Getting Money Out of China, Part 2: Don’t Fall for the Scams

Last week I wrote a post entitled, Getting Money Out of China: What the Heck is Happening?  The post focused on how the China lawyers at my firm have in just the last week or so received more communications regarding difficulties in getting money out of China than in the last year. Since that post, the number of such communications has only increased, which actually could be due to the post.

In an effort to solicit more information on the state of China money transferring, I put the post up on our Linkedin China Law Blog Group page. In response to our posts, we have received a slew of comments and even a bunch of emails from people offering to help in getting money out of China. I deleted all of the comments and none of our China attorneys have responded to any of the emails.

And here is why.

Far too many China money couriers are scam artists, especially those who “carry” for foreigners. There are a million ways to get money out of China illegally, mostly involving fake invoices and literally carrying gobs of money to Hong Kong and elsewhere. Huge amounts of money illegally leave China every year and presumably much of that money gets out without anyone getting scammed. There are all sorts of “trusted networks” that enable these funds to leave.

But as a foreigner or as a foreign company you almost certainly do not have the ability to tap into such a trusted network and you should not be fooling yourself on this. Over the years, our firm has been contacted or heard from truly reliable sources about the following such getting money out of China scams:

• A U.S. company came to us many years ago after having given two million dollars in cash to an American lawyer who operated (still operates as a matter of fact) in China. This American company was having trouble getting its money out of China and the American lawyer assured them that his plan was completely legal and would cost only $100,000. Now whether this American company truly believed the plan was legal is another question, of course. The plan was to have a trusted and connected person take the cash to Hong Kong, deposit it into his own bank account and then wire the $1.9 million to the American company’s U.S. bank account. The money disappeared and we were retained to get it back. Our advice ended up being that the risks to the American company in exposing this lawyer and trying to get the money back were too high and the company literally walked away. We were concerned that the American company would have to pay taxes and penalties to the Chinese government on the funds and, most importantly, we were concerned that exposing what had happened might lead to the company being shut down and company personnel being arrested.

• Every so often, we are contacted by an American or a European or Australian company that sought to shut down its China operations improperly. For the right (but difficult) way to close down a China WFOE, check out How To Close A China WFOE Without Going To Jail.In an effort to avoid having to sit down with the China tax authorities and pay all past due (and oftentimes some not due) taxes, these companies had hooked up with someone with a “better idea.” The better idea is to send the China WFOE’s remaining funds out of China as payment for services provided to the WFOE by a company overseas. This scheme typically involves drafting a fake contract and invoice for the services not actually provided to the WFOE. This scheme is typically carried out by a Chinese citizen with a company outside China drafting the contract and issuing the invoice. The Chinese citizen has usually offered to do the deal for 10 to 15 percent of the funds, to be paid after the funds hit the Chinese citizen’s company outside China. I’m guessing most of you have by now guessed why our China lawyers get calls on these deals. Right. The money goes to the company outside China and the American or European or Australian company never gets a penny and it now wants us to pursue the scammer for their money back. My firm has actually taken on a few of these and actually managed in some cases to get some money back (talk about both parties falling off a cliff negotiating), but our strong advice is never to do such a deal.

• Thanks to China having increased its tax collection efforts against foreign companies, we also are more often finding ourselves dealing with a variant on the situation above. Here is an amalgamation of what we are seeing. Owner of China WFOE calls us from his (because it has always been a male) home country to tell us that its China WFOE is in the process of going through a tax audit in China. The WFOE owner “may” have done some things improperly in China and wants to know whether he should return to China to assist in the audit. Our answer is always something like the following: “if you ‘may’ have done something improperly in China, you absolutely should stay away from China.” We then learn that the WFOE owner was convinced by one of its own Chinese employees to submit false fapiao and (it has always been “and” not “or”) to send money out of China using false contracts and false invoices. It is now pretty clear that the Chinese tax authorities know exactly what the China WFOE did and they are just lying in wait for this American (because every time it has been an American) to return to China to “complete” the audit. The American wants to know what to do and pretty much every time, they ask if we know anyone who might be interested in buying their WFOE. To which my response is something like the following (minus most of the incredulity and the sarcasm added below):

Wait, let me get this straight. You have a WFOE in the middle of a tax audit in China that you know will reveal that the WFOE has for years been engaging in money laundering and tax fraud. In fact, you are so concerned about what this audit will find (or really, has already found) that you are hiding out in the United States because of it. And yet you want to know whether I will go to any of my clients to see if they might be interested in buying this now dying WFOE? Do you really think there are people out there dumb enough to buy such a company without conducting any due diligence on it and thus fail to realize that they are buying into nothing but financial and maybe even criminal liabilities? More importantly, do you really think that I am going to push this turd onto one of our existing clients? Just out of curiosity, why would you think my law firm would do this?

Just don’t let any of the above happen to you. Especially now. Or ever. Don’t panic and do something stupid.

The post Getting Money Out of China, Part 2: Don’t Fall for the Scams appeared first on China Law Blog.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.