Wenzhou, China — The email seemed unremarkable: a routine request by Mattel Inc.’s chief executive for a new vendor payment to China.
It was well-timed, arriving on April 30, 2015, during a tumultuous period for the Los Angeles-based maker of Barbie dolls. Barbie was bombing, particularly overseas, and the CEO, Christopher Sinclair, had officially taken over only that month. Mattel had fired his predecessor.
The finance executive who got the note was naturally eager to please her new boss. She double-checked protocol. Fund transfers required approval from two high-ranking managers. She qualified and so did the CEO, according to a person familiar with the investigation who spoke on condition of anonymity. He declined to reveal the finance executive’s name.
Satisfied, the executive wired over $3 million to the Bank of Wenzhou, in China.
Hours later, she mentioned the payment to Sinclair. But he hadn’t made any such request.
Frantic, Mattel executives called their U.S. bank, the police and the FBI.
The response? You’re out of luck. The money’s already in China.
Mattel’s millions were swept up in a tide of dirty money that passes through China and that Western police are only beginning to understand. The fraud — known as the fake CEO or fake president scam — has cost companies, many of them American, more than $1.8 billion, according to the FBI. Most of the stolen money passes through banks in China or Hong Kong, the FBI said.
An Associated Press investigation shows that China is emerging as a global hub for money laundering. The dark money that courses through China has long been considered a domestic issue, with Chinese illicitly moving money for other Chinese. That’s no longer the case. Mounting evidence indicates that China is becoming a global banker for the criminal economy, according to interviews with police officials, court records in the U.S. and Europe, and intelligence documents reviewed by the AP.
Years of mutual mistrust have hindered law enforcement cooperation between China and the West, adding to China’s appeal as a money laundering hub. The State Department said in a report this month that China has “not cooperated sufficiently on financial investigations.” China’s inability to enforce U.S. court orders on China-based assets “remains a significant barrier to enhanced U.S.-China cooperation,” it added.
In a briefing with reporters on Monday, Chinese Foreign Ministry spokesman Hong Lei said that the government “places great emphasis” on fighting crimes such as money laundering and is working to expand international cooperation. “China is not, has not been, nor will be in the future a center of global money laundering,” he said.
Mattel wasn’t going to let go of $3 million without a fight. What the company really needed was luck. And when it came to Mattel’s China operations, luck had been in short supply.
Mattel’s misadventures in China have become the stuff of business school seminars. In 2007, Mattel recalled 19 million made-in-China toys, including Pixar cars covered in lead paint and Barbie sets embedded with tiny, hazardous magnets. Then, in 2009, Mattel opened the “House of Barbie,” a glowing pink, six-story shrine on one of Shanghai’s ritziest shopping boulevards. It had a spiral staircase encased with over 800 Barbie dolls, a spa and a fashion runway. But the flagship flopped, and Mattel closed it after just two years.
Rising costs and labor shortages weighed on China production, even as the $5.7 billion toy giant limped back into the Chinese market with dolls — including a Violin Soloist Barbie — aimed at Chinese “tiger moms.”
The thieves struck as Mattel was aggressively pushing its China business, positioning itself as a child development brand, which helped grow China sales 43 percent in 2015 over the prior year. They had done their homework, mining social media and likely hacking corporate emails to penetrate Mattel’s corporate hierarchy and payment patterns, said the person familiar with the investigation.
The criminals had the $3 million sent to Wenzhou, a gritty enclave on China’s eastern coast that is emerging as a transit point in global money laundering networks. The city is the destination for 90 percent of the funds stolen through fake CEO scams in Europe, according to an intelligence memo.
Money that ends up in Wenzhou doesn’t have to stay there — thanks in part to the pawn shops and corner grocers that quietly double as money-transfer agents, said Yan Lixin, secretary general of the China Center for Anti-Money Laundering Studies at Shanghai’s Fudan University.
Luck arrived for Mattel in the form of a bank holiday; May 1 was Labor Day in China. That, crucially, gave Mattel time. The company notified Chinese police, who quickly launched a criminal investigation, according to a letter from Mattel thanking Chinese authorities, which was obtained by the AP.
When the Bank of Wenzhou opened the following Monday, a China-based anti-fraud executive from Mattel marched upstairs to the International Business Department and presented a letter from the FBI, according to two people familiar with the investigation who were not authorized to speak publicly.
Chinese police froze the account that very morning. Two days later, on May 6, Mattel got its money back.
Since its near miss in Wenzhou, Mattel has tracked a dozen more attempted hacks. It’s still not clear who was behind the scam.
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