13 October 2014

BY EMAIL - AMENDED
Deloitte Touche Tohmatsu
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RE: OPEN LETTER TO DELOITTE TOUCHE TOHMATSU REGARDING TIANHE CHEMICALS GROUP LTD.
Dear Deloitte Touche Tohmatsu:
As )ou are a(are: (e ha4e ;ublishe6 se4eral re;orts o# our (ebsite 6etaili#+ e-te#si4e e4i6e#ce that su;;orts
our 4ie( that Tianhe Chemicals Grou L!" <1=1/7*,> has e#+a+e6 i# %rau6 i# co##ectio# (ith its I$O b) +rossl)
misre;rese#ti#+ the si1e a#6 sco;e o% its busi#ess a#6 ma8i#+ other misre;rese#tatio#s a#6 %alse stateme#ts to
the mar8et7
1
?e are (riti#+ this o;e# letter to )ou: Deloitte Touche Tohmatsu: the re;orti#+ accou#ta#ts %or Tia#he@s I$O: or
its a%%iliate: Deloitte Touche Tohmatsu 3erti%ie6 $ublic Accou#ta#ts LL$: i# or6er to u#6erscore (hat (e belie4e
is e4i6e#ce that Tia#he co#ti#ues to ma8e %alse re;rese#tatio#s to the mar8et re+ar6i#+ its busi#ess i#clu6i#+
re+ar6i#+ its ta-es7 ?e belie4e Tia#he is ma8i#+ %alse re;rese#tatio#s a#6 ;ro4i6i#+ %alsi%ie6 6ocume#ts to )ou:
its au6itors: as ;art o% its e%%orts to obtai# )our si+# o%% o# its accou#ts: a si+# o%% that (e belie4e shoul6 be
;ro;erl) (ithhel6: base6 u;o# all o% the e4i6e#ce7
I# this letter: (e u#6erscore some o% the ;re4ious e4i6e#ce: as (ell as some #e( e4i6e#ce that sho(s
co#clusi4el) that Tia#he has lie6 about the ta-es it has ;ai6: a#6 that the ta- co#%irmatio#s that it has
;rese#te6 to )ou are either the result o% bribes or ha4e bee# %abricate67
1 htt;.!!(((7a#o#a#al)tics7com!2014!0/!tia#he-chemicals7html
1
I# res;o#se to our a#al)sis a#6 co#clusio#s co#tai#e6 i# our re;orts: Tia#heAs Ma#a+eme#t team has release6
se4eral clari%icatio# a##ou#ceme#ts 4ia the *o#+ ,o#+ 0toc8 E-cha#+e7 ?e belie4e that i# ma8i#+ these
clari%icatio# a##ou#ceme#ts: Tia#he has ma6e stateme#ts that are co#tra6ictor) to ;re4ious re;rese#tatio#s:
as (ell as to the Deloitte-au6ite6 0AI3 %ili#+s a#6 %i#a#cial stateme#ts: a#6 that Tia#he has #o( bac8e6 itsel%
i#to a cor#er a#6 ca##ot 8ee; u; (ith all the lies it is telli#+7
Let us e-;lai#.
I# its & October clari%icatio# a##ou#ceme#t: Tia#he claime6 to ha4e obtai#e6 ta- co#%irmatio#s %rom Liao#i#+
Yi 3ou#t) 0tate Ta- Bureau a#6 "u-i# 3it) *ai1hou District 0tate Ta- Bureau co#%irmi#+ that Tia#he ;ai6 all its
ta-es <BAT C I#come ta-es ;ai6> co#siste#t (ith its I$O ;ros;ectus7
I# ma8i#+ its claim: Tia#he ;rese#te6 the %ollo(i#+ ta- brea86o(# b) its o#l) t(o o;erati#+ subsi6iaries.
0ource. htt;.!!(((7h8e-#e(s7h8!liste6co!listco#e(s!0E*,!2014!100&!LTN2014100&12=37;6% ;+7 &7
Base6 o# this ta- brea86o(#: it (oul6 a;;ear that o# the o#e ha#6 "u-i# *e#+to#+ is barel) ;ro%itable
<co#siste#t (ith our %i#6i#+s a#6 ;rior assertio#s> (hile o# the other ha#6 Di#1hou D$"-T* is i#cre6ibl)
;ro%itable <i#co#siste#t (ith our %i#6i#+s>7
Accor6i#+l): it a;;ears to us that Tia#he (as o#l) able to %abricate!bribe ta- co#%irmatio#s %or Yi 3ou#t) <(here
Di#1hou D$"-T* is base6> a#6 #ot %rom "u-i# 3it) <(here "u-i# *e#+to#+ is base6>7
*o(e4er: there are !hree ;rimar) reaso#s to belie4e that the ta- co#%irmatio# %rom Di#1hou D$"-T* is %a8e.
