Scams Against Chinese Companies: “Like Taking Candy from a Baby”

China scamsFor decades, Western companies have been making massive financial mistakes in their efforts to do business in China or with China. But as Chinese companies and Chinese individuals go outward from China, we see them making the same mistakes in much much greater numbers, at least percentage-wise. Chinese companies far too often eschew using attorneys or other qualified advisors and they are paying the price for this.

Just a few examples:

  1. Chinese company came to my law firm looking for legal representation to buy a $10 million commercial building. We quoted them a fee to conduct due diligence on the building and they found it too high and went forward with the deal with no due diligence. Turns out the property they bought was in need of a massive environmental clean-up and this Chinese company ended up having to pay around $5 million to accomplish this. Whenever I tell this story I say that any first year associate would have quickly discovered the environmental problem, guaranteed.
  2. Chinese company bought a retail property sight unseen in Spain and then discovered it had grossly overpaid for it because its access was terrible. Again, anyone who had looked at the property maps would have seen this, but this Chinese company chose not to pay anyone to do so, because it would “cost too much.”
  3. An American company in the middle of a bet the company lawsuit sold itself to a Chinese company as though no lawsuit were pending. The Chinese company did this deal with no lawyer (using the seller’s lawyer to document the entire transaction) and it ended up losing the lawsuit (which lawsuit the Chinese company didn’t learn about until after the deal closed) and had to shut down because of it. The seller — not a client and not someone with whom I will ever do business — told me that doing this deal “was like taking candy from a baby” and he has since become “a consultant to ‘troubled’ American companies that want to sell themselves to Chinese companies.” His pitch is based on how easy it is to find Chinese companies that won’t dig deep enough to see all of your company’s warts and so if you are a failing US business you can make a lot more selling to a Chinese company than to an American one becuase the Chinese company will probably never know about your problems. I assume this guy then works with lawyers who draft contracts that absolve the selling company of subsequent problems and the Chinese buyers do not realize what they are signing. Good lawyers do not allow their clients to sign such documents.
  4. Investment fraud. Fake United States or British “investment banks” that take in money from Chinese investors and then completely rip them off. This is a big one and it is growing. Fast. I get emails on these all the time, from both Chinese who have lost a ton of money with these fake investment banks and from readers and friends (most of whom live in China) who have been asking us to write about these scams. The following is the latest such email:
__________ Capital is the outfit supposedly from Washington DC.
This is a supposedly American company selling fake Credit/Debt Obligation swaps and REITs for fake USA properties to gullible Chinese. The numbers are staggering. Seriously staggering. Like Billion of dollars. Someone in my office got bilked BIG time.
After some research, I found out it’s a sloppy but effective MLM Ponzi scheme. The operators are Australian, Chinese, Taiwanese. The offices they list on their website are all empty around the world.
The people are so blatant, that as soon as it is clearly obvious to the suckers that they’ve been had, the operators start a new one with more promises of big riches and a complicated website with lots of BS, and China being so big, they attract a whole new set of suckers.
Ever hear of anything like this ? I mean besides Wall St, lol. Any idea if there are any watchdog agencies that can or would do anything about it ? This poor person in my office lost her entire life savings.
It really makes clear why China has resisted Western Financial services. Just because they are greedy and stupid doesn’t mean they should be robbed. I mean seriously….
I checked out the website/company to which this person refers and I am 99.99% certain it is a scam, but still do not want to list it here for fear of getting sued for doing so. The website reeks of stability, bragging about its many years in business, the sophistication of its investments and the huge amount of money it has under management. The photos are of nice looking distinguished white people sitting around nice offices. It mentions a few people in the leadership (all with the ultimate in waspy sounding names) and the prestigious colleges and universities they attended, along with the well-known companies for which they previously worked. But no years are mentioned and every search I did of this company and of its “leaders” only left me more convinced that it is a scam.
I guess the point of this post is that if you are going to spend or invest your money internationally, you must recognize the risks and do and SPEND what you can to mitigate them and if you are not going to do that, you really should stay at home. Just as we are always preaching to Westerners that due diligence when doing business with China is not optional, we are preaching to the Chinese that when doing business in the West, due diligence is also mandatory.
Would love to hear what you are hearing out there about Chinese companies and individuals getting cheated in the West. What are you seeing out there?

Dan Harris

Dan Harris is internationally regarded as a leading authority on legal matters related to doing business in China and in other emerging economies in Asia. Forbes Magazine, Business Week, Fortune Magazine, BBC News, The Wall Street Journal, The Washington Post, The Economist, CNBC, The New York Times, and many other major media players, have looked to him for his perspective on international law issues.