Heist Exposes Court System's Financial Flaws

By staff reporters Wang Heyan, Kang Weiping and Ye Doudou

him with embezzling more than 100 million yuan (US＄12.5 million) in court funds.

Cheng Wei, 36, had quietly balanced a conflict of interest for more than ten years working as a court accountant, during which he also developed more than a dozen of his own retail, trade, and investment businesses. When it became clear that authorities were investigating him in 2004, he moved to bribe other Tianjin court officials and prosecutors into silence. Fourteen of those people are now also under investigation or have been arrested. Only one-tenth of the embezzled money has been retrieved. 

Cheng graduated from a local vocational school in 1990 and went to work for a local branch of the Industrial and Commercial Bank of China before moving to the court in 1993. His colleagues generally saw him as a “promising and capable” young accountant, who might soon have been promoted to chief of his division had his crimes not been discovered.

Over the past decade, Cheng has allegedly worked in collusion with bank staff to use forgeries and false bank accounts to steal court funds for his own companies. Cheng allegedly embezzled from funds earmarked for winners of lawsuits that the court was in the process of transferring. Under the Chinese judicial system, the court can  retain that money for an unspecified period of time, which often provides opportunities for corruption.

In 2000, the new head of the court, Li Baihua, decided to build a new executive building at a cost of over 100 million yuan (US＄12.5 million). He authorized Cheng to oversee the transfer of construction funds and the procurement of materials. Investigation documents suggest that he siphoned off 10 million yuan (US＄1.3 million) in the process, ironically while earning praise for his effective work. Several people familiar with the project said Cheng colluded with bank staff to provide false bank statements, which helped him pass both internal and external financial audits.

Three years later, Cheng oversaw the court’s October 2003 auction of a Turkish ship, the Hidir Selek, for US＄6.84 million. But that money never reached its intended recipient, Germany’s HSH Bank, which had taken the ship as collateral for a US＄6.57 million bad loan to ETA, a Turkish company. After the court hearing, an HSH representative praised the court for its “equitable and highly efficient” work. But more than two years later, the bank has yet to receive the funds. has verified that Cheng transferred the money out of the court’s accounts, after which it disappeared.

One insider told that there are no concrete rules for how soon such transfers must be made, and that court officers have significant control over the funds. “They need only to talk it over with the heads of the courts,” and obtain the latter’s acquiescence to delay the transfers. High-level court officials must approve all transfers of third-party funds.

Of a total of nearly 90 million yuan (US＄11.3 million) that Cheng embezzled that have not been retrieved, most was invested in his own businesses. has learned that Cheng used the money to set up more than a dozen companies dealing in luxury car rentals, trade, retail and computer software, etc. In 2004, a company Cheng had set up and controlled through his father spent at least 10 million yuan to purchase 3 million shares in a A-share listed chemical company. 

But for all his capital maneuvering, his companies seldom made money. One of Cheng’s business partners told that one Hong Kong company had swindled Cheng out of several million yuan, and another lawyer revealed that a Guangdong company had tricked him out of another 20 million (US＄2.5 million.) Cheng never reported the crimes to the police, probably because the money came from questionable sources to begin with.

Cheng’s scheme began to unravel when someone tipped off the Tianjin authorities in November, 2004. Two local prosectors, Guo Qiang and Zhang Qingjun, went to investigate the case, but Cheng bribed Guo for 100,000 yuan (US＄12,500) and paid Zhang 6 million yuan (US＄750,000) over the next several months, in exchange for their silence.

Cheng got what he paid for: the pair of investigators reported to the authorities that Cheng was innocent, and the case was shelved. But when the whistle-blowers continued to badger authorities to look into the case, Guo and Zhang were replaced by new investigators. As they closed in on Chen in late June, 2005, he disappeared. He was arrested in HHe Chengdu, Sichuan Province on July 7.

Guo turned himself in to local Communist Party authorities, who revoked his Party membership. He is out on bail awaiting trial, along with others involved in the case.

Analysts say the scandal brings to light the consequences of China’s lax regulation of court accounts, especially of funds already awarded to parties of past lawsuits but temporarily under court control. “This is a problem with the whole judicial system,” one analyst commented.

has verified that the Supreme People’s Court is drafting new regulations for the management of these funds. Analysts say the new regulations must include procedures to prevent such money from being easily misused. One suggested allowing claimants to check on the status of their funds, and setting a time period within which funds must be transferred out of court accounts.

The long-term solution, analysts said, is a new system for fund transfers that avoids court accounts altogether. The current system gives the court too much power, said one expert who declined to be named.

English version by Xin Zhiming and Lauren Keane