Forty-year-old Chen Wei, a manager of a state-owned company and holder of a master’s degree, recently found himself sentenced to death, but was granted a reprieve. He had embezzled amounts to the value of almost US$630,000 and misappropriated public funds put at more than US$4.95 million.

Chen worked for a foreign economic and technical cooperation company after gaining his postgraduate qualification. In November 1994, he was promoted to the post of manager of the futures transaction department and then became the legal representative and manager of an affiliated company in Shanghai, which engaged in securities trading.

But he was to deceitfully misuse his position of trust, for he went on to embezzle and misappropriate. In granting a reprieve of the death sentence, the court took into consideration the fact that most of the embezzled money had been recovered.

Trends in abuse of positions of financial trust

In 2003 the courts in Beijing heard a total of 990 cases of economic crime. Of these 102 involved embezzlement and 57 misappropriation. For instance, the Beijing No.1 Intermediate People’s Court handled 31 cases of economic crime and handed down sentences to 37 convicted criminals. In dealing with cases involving misuse of positions of trust in state-owned enterprises, law officers have found five main trends among the offenders:

• They tend to commit their crimes at an early age. For example, Ding Tong, a cashier at the Beijing Environmental Health Bureau, was only 27 when he was caught misappropriating over US$108,000 of public funds.

• These are generally smart, well educated people. About 80 percent hold associate degrees or better. For example in a recent case, Huo Haihong, director of the Zhongguancun City Credit Union in Beijing’s Haidian District, graduated in finance in 1983.

• They tend to hold financial management or executive positions in state-owned companies. Chairmen of boards of directors and company presidents account for some 60 percent of the cases.

• Their methods are clever and sophisticated. Frequently these are not just simple abuses of power but carefully concealed and complex crimes that rely on professional expertise to find loopholes in operating procedures.

• They steal large sums of money. For example Han Guochang, an accountant at China North Industries Corporation, embezzled US$1.69 million and Song Zhang’ai of the China Huarong Trust and Investment Corporation misappropriated more than US$4.7 million of public funds.

The judge’s recommendations

The judge in the Chen Wei case said, “The offenders have been able to succeed in abusing their positions of trust because we lack effective mechanisms necessary to restrict their power and to supervise them in the exercise of their duties. During the reform of the state-owned enterprises the managers and administrators assumed far reaching powers. However they are operating without rigorous supervision either at the national macro-control level or from their organizations’ own internal mechanisms. What’s more, lax internal financial auditing procedures provide tempting opportunities for crimes involving embezzlement and misappropriation.”

To help prevent crimes involving abuse of positions of power, the court suggested a two-pronged policy that would combine legal punishment and deterrence with better preventative measures. The focus should be on strengthening reform of the systems involved and introducing new practices in the state-owned companies in addition to cracking down on abuse of power by individual officials. In terms of improving their financial control systems, the enterprises should ensure they have reliable procedures for the verification of written authorizations backed up by frequent monitoring of the proper application of these procedures.

The court also identified certain other measures which could help safeguard the property and rights of the enterprises. These included the more effective use of serial numbers on financial vouchers, senior staff appraisals, regular auditing of accounts, publishing of accounts and the implementation of financial auditing systems.

(China.org.cn by Li Xiao, June 6, 2004)