Mr. China (18 page)

‘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 accounts 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! And 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.

So it was to howls of protest that the court issued its verdict six months later. We had to pay for the whole amount of the letters of credit, the guarantees and our legal
costs. The bill was more than ten million. Detailed reading of the written judgement rubbed salt into the wound; the judgement included new evidence that had never been heard in the court.
Moreover, some of the documents that the court had demanded had been ‘lost’ by the bank and only photocopies were supplied. One of these photocopies was of a document where the police
had found the original in the raid on Solarworld in Hong Kong; on the ‘photocopy’ supplied to the court, several parts had been altered.

The judgement then became a hot political issue. We had been keeping the US Embassy in Beijing abreast of developments and the staff there had been very supportive. Once the judgement came out,
it transformed the issue from a commercial dispute into a question of the reliability of the Chinese courts. In the following months, letters flew between the top levels of the governments
concerned, raising the case and asking China’s Prime Minister Zhu Rongji to investigate. We decided to appeal to the Supreme Court of China.

Although Michael had handled much of the work on this case, I was exhausted. The fight in Harbin had been going on at the same time and we had increasing troubles in our
breweries in Beijing. I had been travelling almost continuously for nearly a year, putting out fires and trying to get to grips with the factory directors. I had an ear infection that affected my
balance and I had lost a pair of glasses so I couldn’t see properly. I couldn’t sleep either. We were making such slow progress. So it was in a black mood that I went to France for a
much-needed rest.

In France that year the snow just fell and fell. Up in the mountains, wooden chalets disappeared, swallowed whole underneath a great white cloak. Streams were caught mid-flow;
trees sagged, their branches drooping under the great load of snow until, suddenly, they’d cast off the burden and snap back to attention. Occasionally, the creaking, crunching sound of an
avalanche drifted down through the mists. The skies were leaden and heavy; the snow seemed to deaden all sound as we trudged up and down the slopes. Clouds, rotund and mournful, rolled up the
valley. All was grey. The weather matched my state of mind. I seemed imbued with a sense of heaviness that had soaked into my bones.