Got a call the other day from a United States lawyer with a Chinese client who wanted to buy a very expensive house. The lawyer’s Chinese client had said Chinese law limited him to taking only $50,000 out of China and so this lawyer was calling me to see how his client might take out a lot more than that.
We often get calls like this. 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.
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 China tax issues, all of which when done to the satisfaction of the Chinese authorities should free up their money (probably now greatly reduced due to taxes) to leave. To the Chinese nationals, we suggest they retain a Chinese licensed lawyer to assist them in securing Chinese government approval to be able to ship out more than $50,000.
In The Mechanics of Moving Cash Out of China, the Wall Street Journal writes about criminal proceedings in Hong Kong against Yan Suiling, a Chinese national who 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.” The article 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 take relatively small quantities of money out of China on your person every time you leave. Another is to take a giant wad of cash across a border. We are aware of one company that wired hundreds of thousands of dollars from their entity outside China to someone outside China as an advance payment for that person to transport 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?
If you are a foreign company making money legally in China and paying your taxes, getting money out of China is not tough. But if you want to skirt the rules, be prepared to get yourself a really good criminal lawyer.
What do you think?