The decision was due from the IOC, and they’d only recently been in Beijing, looking at infrastructure, what needed to be done, and assessing the Chinese bid. Curiously, I had just flown into Beijing that afternoon from a fact-finding mission from Pyongyang. It’s a real hazard of China business and often kicks in when the romance of it all has dried up. Auditors have tough jobs sometimes dealing with fraudulent investments, as do the firms such as ours that have to ‘go into the lions den’ in addition to the unfortunate investor. But it cost the Canadian investor his China business, and he is unlikely to come back again. Such however is the life sometimes of due diligence in China – when caught, the perpetrators can be extremely vicious in their attempts to extricate themselves from their own web of deceit, and will issue lie after lie and counter accusation after counter accusation to muddle and confuse the real issue of their own corruption.Įventually, after some time, the Chinese – carrying as I mentioned Canadian passports – were jailed for fraud and now languish in prison in Toronto. These people had been his friends.īut the evidence was compelling, and more and more the Chinese associates tale unraveled, although not without further accusations calling into question both the sexual and ethical morality of my staff – which was all rather upsetting for two 26 and 28 year old single female Chinese auditors just trying to do their job. It was utter nonsense, although rather distressing to deal with, and the Canadian owner was shocked, for awhile not knowing which way to turn. They had “refused” such bribes, which is why our auditors had written such bad things about them. A total denial (just like Green) and more wickedly, accusations that my own audit staff had asked for bribes in order to write a good audit report. The fall out from the Chinese associates upon our advising the Canadian investor was immediate. They had set up a complete mirror company, and all leads coming in from the Canadian side were being passed to their own business. Looking up the site owners – they were the two Chinese associates employed by the Canadian invested business. In looking at the site, it sold exactly the same products but at cheaper prices, to the local market. However, one sharp-sited member of my staff uncovered documents relating to another website. I sent down two of our audit staff to check, and the books seemed alright. We were to conduct a small due diligence project on the business in Dalian to ensure everything was indeed, OK. “Strong local competition” and “pricing issues” were given as reasons by the two Chinese associates as to why the business was not performing to expectations.
The business in Dalian however had not been performing well, and another US$1 million was to be injected to assist with the now longer than expected market penetration issues. Indeed, they were considered “family friends” by the business owner. Both associates were Chinese, but now carried Canadian passports, and had been with the Canadian business for seven years. I recall a due diligence case we handled that involved a Canadian invested WFOE in Dalian who had hired two long term associates to run the business in the city. This week, to commemorate the 15th Anniversary of Dezan Shira & Associates in China, we are serializing excerpts from the brand new book “The Story Of A China Practice” which details the development of the firm since 1992.Ĭhina IP troubles for foreign investors – Setting up mirror companies in competition
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