China’s Fugitive Officials and Vanishing Fortune
By Lance L. P. Gore

China’s Fugitive Officials and Vanishing Fortune

Feb. 29, 2016  |     |  0 comments


Operation Skynet


On July 22, 2014, the Ministry of Public Security (MPS) launched a worldwide man-hunt program. Code-named “Operation Fox-hunt 2014” (FH14 hereafter) and implemented till the end of 2014, FH14 was targeted at suspects of major economic crimes who had fled the country, especially “fugitive corrupt officials (FCO, waitao tanguan)” as commonly referred to in the Chinese media. On October 10, 2014, the Supreme Court, Supreme Procuratorate, Ministry of Public Security, and Ministry of Foreign Affairs jointly issued an ultimatum, urging fugitive suspects abroad to surrender to the authorities and receive lighter sentences if they did so before 1 December 2014. On January 1, 2015, the Ministry of Public Security announced that FH14 had repatriated 680 fugitives from 69 countries and territories, three times the number repatriated in 2013.

Encouraged by the success of FH14, the ministry decided to launch FH15 on March 31, 2015, but FH15 was now part of the larger national program code-named “Operation Skynet” (OS). The OS was initiated earlier that month by the International Office of the Central Anti-corruption Coordinating Small Group of the Chinese Communist Party (CCP), with the participation of the Central Organization Department (COD), the Supreme People’s Procuratorate (SPP), the Ministry of Public Security (MPS), the People’s Bank, etc. The MPS (with its FH15) was responsible for hunting down the fugitives; the SPP concentrated on recovering stolen properties through the use of legal weapons at their disposal; the People’s Bank led the crackdown on illicit funds transfer and money laundering operations, and the COD monitored and controlled the passports and overseas travels of public officials. The emphasis of OS was also FCOs.

In his report to the 6th plenum of the Central Discipline Inspection Commission (CDIC) — the communist party’s powerful discipline enforcement agency — on January 24, 2016, Wang Qishan, China’s anti-corruption tsar, disclosed that in 2015 the OS had repatriated 1023 fugitives and recovered three billion yuan in stolen money; he declared that 18 of the 100 on the Interpol’s “red warrant list” had been apprehended and, for the first time, the number apprehended exceeded the number of new fugitives. A few days earlier, the deputy chief of the CDIC’s International Cooperation Bureau released the following figures: by the end of November 2015, the OS had hunted down 863 criminals from 68 countries or territories, including 196 FCOs. 477 of them were arrested; 366 surrendered voluntarily, and 14 were prosecuted in local courts. 212 of the fugitives involved funds in excess of 10 million yuan and 58 exceeded 100 million yuan; 667 had been on the run for over five years, 39 over ten years, with the longest being 21 years on the run.

On January 27, 2016, the Ministry of Public Security set up the Department of Overseas Fugitives Affairs, a clear indication that a new round of “Operation Fox-hunt” — FH16, will be launched. The Ministry has assembled a task-force with a team of “top guns” in China’s law enforcement agencies. It is headquartered in Beijing’s financial district. The hunter team is young, with an average age of 30 and well-educated. All team members have Masters’ degrees, with some holding Ph.D.s and educated abroad. Similar task forces have been established at local public security bureaus as well. Previously China relied mostly on the Interpol to track down fugitive suspects, which involved heavy paper work and which was low in efficiency; Operation Fox-hunt marked a shift to more direct engagement by Chinese law enforcement.

Operation Skynet marks the deepening of Xi Jinping leadership’s anti-corruption campaign. At a CDIC meeting in January 2014, Xi reiterated his determination: “We must maintain the high pressure in the anti-corruption campaign, stick to the zero tolerance principle and resolutely prosecute every corrupt official as soon as they are exposed.” At the same meeting, Wang Qishan pledged to double the effort to track down fugitive officials so as to deter future copycats.

The shift in anti-corruption emphasis to overseas fugitives was prompted by several recent developments. After the new leadership of Xi Jinping made anti-corruption a top priority at the 18th Party Congress in November 2012, there was a massive selling off of luxury housing in major Chinese cities. 60 percent of the sales were by anonymous sellers. The Party authorities had reportedly issued warning to 120 or so high-level officials. Large-scale movement of funds abroad was also registered by the Central Bank and the Banking Supervision Commission. The Economic Observer cited a CDIC briefing to the Politburo that named nine provinces where large-scale withdrawals of foreign exchange from the bank accounts of high-ranking officials and their family members have occurred since the 18th Party Congress. Guangdong was the highest at US$1.8 billion. Transparency International’s Asia-Pacific director Liao Ran also noted a spike in the outflow of corrupt officials and money in the same period. The CDIC briefing detailed these new developments, anticipating a major wave of corrupt officials fleeing the country. Early indication of this massive exodus was that during the Mid-Autumn Festival and the National Day period of 2012, some 1,100 outbound tourists who held public offices did not return on time; 714 of them were later confirmed as having fled the country.

