Wednesday, April 6, 2016

China In The Panama Papers: From Bo Xilai to Jackie Chan

First up, from th ICIJ:

Leaked Files Offer Many Clues To Offshore Dealings by Top Chinese
Eight current and former members of the Politburo Standing Committee, the country's top decision makers, have relatives with secret offshore companies
In this story
  • Relatives of at least eight members of the top leadership of China’s Communist Party have offshore holdings
  • So do China’s super wealthy business executives and kung fu star Jackie Chan
  • Offshore companies incorporated in offices in China and Hong Kong account for 29 percent of Mossack Fonseca’s active companies worldwide
For months, Gu Kailai worried about a secret that threatened to upend her comfortable life and stop her husband’s climb to the top rungs of China’s political leadership. So she took action.

In a hotel room in the southern Chinese megacity of Chongqing, she mixed tea and rat poison in a small container as Neil Heywood, a British business associate, lay drunken and dazed on the hotel bed.

Then she dripped the mixture into Heywood’s mouth.

Hotel staff found his body two days later.

Gu eventually confessed to the 2011 crime. She had been driven to murder, she said, by Heywood’s threats to expose a dark secret: millions of dollars in real estate held in an offshore account on the other side of the world.

If Heywood revealed that she had used a company in the British Virgin Islands to hide her ownership in a villa in the south of France, she figured, the scandal would jeopardize the accession of her husband, Bo Xilai, to the Politburo Standing Committee, a body of fewer than 10 men that stands at the apex of political power in China.

Just over two weeks after the murder — in a previously unknown postscript — the ownership structure of Gu’s offshore company suddenly changed. Her shares in the company were transferred to another business associate, perhaps in an effort to further obscure her ties to the company or to make it easier for the trusted associate to act swiftly as events unfolded, a trove of secret records shows.
In the end, nothing could hide Gu’s secrets. Her pursuit of offshore anonymity ended in death for Heywood and prison for her and her husband — and added more fuel to longstanding concerns about how members of China’s elite use tax-haven hideaways to conceal their wealth.

The leaked documents that provide fresh details about Gu’s overseas dealings also reveal a wealth of new information about the offshore holdings of the families of other powerful Chinese. The documents reveal that Xi Jinping, China’s “Chairman of Everything,” — his titles include president, Communist Party chief and military chief — has a brother-in-law who has had companies in tax havens. Relatives of at least seven other men who have served on the tiny Standing Committee — including two members currently serving with Xi — also have offshore holdings, the records show.
One of these relatives is a grandson-in-law of the late Chairman Mao Zedong, the founding father of the People’s Republic of China.

It is no secret that many of the children and grandchildren of China’s revolutionary heroes have found success in the business world. China has the world’s second largest economy and has hundreds of billionaires. But the extent to which some of the country’s most politically connected have tapped offshore networks to keep their assets hidden from the public eye is not well known. And the mechanics of how they do it is little understood.

The cache of documents was obtained by the International Consortium of Investigative Journalists, the German newspaper Süddeutsche Zeitung and other media partners. The records — more than 11 million documents in all — come from the files of Mossack Fonseca, a Panamanian law firm that sells shell companies and other offshore structures to customers who want to keep their finances private.

Among the law firm’s high-flying Chinese customers is Deng Jiagui, the brother in law of China’s paramount leader Xi Jinping, who has made anti-corruption a hallmark of his rule. Deng Jiagui acquired one offshore firm via Mossack Fonseca in 2004 and two more in 2009.

