Attempting to siphon off millions in building materials using a "shell company"

This article is reprinted from: Procuratorial Daily

Attempting to use “shell companies” to embezzle millions in building materials

Qingpu, Shanghai: Combating crime while encouraging defendants to voluntarily compensate and help businesses recover losses

Wang Shanwen

To repay debts, Song was deceived by an intermediary into becoming the legal representative of a “shell company” and participating in the illegal activities of embezzling enterprise building materials. With the prosecution’s efforts, Song voluntarily refunded 80,000 yuan, helping the victimized company recover part of its financial loss. The Shanghai Qingpu District Procuratorate filed a public prosecution, and on November 17, 2025, the court sentenced Song to three years in prison for contract fraud, with a three-year and six-month probation, and a fine of 50,000 yuan. To date, all illicit funds recovered from Song have been returned to the victims.

At the end of 2023, staff at a building materials company in Qingpu (hereinafter referred to as “the building materials company”) discovered irregularities during account reconciliation: a company signed a credit sale agreement in 2021 and withdrew building materials worth 1.5 million yuan but only paid a 75,000 yuan deposit and a small difference, with the remaining over 1.42 million yuan in overdue payments. The company’s leader, Song, had also disappeared without a trace.

After investigation, the building materials company found that this company, claiming to undertake large projects, was a newly registered “shell company” in March 2021 with no actual business location or project achievements. The company immediately reported the case to the police. Investigations confirmed that the company was a tool controlled by a fraud gang (handled separately), which used intermediaries to recruit company legal representatives by promising debt relief loans. They forged asset proof to disguise the shell company and embezzled building materials for resale. In September 2025, the case was transferred to the Qingpu District Procuratorate for review and prosecution.

Faced with questioning from prosecutors, Song claimed that in early 2021, due to owing more than 300,000 yuan, he contacted an intermediary after seeing information about debt relief loans. He registered a company and became its legal representative as required by the other party, then handed all company documents to the intermediary. When signing the contract, he thought it was just a loan process. Regarding compensation, Song said, “I didn’t get a penny, so why should I pay?”

The investigating prosecutors carefully reviewed the case files and identified key flaws: in his first interrogation, Song mentioned that the intermediary taught him to lie to deceive the building materials company, which directly contradicted his claim of ignorance about the contract details; text messages extracted from his phone showed that the intermediary had sent him notifications about the benefit fee being received, directly exposing his lie of having taken no money.

In a subsequent interrogation, prosecutors presented evidence one by one and explained the law: “In joint crimes, each participant is responsible for the overall consequences. Your repayment can help reduce the company’s losses and is also an important basis for a lighter sentence.” After learning about Song’s family difficulties, prosecutors clearly informed him that negotiations on the repayment amount could be considered based on his actual situation. Ultimately, Song’s psychological defenses collapsed; he not only truthfully admitted all criminal facts but also volunteered to do his best to raise funds for repayment.

It turned out that in early 2021, after a failed investment, Song was burdened with huge debts. His wife needed ongoing medical treatment, and he had two young children to support. Facing family hardship, he was eager to find a way out. At that time, he joined a loan group and contacted an intermediary, who required him to register a company and serve as its legal representative. After registration, Song handed over the business license, official seal, corporate account U-shield, personal bank card, and mobile SIM card to the intermediary, who then provided these materials to the fraud gang. The gang forged proof documents and portrayed Song as a capable construction company boss. In May 2021, Song was notified of a signing agreement with the building materials company for a credit line of 1.5 million yuan. After signing the agreement, Song was sidelined by the fraud gang, with all transactions controlled by core members. The 1.5 million yuan worth of building materials was signed for by gang members and sold at low prices, with the proceeds divided among the core members.

Following the principle of balancing law enforcement with damage control, prosecutors precisely identified Song as a peripheral participant in the case and engaged in legal explanation work. Considering Song’s actual difficulties, they actively communicated with the victimized enterprise, and both sides ultimately agreed on an 80,000 yuan refund. The Qingpu District Procuratorate filed a public prosecution, and the court rendered the above judgment.