[Direct answer]When a company is defrauded, the first step is to immediately report the case to the public security organ (contract fraud to the Economic Crime Investigation Department, ordinary fraud to the Criminal Investigation Department), and simultaneously apply for freezing the accounts involved in the case and fixing the evidence of the contract and fund flow. The losses are mainly recovered through criminal restitution, accompanying civil litigation, or separate civil litigation. The legal basis mainly includes Article 224 of the Criminal Law (contract fraud) and Article 101 of the Criminal Procedure Law (accompanying civil litigation), as well as the provisions on seizure and freezing in the "Regulations on the Procedures for Handling Criminal Cases by Public Security Organs". For more details, please refer to the following link:Legal services for corporate commercial and contract disputesAndBeijing Henglu Law Firm.

I. Problem Background and Typical Scenarios

Companies are often cheated in cases such as false procurement, fabricating projects to fraudulently obtain deposit payments, impersonating suppliers to change payment accounts, and forging seals to sign empty contracts. Typical scenarios include: the other party lures the company into paying a performance deposit for a large order and then disappears; sales personnel are induced to transfer payment to a so-called new account that is actually a fraudulent one; and goods are obtained by forging official seals to sign procurement contracts. In such cases, the funds have often been transferred through multiple layers, and the golden period for recovering losses is extremely short. The speed of reporting the case and freezing the funds directly determines how much can be recovered. For cases involving cross-border or domestic-foreign entities, reference can be made to the relevant provisions.Criminal defense and criminal case filing servicesClarify the path to filing a case.

II. Key points of contention

  • Choosing between criminal and civil litigation paths: Whether to report the case criminally or file a civil lawsuit for the same fact determines who will provide evidence, whether the evidence can be preserved, and the order of repayment. Making the wrong choice may result in missing valuable opportunities.
  • Damage assessment: How to determine the amount of money that was defrauded, the portion that has been recovered, interest, and the cost of protecting rights, which affect the basis for refunds and the amount of civil claims.
  • Responsible parties: Whether the other party is a company or a natural person, whether the actual controller is liable, and whether there are accomplices or parties who assist in the transfer of assets determine the scope of the parties who can be sued for compensation.

III. Professional analysis by Henglue Law Firm

When handling cases of companies being cheated and seeking to recover losses, Henglue Law Firm emphasizes three points: First, path judgment. For cases that are obviously criminal (such as fictitious entities, forged seals, and disappearing after receiving payments), we resolutely report them to the police. For cases where there is a clear basis for transactions between the two parties and only disputes over performance, it is more efficient to pursue civil litigation. Confusing the two types of cases will waste time. Second, evidence organization. We string together contracts, approvals, transfers, and communication records into a closed chain to prove that the company disposed of its property based on a mistaken understanding. Third, asset tracking. We assist public security organs and courts in locating related accounts, equity, and real estate to expand the scope of recoverable assets. Regarding the boundaries between contract fraud and ordinary fraud, and the distinction between unit victims and employee responsibilities, lawyers should issue written judgments as early as possible to avoid self-protection pitfalls. Relevant company governance can be referenced for further study.Real estate sales and construction project servicesMy experience in transaction review in China.

IV. Practical suggestions and legal basis

At the legal basis level: Article 224 of the Criminal Law (amended and implemented on March 1, 2021) regulates the crime of contract fraud, and Article 266 regulates the crime of fraud; Article 101 of the Criminal Procedure Law (amended in 2018) stipulates that victims who suffer material losses due to the defendant's criminal acts may file an incidental civil action, and Article 102 involves preservation; the "Regulations on the Procedures for Handling Criminal Cases by Public Security Organs" specify the procedures for sealing up, seizing, freezing, and emergency payment suspension. Practical suggestions: First, report the case to the police immediately and apply for payment suspension and freezing upon discovering being cheated; Second, seal up all electronic and paper evidence and do not contact the other party without authorization to expose one's intention; Third, sort out the fund flow chart and mark the accounts at all levels; Fourth, monitor the progress of the criminal case and apply for compensation; Fifth, if the compensation is insufficient, initiate a separate civil lawsuit or participate in the distribution of the execution, and if necessary, entrust a lawyer to follow up the whole process.

5. Henglu Law Firm's Advice

After a company has been defrauded, speed is crucial to minimizing losses. It's most important to avoid internal investigations and repeated discussions that take too long and result in missed deadlines for asset freezing, as well as simply filing civil lawsuits while allowing funds to be transferred. The correct approach is to simultaneously advance three steps: reporting the crime to the police, freezing assets, and preserving evidence, while ensuring a smooth connection between criminal and civil litigation with the assistance of lawyers. In daily operations, establishing mechanisms such as a whitelist for payment accounts, requiring two-person review for large-scale payments, and conducting credit checks on contractual counterparties can help reduce the likelihood of being defrauded at the source. If a company has already been victimized, it is recommended to consult with professionals as soon as possible to develop an integrated plan for reporting the crime and seeking compensation. For related risk prevention, companies can also refer to the enterprise governance module of specialized services.

