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The Two Contract China Deal. I Have One Word For It: Don't

By Dan Harris and Steve Dickinson

Many years ago, I received a call from a US company that wanted us to help them sue a Russian aviation company for around $750,000. The Russian company had allegedly failed to provide $750,000 in contracted for parts. I told the US company to send us the documents and we would get back to them with our assessment of the case. The documents arrived and they all said $75,000, not $750,000. When I asked about this big discrepancy, the owner of the US company explained that the written contract said $75,000 for Russian tax reasons, but his company had actually paid $750,000. I told him we did not want the case. Now sure, we might have been able to produce documentation showing that our client had actually paid $750,000, not $75,000, but then again, that documentation might have led the Russian authorities to jail my client for tax fraud. I am bringing this up now because I just read about something similar in a Silk Road blog post, entitled, "The Chinese Working Environment, Part 347."

What are Chinese lawyers good for? Have you heard the one about the three lawyers, three real-estate agents and two clients trying to close a home purchase deal in China? They meet once for the ?legal? contracts (which were completed with a much lower than market value amount) and then met again for the ?personal? contracts with the real market values. This is what lawyers are used for in China. I wish that this was just a joke?I can confirm, that it?s not.

I have one word for these sorts of transactions: Don't. Okay, so one can argue that I really used two words but you get my meaning.

Full post as published by China Law Blog on February 21, 2008 (boomark / email).