Generally speaking, I’ve mostly said that if / when it’s time to take money out of China, it was pretty easy and straight-forward as long as one followed China’s laws. Lately, this is more and more not the case.
These days, China lawyers are receiving more “money problem” calls than the previous year (2015). And unlike most of these sorts of calls, the problems are overarchingly “brand new” to them. It has reached a point where it used to be that they were advising foreign companies that were waiting for a large sum to arrive from China that any delay in payments was a ruse. But with all that has been going on lately, they have no clue as to whether that is the case or not.
So what has been going on lately?
Well if there is a common theme, it is that China banks seem to be doing whatever they can to avoid paying anyone in dollars. We are hearing the following:
1. Chinese investors that have secured all necessary approvals to invest in American companies are not being allowed to actually make that investment. I mentioned this to a China attorney friend who says he has been hearing the same thing. Never heard this one until this month.
2. Chinese citizens who are supposed to be allowed to send up to $50,000 a year out of China, pretty much no questions asked, are not getting that money sent. Seems as if almost every Realtor in the U.S is calling law firms on this one. The Wall Street Journal wrote on this recently. Never heard this one until this month.
3. Money will not be sent to certain countries deemed at high risk for fake transactions unless there is conclusive proof that the transaction is real — in other words a lot more proof than required months ago. I heard this one last week regarding transactions with Indonesia, from a friend with a subsidiary there. Never heard this one until this month.
4. Money will not be sent for certain types of transactions, especially services, which are often used to disguise moving money out of China illegally. This is not exactly new, but it appears China is cracking down on this. For what is ordinarily necessary to get money out of China for a services transaction, check out Want to Get Paid by a Chinese Company? Do These Three Things.
5. Get this one: Money will not be sent to any company on a services transaction unless that company can show that it does not have any Chinese owners. The alleged purpose behind this “rule” is again to prevent the sort of transactions ordinarily used to illegally move money out of China. Never heard this one until this month.
In an effort to gather more information and insights on the state of China money transferring, I put some bait out there on LinkedIn and a few other platforms. In response, I 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 have not 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. Vast amounts of money leaves China illegally 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, I’ve heard from truly reliable sources about such getting money out of China scams:
- A U.S. company, after having given two million dollars in cash to an American lawyer who operated (still operates as a matter of fact) in China 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. Anyways, 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. So, another law firm was retained to get it back. Their advice ended up being that the risks to the company in exposing this lawyer and trying to get the money back were too high and the company literally walked away. They were concerned that the American company would have to pay taxes and penalties to the Chinese government on the funds and, most importantly, they were concerned that exposing what had happened might lead to the company being shut down and company personnel being arrested.
- Every so often, American, European or Australian companies contact lawyers because theysaught to shut down their China operations improperly. 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 hook 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. The money goes to the company outside China and the American or European or Australian company never gets a penny and it now wants a law firm to pursue the scammer for their money back.
- Thanks to China having increased its tax collection efforts against foreign companies, lawyers are also more often finding themselves dealing with a variant on the situation above. Here is an amalgamation of what I’ve been hearing. Owner of China WFOE calls from his home country saying the China WFOE is in the process of going through a tax audit in. 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. Usually the answer is something like the following: “if you ‘may’ have done something improperly in China, you absolutely should stay away from China.” Then it’s often learned 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 their is anyone who might be interested in buying their WFOE. To which the response is suually 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 if their might be party 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?
Just don’t let any of the above happen to you. Especially now. Or ever. Don’t panic and do something stupid.