Mr. China Read online

  We immediately flew down to Zhuhai with Michael and Ai Jian and had Wang’s office safe sawn open. It took two workers about twenty minutes hacking away before it finally yielded. Inside, we found the first clues of what rapidly developed into a real horror story. There were about seven handwritten IOUs, one from a ‘Big Brother Qiu’ for one point two million Hong Kong dollars. It looked as if Wang had been involved in loan sharking. We also found suspicious-looking travel permits, several company chops and two backdated cheques to Wang for just under four and a half million Hong Kong dollars. They were drawn on Che Lap Hong and a company called ‘Poly-ways’. I had never heard of ‘Poly-ways’, but at the bottom of the safe I found a contract to build a hotel in Vietnam signed by a ‘Mr Lam, for and on behalf of Poly-ways.’ I groaned. It was already looking distinctly possible that the hotel might have been funded with our money.

  The picture soon got worse. In Wang’s safe, we had found two air-ticket vouchers for his flight to America in the previous month. One was for Wang’s journey to Las Vegas, but who was the other passenger? By the end of the afternoon Li Wei had found out: he was the assistant bank manager of the branch where we had deposited the US dollars. It was the same branch that had issued the letters of credit.

  Li Wei told me, ‘I called the bank manager and he said that he came back two weeks ago. Said he was with Wang in Las Vegas but left when Wang went off to New York. He said he hadn’t a clue where Wang was now but seemed terribly nervous and started asking lots of questions.’

  ‘But did he explain what the hell he was doing on a trip to the States with Wang to sell brake parts in the first place?’ I asked. ‘He’s a bank manager, not a car-parts salesman!’

  ‘He was a bit hazy on that one,’ said Li Wei.

  ‘Hazy?’ I exploded. ‘HAZY?!’

  The story was getting murkier by the minute. There was no way to keep it under wraps; I had to tell the Board.

  The hastily called telephonic board meeting that night provided further scenes of chaos. I had told Pat about the problem earlier but he was in Germany with some customers so it was left to me to break the news. With the time delay, the crackling lines connecting people in six different locations around the world and tempers rapidly deteriorating as the complexity of the mess became apparent, it was a struggle to keep the meeting on track. As I went through what had happened, a confused mass of questions burst in from all different directions with three or four people all shouting at the same time. One of the directors kept on asking about bills of exchange and bills of lading, repeatedly confusing the two and getting furious whenever anyone pointed out that they were completely different. Some wanted to call the police to catch Wang, but another said it was a waste of time. One pitched in with the truly amazing suggestion that ‘We should go directly to the Hong Kong Monetary Authority to have everyone’s bank accounts closed down.’ The hordes of lawyers attending the meeting from different parts of the States all gave contradictory advice, droning on about injunctions and Worldwide Mareva Orders long into the night and it wasn’t until three in the morning that a consensus emerged.

  It was Rubel who eventually got to the point. ‘OK,’ he said, ‘we’ve got those letters of credit out there but the cash is still in the bank, isn’t it?’

  ‘Yeah.’

  ‘So we just need to make sure it stays there and the L/Cs never get paid, right?’

  ‘Right.’

  He asked what controls we had in place over the cash at the bank. We had all the normal stuff, with sets of signature cards, just like everywhere else. For any payment out of our dollar bank accounts in Zhuhai, the bank had to get a chopped approval from Beijing; Wang’s signature alone wasn’t enough.

  ‘So the bank shouldn’t take the cash out of our account to pay for the letters of credit, unless we sign off in Beijing,’ Rubel said.

  It looked as though we might be safe. But two questions made us all deeply nervous about the bank: why had they agreed to open the letters of credit in the first place when they had no chop from Beijing? And why had the assistant bank manager been on the same Las Vegas flight as the missing Wang?

  The Board eventually decided that we should try everything to stop the bank from honouring the letters; if we stopped them paying out the money to the fraudsters, whoever they might be, and kept the money in our bank account, we were safe, or so it seemed. They instructed me to insist on a meeting with the Chairman of the bank the next day and demand that he stop the payment. And then some bright spark said right at the end, just as the phones went down, ‘But, anyway, it’s all governed by Chinese law, so maybe we should get a Chinese lawyer.’

  The following morning, Ai Jian and I went to the head office of the bank in Guangzhou. It was about a two-hour drive from Zhuhai so we didn’t arrive until mid-morning. We had called on ahead and eventually found the Chairman’s office. He was away, but the bank’s President was there. We had asked for a meeting but received no clear response, so we decided to go and find him. The head office was located in a huge tower block in the business district of Guangzhou, the main city in Guangdong. It occupied fifteen floors of the building so it took some time to find the President’s office. When we got there, I found his office manager and demanded a meeting. Then we sat down to wait.

  To my surprise, the President arrived after about ten minutes. He looked like a man whose curiosity had been aroused. It was probably a novelty having an agitated foreigner turn up on his doorstep without any warning and insist on a meeting. We got straight down to business and I explained that we were a foreign investment company with factories all over China. His bank held the account of one of them in Zhuhai, and ‘There is a problem.’

