Getting Money out of China: Beware the Scams

Want to get money out of China. Keep calm and don't panic.

Last week in Getting Money Out of China: What the Heck is Happening?  I talked about how the China lawyers at my law firm have in just the last week or so received more communications regarding difficulties in getting money out of China than in the entire year preceding this. Since that post, the number of such communications has only increased.

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 and 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 these comments and none of our China attorneys have responded to any of the emails.

Here is why.

Far too many China money couriers are scam artists, especially those who “carry” money for foreigners. There are a million ways to get money out of China illegally, mostly involving fake invoices and 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 probably do not have the ability to tap into such a trusted network and you should not fool yourself on this. Over the years, our firm has been contacted by foreign companies regarding the following 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 (and still operates!) in China. This American company was having trouble getting its money out of China and the American lawyer assured them 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 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 Shutting Down a China WFOE. 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. The money goes to the company outside China and the American or European or Australian company never gets a penny. My law firm has 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 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 their 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 the WFOE owner was convinced by one of its own Chinese employees to submit false fapiao and to send money out of China using false contracts and false invoices. It is now pretty clear the Chinese tax authorities know exactly what the China WFOE did and they are just lying in wait for this foreign WFOE owner to return to China to “complete” the audit. The foreigner 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):

You have a WFOE in the middle of a tax audit in China that will reveal that your 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/Europe because of it. And yet you want to know whether I will go to our clients to see if they might be interested in buying this now dying WFOE. Sorry, but we just are not going to do this.

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

6 responses to “Getting Money out of China: Beware the Scams”

  1. I am a 15-year old high school intern for a small business, so this article was very insightful. It explained the cold, hard truth about business out in the real world.

  2. I’ve been asking this question all over the web and so far no good answer.
    I’m a foreigner living in China. My wife is Chinese.
    We want to move back to my home country, sell our assets and cash out a bundle of shares – hundreds of thousands of dollars we want to take back with us so we can buy our dream home there.
    But seems my wife is limited to 250,000RMB per year? It would take us a decade or more to completely divest ourselves from China.
    There must be some legal way for us to move our capital abroad. Anyone?

    • Archie, if you think you are going to find your answer on the web, you are sadly mistaken. Your answer is going to depend on your specific situation and that means you are going to need to pay someone qualified a lot of money to figure out your specific situation and then to research your possible options and then provide you with those options (assuming there are any), along with the pros and cons of each.

      • Suggestions on some places in the real world to start looking?
        Honestly have no idea, we live in a 3rd tier city, I have little to no connections here and she’s got no idea. We’re not really willing to trust any Chinese we don’t know either, for fear they’d swindle us out of cash.

        • Archie, I’ve been in China almost 8 years and whenever I hit a brick wall I ask questions on this forum: http://www.shanghaiexpat.com/phpbbforum/
          There is a lot of BS and sarcasm but also some good people that give useful advice. Use the search function and put in some different key words. If you don’t find what you are looking for then post a question. I think it is probably the most active expat forum in China.

    • You might have to do it the hard way: move back to a tiny apartment in your home country and pull out the money over the course of a decade or more until you have enough for the dream home.
      China has actual capital controls. That means there are actual legal restrictions on moving your capital abroad. Deliberate ones which are intentional. At least you can move 250,000RMB per year.

Leave a Reply

Your email address will not be published. Required fields are marked *