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Peter & Asia

This is a complicated story.  Two days ago Peter called and asked if I could meet some Chinese clients in Vail.  Peter said that it was important and necessary.  It seems that the initial client audit (KYC) had not been done as thoroughly as it should and that the firm was concerned.  Basically, I was doing the job my ex-firm should have done years ago.   Why now, because some were in Vail and had questions following recent (unspecified) events in China.  A big favour to save the firm's bacon.

I met two investors on Friday (today).  The first with his eldest son was interesting. Their process of disengaging started out of necessity because the Chinese government was slow in approving foreign exchange requests for smaller private companies.  They began using transfer pricing to retain profits (and foreign exchange) outside of China, so they could meet their OECD contractual obligations.  Reporting income and profits in the jurisdiction in which they operated and being good corporate citizens.  For them, the "ah-ha" moment came in October 2017 when suddenly all their government access ceased.

What made their story interesting is that they didn't extract their wealth from China.  They sold their Chinese businesses to other Chinese nationals, and the money from these sales is still in China (invested with local brokers).  Nothing they did was illegal, something that thousands of companies do every day to mitigate taxes.   The more successful they were the more they accumulated offshore.  Seeking foreign passports was the result of a conversation with a Taiwanese supplier who had (in the 1990s) obtained foreign passports to ease travel outside the country.  

By any standard, their hands were clean and assuming that the documentation they sent to Peter was correct, they met the firm's stringent KYC protocol.  Yes, it was a judgment call, but it always is.  Nothing in life is black and white, it's always a shade of gray.

The other investor was entirely different.  Their wealth acquisition was more challenging.  He talked like a businessman but walked like a soldier. The family had acquired several businesses in Central America for very little money and sold them at great profits.  As the saying goes: "They seemed to have made their money the old-fashioned way, they stole it!"  There is a fine line between telling the client the truth and making the client see the only way forward.  I told them that my ex-firm had no operations in China, and no investments (direct or otherwise) in the country, but my ex-firm follows certain procedures and rules as dictated by the UK monetary authorities and that going forward, as an outsider, I could see situations where their wealth could be in jeopardy.

Both investors were relatively new clients to my ex-firm (2015 and 2020).  The first client is exactly the type of investor my ex-firm sought.  The second is generally proscribed by the FCA.   As a contractor, and as such there are procedures in place. The first client seems fine with a 20-year paper trail of revenues and profits, working inside the law, like thousands of other companies.  The second was at best marginal.  Approval occurred during Covid where a lot of checks and balances were skipped.   

I called Peter (Saturday morning London time) about these investors.  I clarified that if this was a proper onboarding audit, the second investor would probably have failed.   I will send my written report after my return. 

This is where things get complicated.  As a contractor what are my obligations towards the FCA, the Bank of England and my ex-employer?  Evidently, the reason for the sudden audit came from a third party.  The way Peter phrased the request, it is evident that these investors had drawn red flags.   I now have to draft formal documents for my ex-firm.  However, I still need to have the consulting agreement in place (liability issues) and that was only happening early next week (this was not planned it was a confluence of events).  I will only send my report once the contract has been signed.  More importantly, if I spend another day writing these reports (and it will have to be perfect) my wife will kill me dead!

My payment for the work, I asked the moon and I got it! I said to Peter, when he first asked, It will take a private aircraft flight back to London to make me do this.  The bastard immediately agreed.  Tuesday morning we are boarding a business jet (almost direct -- refuelling stop on the East Coast).  

Note: There were more than two clients, and it took me a good chunk of my Friday to call them all and have proper conversations.  The meeting went well.  Things in China are really deteriorating and every Chinese national is concerned (as is ex-employers).  This was an urgent task asked from either senior management or more likely "a royal command" from the FCA.



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