2
#irs!$ a#6 most im;orta#t: (e ha4e co#clusi4e e4i6e#ce that the ta- co#%irmatio# obtai#e6 %or Di#1hou D$"-T*
is %alse because the #umbers 6o #ot match the Deloitte-au6ite6 0AI3 %ili#+s7
Accor6i#+ to the ta- co#%irmatio# ;rese#te6 b) Tia#he: Di#1hou D$"-T* ;ai6 total ta-es o% 9MB4& millio# i#
2011 a#6 9MBE&1 millio# i# 2012.
0ource. htt;.!!(((7h8e-#e(s7h8!liste6co!listco#e(s!0E*,!2014!100&!LTN2014100&12=37;6% Attachme#t
3
*o(e4er: accor6i#+ to the Deloitte-au6ite6 co#soli6ate6 a#6 sta#6alo#e cash %lo( stateme#t: the amou#t o%
total ta-es ;ai6 (as %ar less.
There is #o ambi+uit) that the li#e item A A (hich mea#s Aall ta-es ;ai6A i#clu6es BAT: i#come
ta-es: a#6 all local ta-es7
2
There%ore: accor6i#+ to Deloitte: Di#1hou D$"-T* ;ai6 total ta-es o% 9MB212 millio# i# 2011 a#6 9MB3/0
millio# i# 20127 Yet Tia#he@s #e(l) obtai#e6 Fta- co#%irmatio#G claims that Di#1hou D$"-T* ;ai6 9MB4&
millio# i# 2011 a#6 9MBE&1 millio# i# 20127
This inconsis!enc% is all !he roo& %ou nee" !o see !ha! Tianhe is l%in' a'ain. The Deloi!!e(au"i!e" &inancial
s!a!emen!s inclu"in' !he a)o*e cash &lo+ s!a!emen! ro*e i! conclusi*el%.
<?e sus;ect (e alrea6) 8#o( ho( Tia#he (ill res;o#6 to this 6am#i#+ 6iscre;a#c): a#6 (e ha4e ;reem;te6
our res;o#se i# A;;e#6i- A7>
To be clear: b) re%erri#+ to the Deloitte-au6ite6 0AI3 6ocume#ts (e are #ot co#ce6i#+ that the) are accurate7
I# %act: (e belie4e Deloitte has bee# 6u;e6 i#to si+#i#+ o%% o# %a8e %i#a#cial i#%ormatio# as (e e-;lai#e6 i# our
2 0e;tember 2014 re;ort7
3
But rather: (hat (e are sa)i#+ is that Tia#heAs ma#a+eme#t team is so i#com;ete#t
at committi#+ %rau6: that their %a8e ta- co#%irmatio# is #ot e4e# co#siste#t (ith their %a8e Deloitte-au6ite6 0AI3
%ili#+s7
2 htt;.!!(((7chi#aacc7com!#e(!=3H=4/H!200/H&H12Hle00E121&/00207shtml
3 htt;.!!(((7a#o#a#al)tics7com!2014!0/!tia#he-chemicals7html
4
Secon"$ (e #ote that the Ai#come ta-A #umbers %or Di#1hou D$"-T* are all rou#6e6 #umbers: but %or "u-i#
*e#+to#+ the) are all e-act #umbers <re%er bac8 to ;a+e 2>7 ?e %i#6 it hi+hl) u#li8el) that a ;ro%essio#al ta-
authorit) (oul6 issue a# o%%icial ta- co#%irmatio# usi#+ rou#6e6 #umbers7 This is a +lari#+ re6 %la+7
Thir"$ the ta- co#%irmatio#s ;rese#te6 b) Tia#he %or its Di#1hou D$"-T* subsi6iar) 6o #ot match the ta- re;orts
;re4iousl) ;rese#te6 a#6 ;ublishe6 b) the Yi 3ou#t) +o4er#me#t <(here Di#1hou D$"-T* is base6 a#6 ;a)s
ta-es>7 These 6iscre;a#cies are a#other +lari#+ re6 %la+7
"or e-am;le: accor6i#+ to a# o%%icial a##ou#ceme#t b) the Di#1hou +o4er#me#t: the total ta- bu6+et o% Yi
3ou#t) i# 2011 (as 9MB1/0 millio#: a#6 b) 12 December: 2011: the 3ou#t) ha6 collecte6 9MB1E0 millio#7 Yet
Tia#he claims that Di#1hou D$"-T* ;ai6 9MB4& millio# i# 2011.
0ource. htt;.!!(((7I17+o47c#!l#I1!2011!12!1=!122307html
5
B) 30 Du#e 2012: Yi 3ou#t) 0tate Ta- Bureau ha6 collecte6 all ta- i#come o% 9MB14E millio#: (hich (as 27E2J
o% the (hole )earAs ;la##e6 ta- collectio#.