  I went through the facts, as we saw them. Our manager, Wang, was missing; before disappearing he had opened four letters of credit with the bank; the bank had agreed to open the L/Cs without proper authorization; no goods existed because the ships were in the wrong parts of the world; it therefore looked as though there had been a fraud and the cash appeared to have ended up in a Hong Kong account linked with Wang; and ‘the assistant bank manager of your branch in Zhuhai seems to have been on the same flight to the States as the missing Wang.’ The bank’s President listened patiently but became annoyed when I mentioned the assistant bank manager. ‘Just because he was on that flight doesn’t mean that he’s done anything wrong,’ he said hotly.

  ‘I didn’t say it did, but you have to admit that it’s a bit unusual.’

  ‘Why?’ He stared at me blankly.

  I decided not to debate the point but said that we wanted the bank to refuse to pay for the letters of credit. We would refuse to honour them. The President said he’d investigate, and the brief, slightly testy encounter ended. I set off back to Zhuhai and arrived at the joint venture in the early afternoon.

  Li Wei, meanwhile, had been to see the Anti-Corruption Bureau of the Zhuhai Government. We wanted the authorities to investigate Wang and find out what had happened to the letters of credit. The meeting had not been a success. Li Wei had been kept waiting for hours and was eventually shown into a small office, with dirty ashtrays strewn about and a bleary-looking unshaven man slouched behind a desk: he was apparently the Deputy Bureau Chief in charge of cases involving foreign investors.

  ‘I thought that he should be extremely busy,’ said Li Wei. ‘You’d expect the Anti-Corruption Bureau Chief in Zhuhai to be rushed off his feet, but he was sitting in his office smoking and reading the newspapers.’ I heard later that he had listened half-heartedly to the tale and then, rousing himself with some effort, he’d said that he would set up an investigation, but that in order to do so we would have to give him ‘a car and some working capital.’

  ‘What? Are you serious!?’ I asked when I heard the news. ‘So the Anti-Corruption Bureau wants a car and a bag of money!’

  Towards the end of the afternoon, as we struggled to come up with a clear strategy for stabilizing the business, Li Wei came in. He’d just got a call from the accoun
ts department. They had tried to make payroll that afternoon, but the bank had refused to pay it. Now the workers had no wages. The bank said that the local Intermediary People’s Court had issued a freezing order and that all our accounts had been closed.

  ‘What the hell’s a freezing order?’ I asked. ‘Can we get a copy and have some Chinese lawyers look at it? Please!’

  Back in Beijing, we found a law firm that dealt with fraud cases involving the banking sector. Two lawyers came round to the offices for a briefing. Over the time we worked together, I became very impressed with them. I knew almost nothing about Chinese banking law, and certainly hadn’t ever wanted to, but they were always extremely patient in explaining their convoluted logic. Their names were unpronounceable in Mandarin so, as neither of them spoke English, we simplified matters by calling them ‘Big Lawyer’ and ‘Little Lawyer’.

  In the next few hours, as we went though the documents, it emerged that the Court Order freezing all our bank accounts had been obtained by the bank itself. In the few hours that it had taken me to drive back from Guangzhou to Zhuhai after the meeting with the bank’s President their lawyers had drafted a petition asking the court to freeze the cash in the accounts so that we couldn’t remove it and refuse to pay for the letters of credit. The Order had been issued the same afternoon. I was amazed. ‘How can they do that?’ I asked.

  Big Lawyer explained that when I had told the bank that we would refuse to pay the letters, we had created a legal dispute that could be heard by a Chinese Court. ‘But the payment was never authorized,’ I said. ‘How can they expect us to pay?’

  ‘But it isn’t a payment,’ said Little Lawyer.

  ‘Of course it is.’

  ‘No, it’s a commitment to make a payment, not actually a payment.’

  ‘What? It’s the same thing.’

  ‘No, it’s not. You’ve just told the bank that when they try to make the payment, you won’t approve it.’

  ‘What?’ I said that I didn’t agree with that argument but Little Lawyer just pursed his lips.

  ‘And look here,’ said Big Lawyer. ‘That’s the company chop, isn’t it?’

  I squinted at the fax. ‘Looks like it,’ I said.

  ‘And here. The Court documents say that there was an approval for the letters by the juridical person.’

  ‘The what?’

  ‘Juridical person.’ After several minutes spent searching through various Chinese – and English – dictionaries we managed to figure out that the ‘juridical person’ of a business in China, normally the Chairman, has the power under Chinese law to bind the company with a signature. In this case, the juridical person was Pat.

  Little Lawyer said, ‘If he’s signed anything approving Wang’s issue of the letters, you’re on the hook for the whole of the missing five million.’

  I could see that we were heading for a long battle through the Chinese courts. It emerged later that Pat had in fact signed a power of attorney that authorized Wang to act as the ‘juridical person for normal operations’. It was in Chinese so Pat, presumably not realizing the significance of the document, had signed it anyway. An argument then developed among the lawyers over whether buying five million dollars’ worth of equipment was within the definition of normal operations. I thought that it was beside the point; I was convinced that the bank personnel knew the real nature of the transaction and therefore that they should never have agreed to open the letters of credit.

