Keywords: Embezzlement by an official; review and prosecution; decision not to prosecute

Handling Attorney: Chen Lin

Basic Facts of the Case:

A certain Urbanization Construction Co., Ltd. was established on July 26, 2013 (previously known as a certain Real Estate Development Co., Ltd.; the legal representative was Chen Mou; after establishing the Urbanization Construction Co., Ltd., the earlier company was deregistered). The company’s registered capital is 8 million yuan, and its legal representative is Chen Mou. Yu Mou contributed 4.08 million yuan, accounting for 51%, while Chen Mou contributed 3.92 million yuan, accounting for 49%.

The investigation revealed that when a certain Urbanization Construction Co., Ltd. was established, Chen and Yu jointly invested 3.92 million yuan to register the company and borrowed 2.6 million yuan from Guo. To repay Guo, Zhu, an undisclosed shareholder of the company, mortgaged his own property and obtained a loan of 960,000 yuan in Zhu’s personal name. Additionally, using Zhu’s personal name, Zhu mortgaged two properties owned by Chen and Liu, securing a loan of 1.63 million yuan. Together, these two loans totaled 2.59 million yuan, which was used to repay Guo. Between September 2013 and January 2017, Chen, taking advantage of his position as legal representative and daily manager, arranged for the Urbanization Construction Co., Ltd. to repay the principal of his personal housing loan and Liu’s housing loan, amounting to 1.63 million yuan, plus interest totaling 21,543 yuan. The company also repaid Zhu’s personal housing loan interest amounting to 168,096.48 yuan, while Chen personally paid interest amounting to 78,720 yuan; however, Zhu’s original loan principal remained unpaid. On August 14, 2017, Chen, Zhu Er (Chen’s aunt), Zhu Yi (Chen’s uncle), and shareholder Yu convened a shareholders’ meeting and passed a resolution informing Yu that Zhu Yi’s property loan had been used for the company’s daily operations. With Yu fully aware of the purpose and destination of these funds, the company formally acknowledged Zhu Yi’s debt related to this loan. Subsequently, Zhu Yi sued the Urbanization Construction Co., Ltd. and won the case, resulting in the company’s property being seized and used to satisfy Zhu Yi’s personal debts.

As a shareholder and legal representative of the Urbanization Construction Co., Ltd., Chen illegally appropriated company assets for his own use to repay his personal bank loans, thereby harming the company’s interests and allegedly committing the crime of embezzlement in the course of his official duties.

Case Highlights: After identifying certain doubts in the case, the handling attorney actively communicated with the prosecutor and the public security investigators. Subsequently, leaders of the municipal procuratorate, the deputy chief prosecutor of the county procuratorate, and the case-handling officer from the county procuratorate convened a symposium to discuss the case. The handling attorney was invited to attend the meeting and present his defense arguments. As a result, one charge was successfully dismissed during the review and prosecution stage, and the procuratorate ultimately decided not to prosecute the defendant.

Typical significance: (1) Starting from the factual details of the case, we will interview the suspect Chen to reconstruct the original circumstances of the case and analyze it from the perspective of the elements constituting a crime, thereby elucidating the investigative doubts surrounding the case.

In this case, there is another key company—Hua Company—which claims to be a Hong Kong-funded entity. However, the so-called Hong Kong funding is merely a shell company registered in Hong Kong with no actual assets; it exists solely as a gimmick and constitutes false advertising. A certain Real Estate Development Co., Ltd. and a certain Urbanization Construction Co., Ltd. were established one after the other precisely because Hua Company needed funds to pay the land transfer fees and take over the project in question. All operations of the Urbanization Construction Co., Ltd. are effectively controlled by Hua Company, and the ultimate controllers of Hua Company are Zhu Mou2 and Meng Mou.

