3.3 Verification Of Chinese Bank Accounts Copy

3.3 Verification Of Chinese Bank Accounts Copy

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One of the most common ways to make a payment to a Chinese supplier or service provider is via telegraphic transfer (T/T), an international bank wire transaction commonly through the international SWIFT system or China’s Union Pay system. Although common practice, it is not without risk.

Risks associated with processing international bank transactions often involve requests by the Chinese suppliers or service providers to transfer payments to personal bank accounts, third-parties, offshore accounts (bank accounts opened outside the territory of mainland China), and offshore companies (companies incorporated outside the territory of mainland China) instead of transferring the funds to the corporate bank account in mainland China, for reasons which are not disclosed or not transparent. 

In this chapter telegraphic transfer payments made by foreign enterprises to companies located in mainland China are discussed. Focus goes out to checks and cross referencing of information which should be performed to ensure the payment is made to the correct company before processing a payment.

1         Step 1: Confirm whether the beneficiary is an individual or a company

First step in the verification process to ensure that the payment is being transferred to the Chinese company’s corporate bank account is to confirm whether the payee is a private person or a mainland China company.

Chinese company names

Chinese company names must meet the requirements discussed earlier, as these are subject to a fixed form. Company names consist out of four elements and organized a pre-defined structure:

[Registered location] + [Trade name] + [Industry] + [Organization type]

[Shanghai] + [ABC] + [Management Consulting] + [Co. Ltd.]

Although English language company names are not registered at incorporation, the international payment system does not recognize Chinese characters, and non-Chinese nationals have limitations writing Chinese characters. To overcome this situation, for international processing payments the Chinese company name is often phonetically translated into English language. In the English translation of the Chinese company name, the fixed form of the structure of the name must be present.

Chinese private person names

Names of Chinese private persons often consist out of a minimum of two to a maximum of four characters at most. Avoid making payments to private persons where possible.

2       Step 2: Confirm whether the beneficiary is the correct entity

The next step in the verification process is to confirm whether the beneficiary company is the correct entity. Carefully confirm that the name of the company provided as the beneficiary on the bank details is identical to the name of the company registered on the business license and name of the company seal imprint. Any minor deviation must be clarified.

Having been in dialogue with a company representative for conducting business, there have been multiple instances where the company name has been provided. These instances include the following information sources but are not limited to:

  • Business cards
  • Brochures
  • Email signature
  • Company website
  • Trade platforms (Alibaba.com, AliExpress.com, JD.com, etc.)
  • Quotation
  • Invoices

Each of these instances must be examined, which is further discussed in Week 4.

The relationship between Mainland China and Hong Kong S.A.R. companies

A common situation that foreign companies find themselves in when communicating with a mainland China company is that at a given time the mainland China company requests the foreign company to make a payment to a company located in Hong Kong. Foreign companies must approach this situation with caution and must require the relationship between the mainland China company and company located in Hong Kong to be clarified, supported by documented evidence that can be verified. When legitimate, the relationship between a company incorporated in mainland China and a company incorporated in Hong Kong S.A.R. can be verified through the Administration of Market Regulation since investor information is mandatory to be filed and is publicly accessible.

A plausible explanation for such a construct is that Hong Kong S.A.R. is part of China, whereas both jurisdictions are governed separately under China’s “One country, Two systems” approach. It is common to see companies having established their headquarters or trading office in Hong Kong and their manufacturing operations in mainland China, often located in the southern part of the country. As both companies are part of the same group of companies, their name is close to identical. However, when considering the fixed form of company names, the last for is the Organizational Type. Mainland China Limited Liability Companies have “Co. Ltd.” as final section of their names, whereas Hong Kong S.A.R. Limited Liability Companies have “Limited” as final section of their names.

Mainland China, Hong Kong S.A.R. company relationships imposes risks for foreign enterprises willing to conduct business with mainland China companies, which include but are not limited to the possibility that:

  • A Hong Kong trading company pretends to be a mainland China manufacturing company.
  • A fraudulent person registers a company in Hong Kong with the purpose to be less traceable as it is easier to set up a company in Hong Kong compared to mainland China.
  • The Hong Kong company serves as a front company, collecting payments from foreign customers and places orders to the factory registered in mainland China, extracting a portion of the money from the contracted order value.

3         Step 3: Confirm whether the beneficiary bank account is located in the jurisdiction where the Chinese company is located

Next step in the verification process is to confirm whether the beneficiary bank account is located in or near the jurisdiction where the company is located. Per common business practice, companies will open their bank account in the vicinity of their business location for convenience purposes. As companies can operate multiple offices or production locations while only one location is registered at the Administration of Market Regulation as registered address. Therefore, the beneficiary bank account is located in or near the jurisdiction where the company is located.

Similar to company names, bank names are also subject to fixed form. Bank names consist out of three elements and organized a pre-defined structure:

[Name of Bank] + [ Name of City] + [Name of Office]

[Bank of China] + [ Shanghai Branch] + [Changning Road Office]

For processing (international) transactions the bank name, address and SWIFT code are mandatory. Per example below, a cross reference can be made between the Name of the Office and the address.

Bank name         : BANK OF CHINA SHANGHAI BRANCH CHANGNING ROAD OFFICE

Address              : NO. 1170 CHANGNING ROAD SHANGHAI CHINA

Swift                    : BKCHCNBJ300

Figure 3.3.A provides an overview of the major banks located within the territory of mainland China.

Many mainland China banks operate branch offices in Hong Kong S.A.R. The names of the banks resemble the name of the mainland China bank but have the extension [HONG KONG] or [ASIA] in brackets added behind their names. Figure 3.3 B provides an overview of the major banks located within the territory of Hong Kong S.A.R.