Header graphic for print
China Law Blog China Law for Business

Getting Money Out Of China. That’s Illegal.

Posted in Uncategorized

Got a call the other day from a United States lawyer with a Chinese client who 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.” 

*         *         *         *

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?

  • http://twitter.com/fonstuinstra Fons Tuinstra

    Oh, why not use a shipment of hot-air balloons? That is a proven method.

  • Charlie

    What’s involved in shipping out $50,000 or less? A simple bank transfer from RMB into foreign currency, or something else?

    • William

      Individual foreign citizens still have to jump through some hoops to change amounts over $500 into foreign currency. You have to bring documentation showing that you paid taxes on the income, among other things. I don’t think it’s any easier for companies sending money abroad.

    • goosemcgoose

      Every person (Chinese or Foreign national) in Mainland China can convert up to US$50000 per annum either from RMB to USD or vice versa. Just open a bank account at any bank in China, and do a foreign exchange. You can then withdraw the funds into physical cash, or wire the money. However you are not allowed to take more than RMB¥20000 or US$5000 physical cash into or out of the country, so wiring the money is probably your best bet.

  • http://twitter.com/allroads All Roads Lead to CN

    Dan.

    I think it is important to point out that the transaction that landed her in hot water was a personal one, not corporate, and that moving 2 million USD out of China as a person is very different than as a corporate entity. Regardless of whether or not one has paid taxes.

    Second to that, what I find interesting is the role of the banker here. I have experienced something similar where we asked a banker how to get money out (from say the sale of an apartment), and the response we received was “There is one official way to get money out of China, but many unofficial. And I don’t know the official way”.

    As to the logistics of the unofficial way, it is cheap and efficient, but I would agree that if anyone engages in it they need to think about the potential for getting a criminal attorney. there have been more than a few of these “banks” busted, and when they are it is simply a matter of time before authorities track down the client list.

    R

  • goosemcgoose

    “Note that for these purposes (and just about all legal purposes involving businesses or individuals) Hong Kong is not considered legally separate from the Mainland. ”

    Not sure what you mean by this statement. Hong Kong is considered legally separate when it comes to the law. And according to the article, the court found the accused not guilty. She did do something illegal in Mainland China, but HK courts have no jurisdiction there, and therefor shouldn’t have punished her. Too bad she already served 18 months.

    • http://www.chinalawblog.com/ Dan Harris

      I slipped and accidentally flipped it. Thanks for noticing. I have gone back and corrected it.

  • Ramon

    I can summarize this article: “Money Laundering: It’s Not Good”. Do I win a prize?

  • http://twitter.com/Sinoblawg Jason Tian

    I used to help a USA client to move out of China their money derived from sale of property in Shanghai. I was surprised to know that in many foreigners’ mind, they still think once your money comes into China, it will be very difficult to wire them out, which is not true provided however that the money is legally made.

    Actually, recent relaxation on forex control has made it easier to get your legal money out of the country.