0ource. htt;.!!(((7l#7+o47c#!1%--!Ks+6!)8sH1!)-!20120E!t20120E20H/1=0&17html
I# other (or6s: 2012As e#tire ;la##e6 ta- collectio# (as arou#6 9MB300 millio#7 Yet: Tia#heAs clari%icatio#
a##ou#ceme#t claims that Di#1hou D$"-T* ;ai6 9MBE&1 millio# i# ta-es i# 20127
4
ThatAs about 27= times the
total ta- i#come o% the e#tire 3ou#t)L
I# Tia#heAs clari%icatio# a##ou#ceme#t: the) claim the) ha4e a66resse6 this 6iscre;a#c):

but a care%ul rea6 o%

their actual a##ou#ceme#t sho(s that the 3om;a#) com;letel) i+#ores it7
=
4 htt;.!!(((7h8e-#e(s7h8!liste6co!listco#e(s!0E*,!2014!100&!LTN2014100&12=37;6% ;+7 &
5 http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1010/LTN20141010007.pd p". 1
# http://www.hkexnews.hk/listedco/listconews/SEHK/2014/100$/LTN2014100$12#3.pd
#
As the au6itor that si+#e6 o%% o# these %ili#+s: (e res;ect%ull) su++est that )ou co#si6er )our ;ositio# i# li+ht o%
these ob4ious 6iscre;a#cies7 ?e reKuest that )ou a#6 )our au6it teams care%ull) stu6) the issues (e ha4e
raise6 i# this letter a#6 i# our ;re4ious re;orts a#6 be ;re;are6 to ma8e the har6 6ecisio#s (e belie4e )ou
must ma8e o# behal% o% i#4estors a#6 the i#te+rit) o% the +lobal ca;ital mar8ets7 I% (e are correct that Tia#he
is a %rau6 a#6 Deloitte %ails to i#%orm i#4estors a#6 re+ulators o% this ris8: Deloitte ma) also be hel6 liable i#
courts o% la( a#6 i# the court o% +lobal ;ublic o;i#io# i# the e4e#t o% Deloitte@s %ailure7
You ma) co#tact us %or a66itio#al i#%ormatio# at this email. a#o#7a#al)tics5#eomailbo-7#et
0i#cerel):
A#o#)mous A#al)tics

7
Aen"i,: Tianhe-s Resonse !o our #irs! Poin!
?e sus;ect that Tia#he (ill res;o#6 b) claimi#+ that BAT ta-es are #ot sho(# o# the i#come stateme#t7 This is
true: but the) are clearl) sho(# o# the cash %lo( stateme#t: a#6 this is a basic accou#ti#+ ;ri#ci;le e4er) e#tr)-
le4el accou#ta#t shoul6 8#o(: i#clu6i#+ the au6itors at Deloitte7
*o(e4er: to 6ri4e home the ;oi#t: (e cite ;a+es 44 a#6 4 o% the te-tboo8 title6 F3hie% Ta- O%%icerG ;ublishe6
b) Tsi#+hua M#i4ersit) $ress i# 200 a#6 authore6 b) *e Nhi6o#+ <I0BN E3020/&E00: /E&E3020/&E0=>.
This te-t clearl) e-;lai#s that Fall ta-esG i#clu6es BAT ta-es7 A seco#6 source o% i#%ormatio# is here.
htt;.!!(((7chi#aacc7com!#e(!=3H=4/H!200/H&H12Hle00E121&/00207shtml
"urthermore: there are a#) #umber o% liste6 3hi#ese com;a#ies that ;ro4i6e e-am;les o% this ;ri#ci;le.
Ne( Material <=00=3=.00> re;orts i#come stateme#t ta-es o% 9MB4& millio# i# 2012 a#6 9MB33 millio# i#
20137 *o(e4er: its cash %lo( stateme#t re;orts total ta-es ;ai6 o% 9MB213 millio# i# 2012 a#6 9MB11& millio#
i# 20137
$
,(eicho( Moutai <=001/.00> re;orts i#come stateme#t ta-es o% 9MB47E billio# i# 2012 a#6 9MB7 billio# i#
20137 *o(e4er: its cash %lo( stateme#t re;orts total ta-es ;ai6 o% 9MB1072 billio# i# 2012 a#6 9MB127 billio#
i# 20137
Lubei 3hemical <=00E2E.00> re;orts i#come stateme#t ta-es o% 9MB21 millio# i# 2012 a#6 9MB/ millio# i#
20137 *o(e4er: its cash %lo( stateme#t re;orts total ta-es ;ai6 o% 9MBE= millio# i# 2012 a#6 9MB3 millio# i#
20137
As is ;lai#l) ob4ious %rom the abo4e e-am;les a#6 te-tboo8 e-cer;ts: all ta-es: i#clu6i#+ i#come ta-es: BAT
ta-es: a#6 local ta-es are re;rese#te6 i# the cash %lo( stateme#ts7
%