Due Diligence
October 2013

What is a Chinese Company Bank Account License? Should You Only Make Payments to the Licensed Account?

If you’ve been asked to make a payment to a Chinese company’s bank account, you may be slightly wary of making payments overseas in territory you’re not familiar with. You might be concerned that it will be difficult or even impossible to resolve problems if something were to go wrong with the transaction. In some cases you might even be concerned that you’re not dealing with a real Chinese company, but some sort of scam.

In any case, you can mitigate these issues by confirming a Chinese company’s licensed bank account and only making payments to that. In an ideal world that solution would work in all situations. However, it is very common for companies in China to request payments to accounts other than the one they have a bank account license for. This should not be cause for alarm in most cases; the important thing to check is that you’re sending money to a business account and not a personal account.

What is a Chinese Company Bank Account License?

When a Chinese company registers to do business, it is required to obtain a number of licenses and official documents:

  • Business license
  • Bank account license
  • Tax registration certificate
  • Organisation code license

Further certificates and licenses may be required, depending on what the company does. The bank account license is almost like a passport for the company’s official bank account. It is intended to prove that this is a real bank account and that it is genuinely associated with the company in question. It will provide details of the account and company, including the bank account number, the bank that operates it, the company it belongs to and the legal representative of the company.

It is perfectly legitimate to request copies of this documentation when doing business with a Chinese company. We always recommend that you request a copy of a Chinese company’s business license in order to make some basic checks. You could also request a copy of the bank account license, which would give you enough information to insist that payments only go to this official account. Unfortunately, however, this approach might not be valid in all cases. Whilst you should refuse to make payments to personal accounts, paying to business accounts that the company doesn’t have a license for can be necessary in some cases.

Should You Only Send Payments to a Company’s Licensed Bank Account?

If you want to reduce the possibility that your payment is going somewhere that it shouldn’t, only making payments to a company’s licensed bank account would be a good way to achieve this. We have encountered cases where someone outside of China has been persuaded by someone they met at a trade show to make a substantial payment to a personal account. When nothing transpired of the deal, the “company representative” could not be found. There is often little that can be done in such cases. Requiring a licensed bank account to make payment to would mitigate this risk by ensuring that you are paying an officially registered organisation and not an individual.

It is conceivable that an untrustworthy organisation could still have a genuine bank account license for their bank account. In other words, the bank account license is not a guarantee that the company is going to do what you expect, but simply a guarantee that your money is indeed going to a company by that name. Generally speaking, though, the bank account license and business license offer good assurance that you’re dealing with a genuine company.

Whilst we’d like to be able to recommend you only ever make payments to licensed accounts, this isn’t realistic a lot of the time. It’s very common for companies in China to request payment to bank accounts other than the one on their bank account license. Because of this, whilst you might have a policy of preferring making payments to a licensed bank account wherever possible, it might not be wise to make this a concrete policy for doing business with companies in China.

Instead, you need to ensure that the account you’re making a payment to is a business account and not a personal account. Making payments to personal bank accounts is dangerous, because there are far fewer restrictions on them and they are only loosely monitored compared to business accounts. Again, whilst it’s conceivable that someone untrustworthy could be using a business account for nefarious purposes, in all of the horror stories we’ve heard, payment was made to a personal bank account and not a business one.

To summarise, you might rank the safety of payments to Chinese bank accounts as follows:

  1. Highest possible safety: only make payments to licensed bank accounts for which you’ve seen the license.
  2. Minimum safety: only make payments to business accounts.
  3. Dangerous: making payments to personal accounts.

If the safest possible option is to only make payments to the licensed bank account, then why do some companies in China (including us) sometimes request that payments be made to other accounts? There are quite a lot of legitimate reasons for this, which is why we suggest that you just ensure you only pay business accounts, rather than only paying licensed bank accounts.

Why a Company May Ask for Payment to a Different Bank Account

If a company asks you to make payment to an account other than the one they have a license for, you should first check that it’s a business account. If it is, then they may be requesting payment to an alternative account for one of the following reasons:

  1. The company’s licensed bank account is likely to be in RMB, whilst they also operate separate accounts in other currencies such as USD. They may prefer you to make USD payments to their USD account to avoid unfavourable exchange rates.
  2. A company may have multiple RMB accounts, for example to clearly demarcate different purposes or account functions. This should not cause you to be suspicious so long as all the accounts are business accounts.
  3. The company may do their banking at more than one bank for various reasons. Again, this is generally legitimate and not cause for suspicion.

However, if a company requests payment to a personal account, you should in most cases treat this as suspicious at best. Requests to make payments to personal accounts might hint at one of the following scenarios:

  1. The company is sidelining some of its income into a personal account to avoid paying tax on it. Do not accept any justifications or excuses for this from the company; it is illegal and companies doing this are to be avoided.
  2. A businessperson may be using their personal account rather than their business account, again to avoid fees and taxes. This is also illegal and we advise you not to tolerate it in any of your business partners in China.
  3. You are actually dealing with a middleman, who wants the payment to go to their personal account so that they can take a cut of it. This may not be illegal, but it is clearly less than ideal for the two companies involved, and likely adds unnecessary risks to the deal.
  4. You are actually dealing with someone who is trying to commit fraud and is thus unable to set up a legitimate business bank account.

As you can see, the potential scenarios behind the use of a personal account for business transactions should be enough to put you off doing business with anyone trying to use a personal account for business. We recommend that you only ever make payments to business accounts and not to personal accounts.

Requests to Change Payment Details: “The New Bank Account Scam”

A final issue that you should be aware of is that any requests from a Chinese company you do business with to change the bank account used to receive payments should be treated with extreme suspicion. Such requests are very likely to be a scam, and either have no connection with the real company, or are being perpetrated by bad actors who somehow have access to the company’s communication channels (at least). As a general rule, Chinese companies do not tend to switch banks or suddenly set up new payment accounts. Be very cautious if you receive such a request, and try to get the highest possible level of confirmation that it is legitimate.

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