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Arowana is deeply involved in the 5 billion fraud case of state-owned enterprises: how does palm oil trade finance cause significant losses of state-owned assets?

Arowana is deeply involved in the 5 billion fraud case of state-owned enterprises: how does palm oil trade finance cause significant losses of state-owned assets?

The following article comes from NetEase Qingliu Studio, author Zhao Yuan

Author | Zhao Yuan

Source | NetEase Qingliu Studio

On January 12, the listed company Arowana (300999. SZ) announced that its subsidiary, Yihai (Guangzhou) Grain and Oil Industry Co., Ltd. (hereinafter referred to as "Guangzhou Yihai"), received the "Indictment" of Huaibei Municipal People's Procuratorate Huai Jian Criminal Prosecution [2023] No. 16 on January 11, 2024. This announcement revealed a bizarre fraud case in which Arowana was involved.

According to the announcement, from 2008 to 2014, Guangzhou Yihai, a subsidiary of Arowana, was responsible for storing palm oil imported by Anhui Huawen International Economic and Trade Co., Ltd. (hereinafter referred to as "Anhui Huawen") as an agent for Yunnan Huijia Import and Export Co., Ltd. (hereinafter referred to as "Yunnan Huijia"). Among them, Anhui Huawen is a state-owned enterprise, and Anhui Publishing Group directly and indirectly holds more than 80% of its shares.

According to the indictment, during this period, Zhang Lihua, the person in charge of Yunnan Huijia, bribed Wang Min, then chairman of Anhui Huawen, and others to change the transaction method to "goods first, payment later", and forged a notice of transfer of goods rights to obtain the rights to goods.

In the case of insufficient payment to Anhui Huawen, the goods were taken away in advance, resulting in a direct economic loss of 3.23 billion yuan and an indirect loss of 2.015 billion yuan in Anhui Huawen.

At the same time, the "Indictment" also held that Guangzhou Yihai, a subordinate of Arowana, and its former general manager, Liu Degang, also accepted bribes and cooperated with Yunnan Huijia, Zhang Lihua and others to commit the crime of contract fraud, constituting aiders to the crime of contract fraud.

Arowana is deeply involved in the 5 billion fraud case of state-owned enterprises: how does palm oil trade finance cause significant losses of state-owned assets?

However, Arowana did not agree with the statement in the indictment. At the same time, it pointed out that the transaction between Anhui Huawen and Yunnan Huijia was in essence a financing trade act, and that Anhui Huawen personnel had always been aware that the palm oil goods were possessed and controlled by Yunnan Huijia without payment, and had not fallen into any misunderstanding at all.

Arowana's claim means that the state-owned Anhui Huawen is actually providing financing for Yunnan Huijia in the form of palm oil agency trade.

So, how did the palm oil agency business between Huijia in Yunnan and Huawen in Anhui cause a particularly heavy loss of 5 billion yuan in state-owned assets? What role did Arowana, as a listed company, play in this bizarre contract fraud case?

The fall of the former palm oil financing giant

Yunnan Huijia, which caused heavy losses to Anhui Huawen, was established in April 2000 and is currently held by Yunnan Huijia Group Co., Ltd. (hereinafter referred to as "Jiahui Group") and natural persons Zhang Lihua and Wu Shuzhen.

Zhang Lihua and Wu Shuzhen may be husband and wife, and multiple judgments show that Wu Shuzhen was in the guarantee contract

Showing that he is Zhang Lihua's spouse. Jiahui Group is 70% owned by Zhang Lihua and 30% by Wu Shuzhen.

China's bulk commodity financing trade is mainly copper, iron ore, soybeans and palm oil, and Jiahui Group was once one of the largest palm oil financiers in China.

In the process of financing trade, after the foreign trade enterprise pays a certain margin, it can complete the payment of the payment through the financial support under the letter of credit issued by the bank for a certain period of time, if the time required for the import of goods is short, before the expiration of the letter of credit, the enterprise can quickly realize the goods that have been imported, and invest this part of the funds in other areas.

Such financing trade can also be achieved through import agency. Arowana pointed out in the announcement that the transaction between Anhui Huawen and Yunnan Huijia is essentially this kind of financing trade behavior. However, Yunnan Huijia has changed the transaction model from "payment before delivery" to "payment before payment" through bribery, which means that Yunnan Huijia will be able to leverage more palm oil for related financing at the same time.

Since 2008, Yunnan Huijia has been carrying out palm oil import agency business with Anhui Huawen, and has also carried out related business through a number of banks.

However, in June 2014, a case of commodity financing fraud was exposed in the Qingdao port area, and Decheng Mining was investigated on suspicion of using the same batch of metal inventory to repeatedly defraud financing loans. As a result, domestic banks have tightened the issuance of letters of credit and raised the margin ratio significantly compared with the previous period, which means that the cost of trade finance has increased.

