Report details use of secretive offshore companies by China's elite
Wednesday, January 22, 2014 at 12:14PM
Julie DiMauro in British Virgin Islands, Credit Suisse, Deng Xiaoping, Hu Jintao, International Consortium of Investigative Journalists, JPMorgan Chase, Li Peng, Lily Chang, PricewaterhouseCoopers, Samoa, UBS, Wen Jiabao

Family members of China's current and prior political leaders are using secret, offshore companies to help hide their wealth in tax havens, a new report says. And some well-known banks and accounting firms have played a significant role in helping them do it.

The politically-tied persons implicated include close relatives of President Xi Jinping, former President Hu Jintao, former Premiers Li Peng and Wen Jiabao, plus an in-law of China's late 'paramount leader' Deng Xiaoping.

The findings come from a study conducted by the International Consortium of Investigative Journalists (ICIJ) in Washington, D.C., a two-year reporting effort using leaked financial data from companies in the British Virgin Islands pertaining to 22,000 offshore clients. The ICIJ is just now sharing its results with several international news outlets.

The ICIJ data reveals that these clients from mainland China, Hong Kong and Taiwan have used offshore structures to avoid taxes, with somewhere between $1 trillion and $4 trillion in untraced assets having left China since the year 2000.

It is not clear how much of the funds deposited in the British Virgin Islands (BVI), Samoa, and other offshore havens is illegal. But the capital flight over the past decade does not do much to repair the image of Chinese political families, tarnished recently by news accounts into their business affairs.

A Chinese political family that has received negative press coverage in the west is that of the former premier, Wen Jiabao. His daughter, who goes by the name Lily Chang, was paid $1.8 million by JPMorgan Chase through her consulting firm in what is being investigated by U.S. authorities as a deliberate targeting of the relatives of influential officials by the bank.

The ICIJ's files reveal that Chang hid her links with this consulting firm, Fullmark Consulting, by incorporating it in the BVI, which allows incorporators to hide their identities. The company changed directors a couple of times and was dissolved, with the help of Credit Suisse in 2008, with no indication of what purpose the business served or what its activities had been.

A possible purpose for this type of company is to allow for the creation of bank accounts in the business's name, enabling the tracing of assets far more difficult.

Wen Jiabao has denied any wrongdoing pertaining to how his family has reported its wealth. Credit Suisse, for its part, refused to comment, saying that it follows detailed procedures when it comes to politically exposed persons and complies with all applicable money laundering regulations.

PricewaterhouseCoopers and UBS have had extensive ties with incorporation agents in the BVI and other regional territories, together incorporating more than 1,400 offshore institutions for clients from China, Hong Kong or Taiwan. Both companies have maintained that their actions complied with all of the appropriate laws and ethical codes.

Another company profiled by ICIJ's report is connected to Deng Jiagui, the husband of China's president Xi Jinping's older sister. Deng owns a 50 percent stake in Excellence Effort Property Development, incorporated in the BVI, with the other half owned by two Chinese property tycoons. Last year, it won a $2 billion real estate bid.  

The BVI has courted China's ruling elite and powerful business executives, leading to some embarrassment for the United Kingdom, which has at least some responsibility over its practices. The UK Prime Minister has recently pledged to take action against offshore tax avoidance.

ICIJ will continue to publish details of its findings with its media partners in the next few days and on its Offshore Leaks Database.

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Julie DiMauro is the executive editor of FCPA Blog and can be reached here.

Article originally appeared on The FCPA Blog (https://www.fcpablog.com/).
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