The companies were called Supreme Victory Enterprises Ltd., Best Effect Enterprises Ltd. and Wealth Ming International Ltd. It is unclear what the companies were used for. Supreme Victory was dissolved in 2007, and the other two companies had become dormant by the time Xi became Communist Party chief in 2012. Deng Jiagui did not respond to ICIJ’s requests for comment....MORE
And from the Asia Society's ChinaFile, our headline story:

China in the Panama Papers
A ChinaFile Conversation 
The overseas wealth of several relatives of senior Chinese leaders has come to light in an International Consortium of Investigative Journalists (ICIJ) report, part of the analysis by a group of media outlets of more than 11 million documents leaked from the Panamanian law firm Mossack Fonseca being called the Panama Papers. According to the report, the family members of eight current or former members of the Politburo Standing Committee of the Chinese Communist Party, including a brother-in-law of President Xi Jinping, have had “secret offshore companies.” Several prominent Chinese businesspeople were also named in the report. —The Editors
China’s guanxi economy comes into sharper focus step by step. We knew about Xi Jinping’s wealthy brother-in-law from Michael Forsythe’s reporting for Bloomberg; and about the wealth amassed by descendants of the P.R.C. founders from a team Bloomberg report; and about the wealthy wife of former Chinese premier Wen Jiabao from a report by David Barboza in The New York Times. The Panama Papers add more names to the list and give us new information about how the Red Aristocracy plays its money games, while still leaving a lot of questions unanswered.

We can see more clearly that smart officials do not take the money themselves. Those who did, like former security chief Zhou Yongkang and former military leader Xu Caihou, have been falling victim to Xi Jinping’s anti-corruption campaign. But it seems to be okay under Beijing’s rules of the game for a high official’s relatives to get rich. By that standard, Xi Jinping is deemed to be clean. We don’t know whether some of these relatives made their money by hard work and smart thinking. But the more cases were learn about, the harder it is to believe that this is usually the case. We need to learn more about what must be the numerous ways in which access produces money. The furtive behavior revealed in these documents suggests that even when such behavior is legal, it is still considered shameful.

As well, the Panama Papers tell us more about the one-foot-in, one-foot-out strategies of politically connected Chinese families. With their connections, they should be able to earn much higher rates of return in the go-go parts of China’s economy than in the strait-laced West, but still they send relatives and assets overseas. They don’t feel secure at home, but what exactly do they fear? Is it political strife within the regime, or the fragility of the regime itself?

When corruption started to sprout in China in the early 1980s, Deng Xiaoping defended his policy of opening to the West by saying, “If you open the window, some flies will get in.” Today it is hard to blame Chinese corruption on Western influence. The behavior revealed in these papers is the structural product of the Chinese system of power concentration and information control.
The China revelations in this leak so far do not seem to contain any huge bombshells, but Beijing’s blanket censorship of the Panama Papers crudely highlights the sensitivity and perceived dangers of the current and likely future disclosures. As usual, control is paramount for the Party and the C.C.P. is determined to wage its corruption crackdown on its terms rather than allow the Party’s agenda and target list to be determined by foreign media or activists outside the Party system. So of course there is censorship, but in the background I will wager that Wang Qishan and the CCDI are trying to pore over any of the documents they can obtain to add to dossiers on senior officials and their families to find any useful information.

I would be surprised, though, if the relevant authorities in Beijing were not aware of much of what has been exposed, and probably much more that is not public. For example, Xi Jinping’s brother-in-law, Deng Jiagui, has two offshore firms exposed by this leak, but these two were dormant by the time Xi became General Secretary, consistent with the 2014 reporting of The New York Times’ Mike Forsythe that “As China’s Leader Fights Graft, His Relatives Shed Assets.” What these new documents do not tell us is what if anything was in these companies before dormancy, or whether any assets they may have held were truly “divested” or simply transferred to a trusted friend, or “white glove” (bai shoutao, 白手套), to hold behind another layer of more impenetrable corporate secrecy.
The United States tax authorities at the Internal Revenue Service should be paying attention to the disclosures related to the Chinese-controlled companies, as there is a decent chance some of the beneficial owners are U.S. citizens or green card holders. U.S. citizens (and I believe green card holders as well) are required to file an annual Form 5471 with the I.R.S. detailing their holdings. How many actually do so, and could these papers be an entry point for the U.S. government to use tax evasion to investigate some of these people?