  At this stage, the Board back in America briefly discussed just writing off the whole thing to experience and getting on with life. But what kind of message would that send to all the other joint ventures? If we just gave up and failed to pursue Wang and his accomplices, it would hardly be the best deterrent in the event that someone else was considering similar antics with a different business. Also, we had agreed a set of bank signatories and we felt that the bank had ignored them. That brought the whole banking system into doubt and we had several hundred million sitting in accounts all over China. How could we continue to invest in China and hold cash in Chinese banks if we couldn’t rely on the controls over payments?

  So the battle opened up on two fronts. Pat was determined to keep the business stable so that we could save whatever value was left. So he appointed a new manager to the joint venture, an Italian, Carlie Verlucci. He arrived, complete with sunglasses, trilby and a double-breasted jacket with two rows of gold buttons, which looked as if it had been borrowed from his much larger sidekick, Romanelli. Together, they arrived in January to take over the factory.

  Next, Little Lawyer came up with a strategy for the court case. If we could show that the bank had known that the whole scheme was a fraud in the first place, then the court would judge that the bank should pay, not us. That meant that we had to find Wang. If we could get him to confess and show that the bank officials were in on the scam, we’d be off the hook, so we thought.

  It took months to get an arrest warrant for Wang. I was surprised how difficult it was but, of course, it was right that the police would not issue a warrant without convincing evidence. The Chinese police issued a ‘red warrant’ as spring ended and Interpol followed shortly afterwards. The search for Wang had begun.

  It was much easier to get action on finding the documents in Hong Kong and soon the police raided Solarworld’s offices in Kowloon, retrieving boxes of documents. They revealed a baffling web of interconnected shareholdings and bank transactions together with evidence that Wang had brought the letters to Hong Kong and somehow managed to cash them. That meant that somewhere in the international banking system there were four letters of credit on their way back to Zhuhai that would eventually hit our bank account.

  Over the coming weeks, we pieced together the money flows. Wang had found a local finance house, called of all things, Best Finance, and persuaded them to give him a bill of exchange for the letters in return for a hefty discount. He had walked into a bank, deposited the bill and, over the following few days, withdrew the money. In the space of a few short weeks, he had managed to get nearly four million dollars in cash. He then got into the plane at Kai Tak Airport, presumably with the assistant bank manager and ‘a large suitcase’, and that was the last that we heard of him.

  Back in Zhuhai, the Anti-Corruption Bureau was making little progress. That was hardly surprising. We had realized what we were up against after the raid on Solarworld’s offices in Hong Kong where the police had found documents showing that a former Zhuhai Government official was one of the shareholders of the company that had received the proceeds. Another shareholder was a Mr Lam, who had previously served a two-year prison sentence for letter-of-credit fraud. It looked as if we were dealing with at least one experienced criminal who could probably count on protection from high places.

  Next we heard that the Chinese partner in our joint venture had held a board meeting in Wang’s absence to try to figure out what to do, but that it had broken up in disarray. One party, ‘the Village Committee’, which looked after the little fishing village, tried to take back the land at our joint venture but the others wouldn’t agree. It then came out that Wang had also defrauded the Chinese partner by ‘pledging’ their bank balances against a loan from another bank and then disappearing with the proceeds. Any amusement I felt at the sight of the Chinese partner falling into the same trap as we had was short-lived. I found out that Wang had also dragged us into that mess by using our assets to guarantee the Chinese partner’s loan. Since he was now missing and the Chinese partner claimed to have no money, it looked on though we might have to pay that as well.

  I was relieved when Big Lawyer told me that the guarantees were against Chinese Company Law. I thought that at least we could escape from that mess. But when I met with the bank manager and told him that the guarantee was invalid, he thanked me profusely and left the room saying that he had never really understood the Company Law and that he would immediately instruct his staff to check whether there were any similar arrangements with other customers! An
d then, a week later, we received another writ: the bank had sued us to enforce their guarantee even though it was against Company Law.

  The first court hearing was held in Zhuhai in the summer. Pat had to give evidence and he said that he’d been impressed with the process. Evidence had been heard and the lawyers had had the right to ask questions and cross-examine the witnesses from the bank. We had been lobbying the Zhuhai Government through the embassy to ask for a proper hearing and the case had attracted some interest from the Central Government, so I was confident that we’d at least get a fair trial. There was so much evidence that the bank had been careless – reckless, I thought – when they’d opened the letters of credit and that they had broken their own internal controls and manufactured documents after the date. It seemed difficult to believe that the court would rule that the bank couldn’t have had any suspicion at the time that it was a fraud.

  I was slightly perturbed when I heard that the judge had said that he had found the case ‘confusing’ during the trial and had then visited the bank later to ask further questions. It seemed a bizarre reversal for the judge to be going to the bank rather than demanding that they appear in his court. But I shrugged it off and looked forward to the verdict.