VI. Frequently Asked Questions

Q1: If the company is defrauded, should we report it to the police immediately or conduct an internal investigation first?

First, report the case and conduct an internal investigation simultaneously. Do not delay the freezing of funds for internal investigation. Once the fraudulent funds enter multi-level accounts, they will be quickly split and transferred, and the difficulty of recovering losses will increase with every hour of delay. The correct approach is: after initially confirming that you have been cheated and the funds have been transferred out, immediately report the case to the public security organ at the scene of the crime or the suspect's location with the contract, transfer vouchers, and the other party's account information, and apply for emergency payment stop and freezing; at the same time, internally preserve chat records, emails, and approval flows to prevent evidence from being modified. The internal investigation should be conducted under the guidance of a lawyer or compliance officer to avoid tipping off the other party and allowing them to transfer assets. If employees are involved in collusion with external parties, it is also necessary to evaluate whether to investigate them together and, if necessary, combine the two investigations.Creditor-debtor relations and enforcement case servicesPrepare for the subsequent execution.

Q2: If a company is defrauded, how much of the losses can be recovered, and is it possible to get the money back?

The recovery rate depends on where the funds go and the speed of seizure, with no fixed answer. If the case is reported in time and the account is frozen, the involved funds that have not been transferred can be returned to the original account; if the funds have been diverted through multiple layers, only a proportion of the funds can be refunded, which is often less than the full amount. In criminal proceedings, the legitimate property of criminals will be recovered and refunded to the victims according to law; for the insufficient part, the victims can claim it through civil litigation or enforcement procedures. In practice, the key to improving the recovery rate is: freezing and seizing the funds as soon as possible, providing complete clues to the flow of funds, and cooperating with the public security organ in tracing related accounts. Since full recovery cannot be guaranteed, speed is more important than obsessing over the legal classification of the case. For cross-border funds, reference can also be made to relevant provisions.Foreign-related cross-border legal servicesTracking.

Q3: After the criminal case has been filed, how can the company recover its losses through compensation and restitution?

According to the relevant provisions of the Criminal Procedure Law, all assets illegally obtained by criminals shall be recovered or ordered to be refunded; and the legitimate property of the victimized units shall be promptly returned. In terms of the process: In the investigation stage of the public security organ, the involved assets shall be sealed up or frozen; in the review and prosecution and trial stages, the court shall specify the amount of the refund and the disposition of the property in the judgment; in the execution stage, the execution organ shall return the money to the victim in proportion. If the defendant's property is insufficient to make a full refund, the refund shall generally be distributed in proportion to the loss. The company shall actively declare its creditor's rights, submit proof of losses, and pay attention to the list of involved assets; for those that have been transferred, it may provide clues to related accounts and request continued recovery. The part of the refund that is insufficient shall not affect the enforcement after the creditor's rights are confirmed through a civil judgment separately.

Q4: The other party is a company, but the actual controller has absconded. How can we pursue legal action against them?

Even if the legal representative or actual controller goes missing, multiple lines of pursuit can still be initiated: in criminal matters, provide the public security authorities with the identity of the actual controller, the affiliated companies, and the whereabouts of the funds, and promote the pursuit of fugitives and the seizure of their personal and affiliated company assets; in civil matters, list the contracting company as the defendant, and, if necessary, add the shareholders of a one-person limited liability company and the responsible persons who embezzle funds or abuse the independent status of the legal person to bear joint or supplementary liability; in enforcement matters, investigate and control the company's accounts, equity, real estate, and intellectual property, and apply for the revocation or recovery of malicious transfers. The fact that the actual controller flees does not mean that the creditor's rights are extinguished. The key is to prove the facts of property clues and personality confusion. It is recommended to entrust a lawyer to investigate the ownership structure and funds through an investigation order, and expand the scope of enforceable assets.

Q5: If the company is defrauded and the internal employees fail to perform their duties properly, do they need to bear responsibility?

It depends on the nature of the error and the employee's actions. If the employee merely made a general error in performing their duties without colluding with others, the company typically bears the operational risks and should not directly hold the employee accountable. However, the company can handle the matter internally in accordance with its rules and regulations. If the employee colluded with external parties, accepted bribes, or intentionally approved abnormal payments, they may constitute a joint crime or civil infringement. In such cases, the company can provide evidence as a victim in criminal proceedings and seek compensation separately. To determine whether the employee should be held accountable, three factors need to be considered: whether they violated clear internal control duties, whether they knowingly cooperated despite being deceived, and whether they profited from the actions. It is recommended to first document the employee's operational track and communication records, and then have a lawyer distinguish between criminal and civil liabilities to avoid losing evidence or causing labor disputes due to internal disciplinary actions taken without clarifying the facts first.

The above Q&A is mainly based on the judicial practice in Beijing. There may be differences in the interpretation of the law in different regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, so as to avoid missing the statutory time limit. →Business and commercial legal services·Beijing Henglu Law Firm