What should you do when you Chinese supplier told you his bank account was frozen?
Recently, many foreign buyers and Chinese suppliers have consulted the Landing (Shenzhen) Law Office to solve their problem: they have received payment in RMB but after that, their bank accounts have been frozen, what should they do?
In the practice, a common situation is that the foreign buyers do not pay the goods to the Chinese suppliers through their company account. Instead, they directly transfer the payment in RMB to the Chinese supplier account through the third parties’ account. This way may reduce some monetary losses on the currency exchange for foreign buyers, yet there is a risk that this payment method may lead to frozen accounts of both Chinese suppliers and third parties. It can cause unnecessary trade disputes and affect business.
Lawyer Larry Zhou’s team at Landing (Shenzhen) Law Office kindly reminds you that such risk exists. The Public Security Authority of China has focused on cracking down money laundering, fraud, and other criminal activities. If there is somebody using funds or accounts that are suspected of being illegal, the accounts would likely be frozen. If a foreign procurer makes payments to a Chinese supplier through a third party's account, such large transfers are likely to be considered as money laundering by the Public Security Authority of China due to the unknown source of the payments. As a result, the accounts of both the Chinese supplier and third party are frozen.
In such cases, how to prove the legitimacy of the source of the money and release the frozen accounts? Our team proposes the following solutions.
There are two steps to solve the problem: Firstly, we need to confirm the authenticity of the frozen account, which means that we need to require the bank to issue a written notice of the frozen accounts; (see the picture)
Secondly, you should contact a Chinese lawyer and provide relevant evidence to the Public Security Authority of China, such as sales contracts, invoices, communication records, etc. between the foreign buyers and the Chinese suppliers. Only if you provide evidence that proves the transaction is genuine and legitimate, can you request (who?) to release the frozen accounts.
However, we should remind you that the process of releasing the accounts is complex and lengthy. A prolonged account frozen can affect trade and increase the cost of legal fees. In order to save costs, if the frozen money is not too large, we recommend that you do not hire a lawyer.
If you have encountered this kind of problem or concerned that you might encounter this problem in the future, we sincerely suggest you that:
1. If you have business in China, the most regulatory compliance payment method is to pay from your company account to the Chinese suppliers’ company bank account directly, which is the least risky way.
2. If you want to pay in RMB, you may only ask your friends or partners to pay on your behalf. And remember to sign the Instruction of Entrusted Payment.
3. If the frozen money is relatively high, the lawyer can accept your engagement to communicate with the bank and the Public Security Authority of China.
In summary, if you need to entrust a third party to settle the payment directly in RMB, we sincerely suggest that you must keep the relevant evidence to ensure your rights and interests. Finally, if you have any doubts or questions about this kind of problem, please feel free to contact us.
Larry Zhou, Partner
Landing Law Offices China
Mobile& WhatsApp: +86 13342931852
Linkedin: Larry Zhou