Case Study: We helped a non-resident client open an account in China, who was the victim of a fraud and lost 8,000,000 USD - YB Case 2024

Case Study: We helped a non-resident client open an account in China, who was the victim of a fraud and lost 8,000,000 USD

Case study:
We helped a non-resident client open an account in China, who was the victim of a fraud and lost 8,000,000 USD

China's complex banking landscape poses manifold challenges for overseas enterprises. Failure to establish the requisite financial infrastructure risks blocking operations entirely; yet procuring local representation proves no panacea.

Our client attested first-hand of this after ceding control to an untrustworthy third party. Unfortunately, it all ended sadly, with legal proceedings, $8,000,000 lost and the account closed. Clearly, underprepared foreign investors face acute exposure sans reliable local partnerships.

Background: The client already had an account registered to a resident

Our client had established a successful Chinese import/export enterprise, leveraging local representation to facilitate both registration and ongoing banking requirements. In such cases, there are usually no problems with opening an account in China. With a trusted resident proxy securing the requisite credentials and account access, initial obstacles had proved surmountable.

As the business flourished, handling increasing European distribution, this well-connected facilitator proposed expanded manufacturing agreements. To achieve this, our client needed to register a company in the name of a trusted resident agent. This enables more streamlined sourcing, production partnerships unlock previously unavailable discounts.

Our client agreed to this deal in good faith, and indeed, his company did good business for some time directly with factories and suppliers of goods, without intermediaries and on very favorable terms.

Background

Commencement of the problems

Our client's Chinese enterprise initially thrived under its resident proxy's management. Weekly procurement soared from $120,000 to $5 million within six months. However, relations soon soured amidst increasingly suspicious money transfer requests. Supposedly to ease supplier payment terms, the partner demanded additional millions in short order — far beyond contractual schedules. Given the scale, halting deliveries jeopardised the entire operation, so our client complied.

The partner next claimed bank investigations were delaying supplier payments, though evidence of this was unforthcoming. Alarmed, our client travelled to China to investigate, discovering the resident proxy had structured the original account agreement to abnegate all liability whatsoever, despite handling all finances. A review then exposed an $8 million transfer to an unknown account, while the erstwhile partner himself had vanished. Moreover, suppliers began issuing legal demands for $5 million in unpaid invoices.

Thus, this typical scam resulted in

  • an unrecoverable $8 million diverted into opaque channels,
  • another $5 million owed yet with no means to pay,
  • an account closure, eliminating ongoing business,
  • and local law enforcement disinterested in assisting foreign entities.

Clearly, local proxies with authoritarian commercial power represent disastrous risk potential, and extensive due diligence is essential before ceding significant control of Chinese companies.

Commencement of the problems

Customers trust and recommend the company's services

Bereft of his resident proxy, our client struggled to reconstitute operations single-handedly. Lacking the mandatory Chinese representative, securing account access proved impossible, confounding the enterprise. The client had to return to the old system of dealing through intermediaries and paying commissions. As procurement costs resumed their upward trajectory, margins contracted accordingly.

Fortuitously, the client had a friend we had opened an account for in China. As an actively engaged foreign director with a directly held corporate account, this entrepreneur had steered his Chinese entity profitably for 3 years. A friend immediately advised our client to contact YB Case. So, our client duly arranged an exploratory meeting.

His foremost stipulation was unambiguous — he would never again cede majority control to China resident. This precondition significantly complicated solutions. However, by leveraging our extensive experience facilitating overseas investors, we ultimately engineered an innovative structure to satisfy all his constraints.

Customers trust and recommend the company's services

Steps we take to open an account

Our client’s prior failed Chinese venture compelled us to seek innovative solutions to regain a banking foothold. With a damaged corporate reputation and closed accounts, his enterprise confronted steep obstacles. By harnessing our extensive mainland connections, we engineered an unorthodox multipronged approach.

Firstly, securing a Hong Kong corporate account.

This immediately boosted the confidence of Chinese banks. This business-friendly English law jurisdiction signals to initially sceptical mainland institutions about a company's reputability.

We concurrently submitted account applications to 4 major banks.

Most advisors channel clients to just one small partner bank, causing extensive queues and rejection risks. By contrast, processing multiple requests simultaneously also allows rapid alternative options if any fail, saving precious time.

Steps we take to open an account

We helped client to prepare a detailed company presentation.

This constituted an articulate business plan, mitigating wariness about shell company frauds. This helped to reinforce legitimacy and serious intent.

We enlisted trusted mainland residents to formally vouch for the client's integrity.

While not participating in any operations, these guarantors assumed a supervisory role, assuaging bank anxieties.

To complete the verification process, we arranged for the client to be present in China.

Following extensive documentation translations and submissions, the client himself was finally summoned to China for in-person verification, completing due diligence procedures. Naturally, we facilitated his complex itinerary:

  • receiving him at the airport,
  • coordinating all logistical arrangements,
  • and providing expert bilingual assistance at intensive bank interviews.

By engineering this elaborate process, we successfully setted up a corporate account to resuscitate his venture. Our expertise and connections transformed seemingly insurmountable obstacles into an operative long-term outcome through tenacity and ingenuity.

The result

For anxious foreign entities, relinquishing ownership stakes to questionable middlemen seems the sole path forward. But sustainable alternatives emerge.

By harnessing our network and experience to solve his complex challenges, this client converted inaccessible bureaucracy into operational transparency and accountability.

As a result, our client was once again able to conduct business freely in China:

  • He has an account in China without a resident partner.
  • No additional costs for purchasing goods.
  • Can enter into new, more profitable contracts with Chinese suppliers.

The benefits far outweigh the original investment — between enhanced deals, streamlined procurement and eliminated commissions, savings are immense while new opportunities expand.

Despite the formidable obstacles, our multifaceted strategy yielded the corporate account within two months without necessitating any resident proxy. Consequently, our client resuscitated full autonomous functionality.

The result

Client review

If you need help opening an account, please contact us

Should securing Chinese banking access is necessary for your enterprise, please reach out. Over 12 years cultivating close relationships with major institutions, we have become an exclusive representative to account opening procedures. New clients decode China's regulatory complexities thanks to our experience.

We welcome your inquiries in

  • remote registration assistance,
  • opening an account in China.

With a decade-plus experience in supporting foreign investors in China, banks acknowledge our earned reputation facilitating mutually beneficial partnerships.

Contact our specialists anytime via Telegram or phone to discuss your unique scenario in full confidentiality.

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