Magnitude of the Problem

While it is virtually impossible to get accurate figures on the magnitude of China’s FCOs problem, even the authorities have acknowledged that the problem has become a serious threat to China’s national security. There have been sporadic reports in official news media over the years but no systematic data about the number of FCOs and the corresponding financial losses have been released or confirmed by the authorities.

A 2008 research report compiled by the Center for the Monitoring and Analysis of Money Laundering (affiliated with the People’s Bank) cited a study by CASS, which estimated that since the mid-1990s, 16,000 to 18,000 public sector employees had fled the country with funds totalling around 800 billion yuan. The CDIC came out soon after to deny the figures as “grossly inaccurate.” However, right before that the study had been nominated for the “Outstanding Paper and Investigative Report Award” of the China Financial Society.

On January 12, 2010, an article in the official Xinhua News Agency’s website claimed that in the preceding 30 years there were around 4,000 major cases of FCOs, each of whom had fled with about 100 million yuan on average. This article officially confirmed the case of Gao Yan (former governor of Jilin, party secretary of Yunnan, vice minister of energy, and CEO of China National Power Co.), the highest ranking FCO so far.


According to Global Financial Integrity, a non-profit organization, illicit financial flows from China are the largest of all countries.


Southern Daily, a liberal-leaning newspaper headquartered in Guangzhou, sorted out various news reports about FCOs in a chart that provides the following figures: 600 FCOs were apprehended in 1993; 5,115 between 2000 and 2002; 596 in 2003; 614 in 2004; 703 in 2005; 1,670 in 2006; 964 in 2007; 1,200 in 2008; 1,129 in 2009; 1,283 in 2010; 1,631 in 2011; and 978 in 2012. A total of 24.48 billion yuan and 55.3 billion yuan were respectively recovered during the periods 2003-2007 and 2003-2007.

Cao Jianmin, Supreme Procurator, reportedly disclosed in October 2013 that between 2008 and 2013, 6,694 fugitives suspected of graft were nabbed and 55.3 billion yuan recovered. On March 10, 2014 at the second meeting of the 12th National People’s Congress, Cao announced that with multi-agency collaboration 762 fugitive suspects had been apprehended in 2013 and 10.14 billion yuan (US$1.63 billion) recovered. At the tele-conference that launched FH14, Vice Minister of Public Security Liu Jinguo disclosed that since 2008, China had successfully repatriated over 730 suspects of “major economic crimes.”

More recently, The Global Times, a paper affiliated with the official People’s Daily cited foreign reports that the Chinese government had handed over to the US government a list of 1,000 FCOs currently in hiding in the United States.

While it is difficult to get an accurate estimate of the magnitude of capital flight resulting from corruption, by all indications it has become astronomical. According to Global Financial Integrity, a non-profit organization, illicit financial flows from China are the largest of all countries. It estimated that China bled as much as US$2.18 trillion between 2000 and 2008 through various illicit channels. Much of these are cases of commercial fraud but corruption undoubtedly is a major factor. Many analysts had raised red flags about the improbably high growth rate of 93 percent of Chinese exports to Hong Kong in 2013 over the previous year, especially in the context of a consistent global 10 percent downturn in recorded exports. It may have indicated large-scale misinvoicing of trade that disguised illicit financial flows out of China.

Overseas Havens

Western developed countries, especially immigrant countries such as the United States, Canada, Australia, New Zealand and so on are the first choice of destination for fugitive high-ranking senior officials. The second-most popular destinations are neighboring countries such as Thailand, Myanmar, Cambodia, Philippines, Mongolia, Russia etc. The risk of being caught and repatriated from these countries is considerably higher because of the countries’ closer cooperation with Chinese law enforcement. However they are the easier destination of flight for fugitive lower-ranking officials.

