The Two Contract China Deal: Don’t

Good China contract lawyers

There’s no doubt. Just don’t. Many years ago, I received a call from a Swiss company that wanted us to sue a Russian aviation company for around $750,000. The Russian company had allegedly failed to provide $750,000 in contracted-for airplane parts. I asked the Swiss company to send us the documents and my law firm’s international litigation team would get back to them with our assessment of the case. The documents arrived and they all said $75,000, not $750,000.

When I asked about this massive dollar discrepancy, the owner of the Swiss company explained that the written contract said $75,000 for Russian tax reasons, but his company had actually paid $750,000. I told him we did not want the case.

Now sure, we might have been able to produce documentation showing our client had actually paid $750,000, not $75,000, but then again, that documentation might have led the Russian authorities to jail my client for tax fraud.

I am bringing this up now because I just read about something similar in a Silk Road blog post, entitled, The Chinese Working Environment, Part 347:

What are Chinese lawyers good for?

Have you heard the one about the three lawyers, three real-estate agents and two clients trying to close a home purchase deal in China? They meet once for the “legal” contracts (which were completed with a much lower than market value amount) and then met again for the “personal” contracts with the real market values. This is what lawyers are used for in China. I wish that this was just a joke—I can confirm, that it’s not.

I have one word for these sorts of transactions: Don’t.

Okay, so one can argue that I really used two words but you get my meaning.

3 responses to “The Two Contract China Deal: Don’t”

  1. Amen, brother!
    I bought an apartment in China last month and a local friend of mine happened to also be buying at the same time (the story is from my neighbor). I can’t begin to describe the degree of difficulty and all the hassles that I went through with just one contract to complete–I can’t even imagine what the ramifications of paperwork for two would be, not to even mention the legal issues!

  2. This two-contract-deal is also used with foreign teachers, and for some reason, I haven’t worked out yet, many people go for it, in other words, sign two contracts, to help their employers put the tax they are supposed to pay into their own pockets.

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