In addition, due to the long-term import of a large number of palm oil in the mainland, the high inventory of palm oil in domestic ports, resulting in the inversion of palm oil prices at home and abroad, the highest price difference between inside and outside in 2014 once reached 1,300 yuan/ton, which means that it is not easy to cash out the high-priced imported palm oil.

In September 2014, "Futures Daily" and other media said that Huijia Group was in a dilemma of tight capital chain. Tianyancha shows that since 2014, Yunnan Huijia has been sued by relevant banks many times due to disputes over financial loan contracts and other causes. In this context, after July 2014, Anhui Huawen also suspended its business due to Yunnan Huijia's inability to pay the deposit and payment.

Under the situation of tight capital chain, Yunnan Huijia may continue to obtain financing from banks and other funding parties through transactions with "its own people".

Qingliu Studio combed through the relevant judgment documents and found that after July 2014, Yunnan Huijia began to have close capital and goods exchanges with a company called "Yunnan Biaoze Import and Export Co., Ltd." (hereinafter referred to as "Yunnan Biaoze").

In August 2014, Yunnan Huijia signed a domestic purchase and sale contract of 52.25 million yuan with Yunnan Biaoze, and the Industrial and Commercial Bank of China Co., Ltd. Kunming Huitong Branch advanced 52.25 million yuan of the letter of credit after the issuance of the certificate, but in the end Yunnan Huijia only repaid the bank 2.03 million yuan;

In September 2014, Yunnan Biaoze and Huijia Company signed the "Purchase and Sales Contract", agreeing that Yunnan Huijia would transfer the cargo rights of 1912.927 tons of 24 degree palm liquid oil to Biaoze Company at a total price of 10.1003 million yuan;

Earlier, in December 2013, Yunnan Huijia had obtained a trade finance credit line of 210 million yuan from the Kunming branch of Everbright Bank, but it was not until between May 6 and June 23, 2015 that the Kunming branch of Everbright Bank was instructed to advance money to Yunnan Biaoze several times, with a total amount of 138 million yuan.

In addition, Huijia Group, the parent company of Yunnan Huijia, has also provided guarantees for Yunnan Biaoze. On July 3, 2014, China Guangfa Bank issued a loan of RMB 35 million to Yunnan Biaoze based on its application, and Huijia Group provided mortgage guarantee for Yunnan Biaoze with its real estate, but when the loan period expired, Yunnan Biaoze Company did not repay the principal and interest in full as agreed.

Although Yunnan Huijia and Yunnan Biaoze have no equity relationship on the surface, there have been many people close to Huijia Group in the list of historical shareholders of Yunnan Biaoze.

The trade between Yunnan Huijia and Yunnan Biaoze once allowed Huijia Group to obtain more financing from funders, including banks, and also left a series of bad debts for funders.

Anhui Chinese may have been involved in financing trade many times

Qingliu Studio noticed that Yunnan Huijia and Yunnan Biaoze also appeared in the statements of Anhui Publishing Group Co., Ltd. (hereinafter referred to as "Anhui Publishing Group") in recent years.

Anhui Publishing Group is the parent company of Anhui Huawen, the "victim" of the above-mentioned fraud case, and directly and indirectly holds 84.3% of the latter's equity.

According to the prospectus of the second phase of the medium-term notes of Anhui Publishing Group Co., Ltd. in 2022, as of the end of 2020, the book balance of accounts receivable of Anhui Publishing Group to Yunnan Huijia was 846 million yuan.

Yunnan Biaoze also appeared in the accounts receivable statement of Anhui Publishing Group as of the end of 2020 with a significant single amount and a separate provision for bad debts, which shows that the accounts receivable are 280 million and the provision for bad debts is 42 million.

In January 2022, Wang Min, the former chairman of Anhui Huawen, was investigated by the Anhui Provincial Commission for Discipline Inspection and Supervision on suspicion of serious violations of discipline and law.

The results of the investigation showed that Wang Min "acted arbitrarily and recklessly, colluded with officials and businessmen, engaged in power-for-money transactions on a large scale, openly disregarded the development of state-owned enterprises and the safety of state-owned assets, sought benefits for others in the import agency and other aspects, ate inside and outside, harmed the public and private interests, and illegally accepted huge amounts of property, causing particularly heavy losses of state-owned assets."

Qingliu Studio's investigation found that in addition to the above-mentioned import agency business with Yunnan Huijia, during Wang Min's tenure as chairman of Anhui Huawen, Anhui Huawen may have issued loans to some enterprises in disguise through financing trade.

In 2017, the State-owned Assets Supervision and Administration Commission of the State Council issued the Notice on Further Investigating the Risks of Financing Trade Business of Central Enterprises, which clearly stipulates the criteria for judging financing trade, that is, financing trade business is an illegal business that lends funds and has no commercial substance in the name of trade business.

