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

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.

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.

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.

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.

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.