Got a call the other day from a United States lawyer who had a Chinese client that wanted to buy a very expensive house in that other lawyer’s big city. The lawyer’s Chinese client had said that Chinese law limited them to taking only $50,000 out of China and so this lawyer was calling me to see how they might take out a lot more than that.
We get calls like this fairly often. Sometimes they are from lawyers with Chinese clients. Other times they are from expats or foreign companies that have built up a large stack of illegal earnings in China and want our help to get it out. Our answer to all of them is always the same. Why would you call a lawyer to ask how you can violate the law? What you are seeking is not legal help, but a way to skirt the law and there is no way we are going to help in that. To the foreigners, we offer to help figure out some basis for being able to claim that their money was acquired legally and to help work through the tax issues, all of which when done to the satisfaction of the Chinese authorities would free up their money (probably now greatly reduced) to leave. To the Chinese nationals, we suggest that they retain a Chinese licensed lawyer to assist them in securing Chinese government approval to be able to ship out more than $50,000.
China Real Time Report recently ran a fascinating post, “The Mechanics of Moving Cash Out of China,” about criminal proceedings in Hong Kong against Yan Suiling, a Chinese national who had sent around USD$2 million to Hong Kong for investment. Note that for these purposes (and just about all legal purposes involving businesses or individuals) Hong Kong is considered legally separate from the Mainland. The post notes how China’s capital control regulations forbid individuals from moving more than $50,000 out per year, but that’s “a rule that’s often evaded,” frequently by using Hong Kong. The post explains how Ms. Yan got her money into Hong Kong:
She [Ms. Yan] inquired at her local mainland bank, Shenzhen City Commercial Bank, how to get the money out, according to evidence her lawyers presented at trial. Her banker, Ting Chi Ming, helped her with a number of transfers. He then referred her to his wife, Chu Kwan Kwan, identified in the Hong Kong court documents as “Madam Chu.”
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Ms. Chu ran an underground bank, according to defense evidence cited by the Hong Kong judges, an operation that they said would match people who wanted to bring money into China illegally with those who wanted to get it out illegally. These strangers would deposit money in each other’s accounts — one inside China, the other in Hong Kong. Money doesn’t actually cross the border, making it difficult for regulators to track.
- In one of Ms. Yan’s transactions, Ms. Chu directed her to deposit 3 million yuan (roughly $480,000) into a mainland bank account in the name of a stranger, also a client of Ms. Chu’s, the court said.
The same day, another stranger deposited checks worth the same amount that Ms. Yan had deposited on the mainland, converted into Hong Kong dollars, into an account Ms. Yan owned at an HSBC branch in Hong Kong. HSBC, which hasn’t been accused of wrongdoing, declined to comment.
Funds don’t actually cross the border, but the clients essentially moved money from one jurisdiction to the other, evading the $50,000 limit.
We are aware of less sophisticated ways as well, all of which are illegal. One is to just take relatively small quantities of money out of the country on your person again and again every time you leave. Another is to just take a giant wad of cash across a border. We are aware of one company that wired hundreds of thousands of dollars to someone outside of China as an advance payment for that person to get millions of dollars of cash out of China. The person ended up keeping both the wired money and the millions of dollars and what is the company to do at that point?
The bottom line here is quite simple. If you are a foreign company making money legally in China and paying your taxes, getting money out of China is not so tough. But if you want to skirt the rules, be prepared to get yourself a really good criminal lawyer.
What do you think?