When the real estate development company was established, Yu held a 51% stake as the controlling shareholder. Hua Company then arranged for Chen—who at the time was the project manager at Hua Company—to serve as the company’s legal representative and to hold shares on behalf of Zhu2, Zhu1, and Meng, collectively accounting for 49% of the company’s shares. Later, due to the unfavorable-sounding name of the original company, Zhu2 and Meng decided to dissolve the original real estate development company and subsequently established the urbanization construction company involved in this case, with the latter serving as Party A and taking over the project. The shareholding proportions and the legal representative remained unchanged. Thus, it is clear that Chen was not the actual operator of the company; rather, he was merely a nominal shareholder holding shares on behalf of others and serving as the legal representative. He held no official position within the company and certainly did not have any financial authority. Therefore, it is not feasible for him to take advantage of his position to embezzle the company’s assets.

2. Starting from the evidence within the case file, identify any evidentiary gaps that can prove that Chen does not constitute the crime of embezzlement in office.

The investigation file contains transaction records showing that a certain company—rather than any of the companies involved in the case—was used to pay the interest on the housing loans of Zhu Mou1 and Chen Mou. Like the Urban Construction Company, this “Zhi Mou” company was established and controlled by Hua Mou Company. Since the Urban Construction Company’s account had been frozen due to its failure to pay the construction fees owed to Party B, Hua Mou Company transferred the purchase proceeds to “Zhi Mou” company, which then promptly used the funds from “Zhi Mou” company’s accounts to repay the loans of Zhu Mou1 and Chen Mou. Chen Mou has absolutely no connection with “Zhi Mou” company, and the legal representative of “Zhi Mou” company is also an employee of Hua Mou Company. Thus, it is clear that the practice of using public funds from the companies involved to repay the housing loans of Chen Mou and Zhu Mou1 has nothing whatsoever to do with Chen Mou himself.

In 2016, Yu, the 51% controlling shareholder of the company, transferred six properties involved in the urban construction company’s case to Zhu Mou1 as repayment for a loan that was itself derived from funds allegedly misappropriated by Chen in connection with his official duties. Yu claimed that he had been deceived by Chen, which led to his defeat in the civil lawsuit and prompted him to pay Zhu Mou1 the money lent to the urban construction company. However, the evidence presented demonstrates that as early as 2017—before Chen even returned to the urban construction company—Yu had already used those six properties to offset the loan owed to Zhu Mou1, and even issued invoices for the transaction. How then could there have been any deception on Chen’s part? This is clearly a false accusation and malicious framing.

2. And, through legal counsel’s investigation and evidence collection, submit key documentary evidence to the investigating authorities.

The Urban Construction Development Co., Ltd. has a large number of shareholder meeting minutes, all of which bear the signatures of Zhu Mou2, Yu Mou, and Chen Mou. Some of these minutes also carry the signature of Zhu Mou1. Clearly, Zhu Mou2 is a shareholder; therefore, his statement in the minutes claiming that he is not a shareholder and merely obeys Chen Mou constitutes serious perjury. From the perspective of how Hua Company controls the Urban Construction Company to secure the project in question, as well as from the standpoint of Hua Company’s organizational structure, Zhu Mou2 is the company’s undisputed de facto operator. Moreover, prior to 2017, he consistently controlled the company’s financial records. All employees of the Urban Construction Company are actually employees of Hua Company. Although Chen Mou is registered as a shareholder and serves as the legal representative of the Urban Construction Company, he is merely an employee of Hua Company, just like other Hua Company employees within the Urban Construction Company—he follows Zhu Mou2’s instructions.

In addition, on December 18, 2013, Chen made a commitment regarding the nominee shareholding arrangement, promising that he was holding shares on behalf of Meng, Zhu 2, and Zhu 1. Furthermore, in the commitment letter dated August 1, 2017, Zhu 1 explicitly stated the respective shareholdings of Zhu 2, Chen, and Meng. It is thus evident that the actual shareholders of the Urban Construction Company are indeed Zhu 2, Meng, Yu, and Chen; among the four, Chen holds the smallest shareholding. Therefore, Chen cannot be considered the de facto controller nor does he hold any position that would allow him to commit embezzlement. Consequently, Chen cannot be found guilty of embezzlement.