Professional Conduct.

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