This form of financing trade is commonly found between private enterprises and state-owned enterprises, and private enterprises try to get state-owned enterprises to join the trade chain, and in the name of trade, they actually borrow money.

At the same time, the above-mentioned circular also points out that the main characteristics of financing trade are: first, fictitious trade background, or artificially increasing transaction links; second, the upstream supplier and downstream customer are controlled by the same actual controller, or there is a specific interest relationship between the upstream and downstream; third, the subject matter of the trade is substantially controlled by the other party; and fourth, the funds are directly provided or disguised through settlement of bills, factoring, credit enhancement support, etc.

According to the judgment website, in 2012, Anhui Huawen accepted the entrustment of a trading company in Huangshan to import or purchase chemical products as an agent, but the entrusting party and the guarantor ultimately failed to repay the payment. Anhui Huawen filed a lawsuit as a result. However, in court, whether there is a "fact of international sale of goods" in trade has become the focus of controversy.

In a typical financing trade, the upstream enterprise entrusts the capital provider to purchase from the designated downstream enterprise, and the capital provider issues the loan to the downstream enterprise at the time of procurement, and then the upstream enterprise completes the repayment when the payment is returned.

Anhui Huawen, at least in the above case, the alleged goods in trade did not exist.

What is the responsibility of the transit warehousing party Arowana?

Then, as a transit warehousing party, Arowana, in this contract fraud case of major losses of state-owned assets, the extent of responsibility may be a question worthy of investors' attention.

According to the announcement, the procuratorate believes that Liu Degang, general manager of Guangzhou Yihaiyuan, cooperated with Yunnan Huijia, Zhang Lihua and others to commit the crime of contract fraud, constituting an aider to the crime of contract fraud. At the same time, it is believed that Zhang Lihua offered bribes to Liu Degang between 2009 and 2013, and Liu Degang constituted the crime of accepting bribes by non-state functionaries.

Guangzhou Yihai, a subsidiary of Arowana, was also considered by the procuratorate to be an aider in the crime of contract fraud, but Arowana did not recognize this.

According to the announcement, the defense lawyer hired by Guangzhou Yihai and the experts consulted agreed that Guangzhou Yihai did not constitute a crime committed by a unit, and put forward four reasons:

1. The transaction between Anhui Huawen and Yunnan Huijia is essentially a financing trade act;

2. Guangzhou Yihai has always implemented the transfer of goods out of the warehouse or the transfer of cargo rights in strict accordance with the contract;

3. The buying and selling prices of palm oil between Guangzhou Yihai and Yunnan Huijia are normal market prices;

4. Guangzhou Yihai did not know about the settlement of the transaction between Yunnan Huijia and Anhui Huawen.

Liu Youhua, a partner lawyer at Guangdong Fanjun Law Firm, told Qingliu Studio that the main purpose of Guangzhou Yihai's four reasons was to prove that the company was subjectively unable to predict the contract fraud and did not provide assistance to the contract fraud.

The core reason for the criminal involvement in this case is that Yunnan Huijia took the goods and did not pay, and forged the official seal and statement, which may have the fraudulent purpose of illegal possession.

Liu Youhua believes that the purpose of Guangzhou Yihai's defense is to clarify its role in this trade process, that is, Guangzhou Yihai's responsibility is limited to keeping the goods and delivering the goods according to the order, and does not actually participate in the trade process.

So, what kind of responsibility does Guangzhou Yihai, as a transit warehousing party, bear in it?

Liu Youhua told Qingliu Studio that Guangzhou Yihai, as the intermediary party, is the custodian in the warehousing contract, and the core obligation of the warehousing custodian is to manage the goods and count the goods, similar to a "safe".

The original owner of the goods, Anhui Huawen, deposited the goods in Guangzhou Yihai, and Guangzhou Yihai transferred them to a third party with the "Notice of Transfer of Cargo Rights" in Anhui Chinese, and Anhui Huawen could also pick up the goods by himself with the "Warehousing List" and other documents. However, Guangzhou Yihai has the responsibility to check the authenticity of the documents and the consistency of the manifests. In the event of document fraud, release of goods without bills, or errors or omissions in the delivery of goods, there is still the possibility of suspected criminal offenses.

In this case, Yunnan Huijia took away the goods through the "Reconciliation Letter" issued by the official seal of Guangzhou Yihai.

Liu Youhua told Qingliu Studio that if the goods are taken away due to forged documents due to inspection negligence, the transit party may need to bear the corresponding civil liability and criminal liability: in terms of civil liability, the warehousing party has the duty of due diligence and prudent storage, and if the goods are taken away, then in addition to the value of the goods itself, there may be high liquidated damages;

Liu Youhua believes that in this case, it is difficult to confirm whether Guangzhou Yihai subjectively realized that his behavior would cause harmful results, and this is also the key issue in the investigation and debate of the procuratorate and lawyers in this case. Whether a crime is established or not still needs to be determined by the court's judgment.

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