Fake invoicing, expired wine sours reputation of China's Dynasty

Fake invoicing and selling expired wines are among the allegations that led Hong Kong-listed Dynasty Fine Wine Group to suspend its shares and begin a two-year investigation, the Chinese state-backed wine merchant has revealed for the first time in an exchange filing.

China’s third-largest wine merchant by volume and formed as a joint venture between the Tianjin municipal government and Paris-listed cognac maker Remy Cointeau, Dynasty’s shares have been suspended since March 2013 after anonymous allegations were passed to the firm’s auditor, PwC.

Although the firm quickly appointed a legal counsel, as well as Ernst & Young, to investigate the complaints, it has until now been mum about what they were.

The four allegations fall into two categories. Staff at Dynasty subsidiaries, including its Shanghai operation, stand accused of working with key clients to game end-of-year sales and bonus targets by issuing bogus invoices and value-added tax receipts. The clients were in on the charade and paid Dynasty staff for the non-existent wine. In return, the clients got their money back plus interest once Dynasty staff sold enough wine to other customers.

It is alleged that all Dynasty sales, worth more than 50 million yuan, from the fourth quarters of 2010 and 2011 were faked. In one case alone, the swindle totalled 430 million yuan.

None of the clients were named in the exchange filing, though clues to their identity include one being a mainland-listed firm while another a state-owned enterprise.

Wine sales at Dynasty, which both makes its own wines as well as distributes foreign labels in China, have collapsed in recent years after a central government clampdown on extravagant government banquets and gift-giving to officials hit the high-end wine market hard.