Scams Against Chinese Companies: “Like Taking Candy from a Baby”
For decades, Western companies have been making massive financial mistakes in their efforts to do business in China or with China. But as Chinese companies and Chinese individuals go outward from China, we see them making the same mistakes in much much greater numbers, at least percentage-wise. Chinese companies far too often eschew using attorneys or other qualified advisors and they are paying the price for this.
Just a few examples:
- Chinese company came to my law firm looking for legal representation to buy a $10 million commercial building. We quoted them a fee to conduct due diligence on the building and they found it too high and went forward with the deal with no due diligence. Turns out the property they bought was in need of a massive environmental clean-up and this Chinese company ended up having to pay around $5 million to accomplish this. Whenever I tell this story I say that any first year associate would have quickly discovered the environmental problem, guaranteed.
- Chinese company bought a retail property sight unseen in Spain and then discovered it had grossly overpaid for it because its access was terrible. Again, anyone who had looked at the property maps would have seen this, but this Chinese company chose not to pay anyone to do so, because it would “cost too much.”
- An American company in the middle of a bet the company lawsuit sold itself to a Chinese company as though no lawsuit were pending. The Chinese company did this deal with no lawyer (using the seller’s lawyer to document the entire transaction) and it ended up losing the lawsuit (which lawsuit the Chinese company didn’t learn about until after the deal closed) and had to shut down because of it. The seller — not a client and not someone with whom I will ever do business — told me that doing this deal “was like taking candy from a baby” and he has since become “a consultant to ‘troubled’ American companies that want to sell themselves to Chinese companies.” His pitch is based on how easy it is to find Chinese companies that won’t dig deep enough to see all of your company’s warts and so if you are a failing US business you can make a lot more selling to a Chinese company than to an American one becuase the Chinese company will probably never know about your problems. I assume this guy then works with lawyers who draft contracts that absolve the selling company of subsequent problems and the Chinese buyers do not realize what they are signing. Good lawyers do not allow their clients to sign such documents.
- Investment fraud. Fake United States or British “investment banks” that take in money from Chinese investors and then completely rip them off. This is a big one and it is growing. Fast. I get emails on these all the time, from both Chinese who have lost a ton of money with these fake investment banks and from readers and friends (most of whom live in China) who have been asking us to write about these scams. The following is the latest such email:
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.
Source: http://www.chinalawblog.com/2017/07/scams-against-chinese-companies-like-taking-candy-from-a-baby.html
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