(Yicai) Aug. 19 -- In China’s shadow credit market, so-called professional debt-bearers are being groomed by intermediaries to secure illicit bank loans. An Yicai review of recent court rulings shows that some criminal gangs can extract hundreds of millions of Chinese yuan (tens of millions of US dollars) through these schemes.

Unable to borrow themselves, some businesses and individuals are paying intermediaries to find debt-bearers -- people with good credit but little wealth or low incomes -- who take out loans for them. The intermediaries back the loan applications with forged asset and income documents to fool lenders.

After the loan is made, the intermediaries take a cut, pay a little to the debt-bearer, and transfer the rest to their client. These professional debt-bearers are legally and financially on the hook for these loans, which has lead to regulatory warnings and criminal prosecutions.

These operations run like a tight black market network. Each debt-bearer typically works with a dozen or more intermediaries -- from recruiters who sign up people, to channel operators who secure clients, to hands-on operators who handle the practical steps.

The recruited debt-bearers are a mixed group drawn from all over the country. They can be low income workers tempted by high pay, unemployed people who take the bait, and small business owners struggling with cash flow.

One restaurant owner urgently in need of funds told Yicai that because his credit record is not good enough for a bank loan, he is willing to take the risk and become a debt-bearer, taking on a CNY5 million (USD696,000) liability in exchange for a CNY2 million payment.

After the debt-bearers sign paperwork, the intermediaries carefully package their profiles to make them appear eligible for bank loans. Yicai found that the scams usually rely on three types of “hard” collateral -- property, vehicles, and corporate liabilities -- because such assets enable larger loan limits.

A construction worker said he became a debt-bearer unwittingly. The intermediary told him to present himself to a bank with a false identity to apply for a mortgage, assuring him the intermediary would cover the payments for one to two years. The builder said it did not sound like a scam, as he was assured that any issues would be handled promptly.

The Risks

In practice, debt-bearers receive only a small fraction of the defrauded funds. One man said he assumed over CNY2 million in debt having been promised CNY1 million, but actually received less than CNY200,000. Another said that after the first payout he never received the promised full fee. Instead, the intermediary pressured him to take out more loans under his name.

“You could earn CNY2 million in three months,” said one debt-bearer from a rural area of Guangdong province. It is an “opportunity to change my fate,” he added, saying the “price is becoming a deadbeat.”

In case things go south, the person said he would disappear under an assumed name and live off the money. “Worst case, I just can’t take high-speed trains or planes,” he pointed out.

Intermediaries acting as organized teams have sometimes defrauded banks of sums exceeding CNY100 million (USD13.9 million). The city prosecutor for Shaoxing in Zhejiang province disclosed that one gang applied for more than CNY200 million. After subtracting the money for house purchases and repaid principal and interest payments, the net fraud exceeded CNY80 million (USD11.1 million).

A Shanghai court convicted four intermediaries of loan fraud last September, sentencing them to between three years and nine months and 12 years in prison. The debt-bearers were handed jail terms of between two years and three months and two and a half years.

As the actions of these intermediaries and professional debt-bearers may amount to loan fraud and related offences such as document forgery, they could face charges including fraud, illegal fundraising, obtaining loans by deception, and money laundering, Nie Chengtao, a partner of Beijing-based Tianyue Law Firm, told Yicai.

Each case ruling is different, depending on the amount of money involved and specific conditions, Nie added.

Editor: Futura Costaglione