The third-most popular destinations are countries in Latin America, Africa and Eastern Europe; the risk of being caught is lower in these countries, which are often used as a midway stop to Western countries. Hong Kong and Singapore are also midway stops given their position as financial and transport hubs. Many Chinese officials are in a position to obtain, either for themselves or for their family members, passports or resident status of Hong Kong, which enables them to travel to many countries in the British Commonwealth.

Developed Western democracies are the best hideouts for FCOs not only because these places have higher living standards, clean air, safe food, good health care etc. but also because they have sound legal systems and no extradition treaty with China.

FCOs are known to have formed exclusive communities in Los Angeles, New York, Hawaii, Houston, Vancouver, Toronto and so on. People in these circles wear expensive jewelry and designer clothes, frequent upscale restaurants, drive luxury vehicles and live in mansions; they usually have no contact with the local people.



The Atlantic Magazine reported mainland China investors snapping up property in Palo Alto, one of the choicest locations in southern California.



Investment immigration is also a major channel for FCOs. Li Huabo (李华波), a petty treasury official in Poyang county of Jiangxi province who had embezzled 94 million yuan of public funds, took advantage of Singapore’s Global Investors Programme to apply for permanent resident (PR) status for his family members before fleeing the country himself.

Once resettled in Singapore Li used several bank accounts that he had opened with UBS to funnel money from China. He was caught by the Singapore authorities and sentenced to a 15 month prison term for money laundering on July 10, 2014. A Chinese court in Jiangxi convicted Li in absentia and ordered the confiscation of all his family assets, which was the first such case. Li was eventually extradited back to China after serving his prison term in Singapore in 2015.

The Atlantic Magazine reported mainland China investors snapping up property in Palo Alto, one of the choicest locations in southern California near Silicon Valley. They used Hong Kong branches of Chinese state-owned corporations to transfer funds out of the Mainland to their American accounts. To them “the cost of the home is often the least of their concerns”. One realtor remarked, “To me $3 million is a lot of money, but to them it’s almost like pocket change. It just doesn’t put any kind of financial burden on them.”

Palo Alto realtors reported that many of their clients will seek green cards for their wives and children, but not for themselves, fearing the financial scrutiny that may follow. There have been numerous reports in Western media of mysterious buyers from China driving up the property markets in many countries.

Fugitive Trajectories

The flight of officials suspected of corruption started as early as the 1980s. Over time it has developed a general pattern consisting of roughly four phases: the accumulation of illicit wealth, the relocation of family members abroad, the movement of financial assets to them, and their fleeing the country at an opportune time. Since the execution of Cheng Kejie, the vice chairman of the National People’s Congress and former party secretary of Guangxi province, for serious corruption in 2000, corrupt officials have become eager and innovative in seeking out overseas havens for their eventual retirement. Table 1 lists some of the best-known fugitive officials.

One major reason for this ability to amass a big fortune over a relatively short period of time is the concentration of power in the hands of leading cadres of local governments, government departments, state-owned corporations and other organizations in the state sector. Flawed institutional design provides loopholes for corruption to remain undetected for a long time. These plus a general moral decay associated with rapid socioeconomic change constitutes a rich soil for corruption to become a culture among certain circles in the Chinese party-state. Political power is the most lucrative capital in the “socialist market economy” of China.

Once officials have accumulated a fortune they simultaneously become vulnerable to the law. It is also difficult for them to enjoy the lifestyle their ill-gotten fortune can afford them in China. That would create a glaring discrepancy between their legitimate income and actual expenditure. Strategically minded officials thus begin to relocate their family members or mistresses and send their children to schools overseas. There is a large array of market intermediaries specializing in services in these areas.

Once family members have settled down in targeted countries, they will move money abroad through a variety of methods. For example, Cheng Kejie arranged for his mistress to migrate to Hong Kong and then funnelled large sums of money to her bank accounts in Hong Kong. They could also smuggle cash out either personally over many official trips abroad or by hiring professional smugglers.

Table 1. Selected High-Profile Fugitive Officials

Name
Position
Age
Time of flight or being exposed
Destiny or targeted country
Amount
Cai Jianliao
曹鉴燎 *
Deputy mayor of Guangzhou, Guangdong


New Zealand
¥30 mil.
Cheng Sanchang
程三昌*

Luohe municipal party secretary, chairman of Henan-Hong Kong Co.
61 May 2003 New Zealand
¥10 mil
Fu Rongwu
富荣武
Chief, Hainan provincial Industrial and commercial Administration

1999


Gao Yan
高严
Governor, Jilin; party secretary, Yunan; vice minister of energy; CEO of China National Power Co.
60 2002 US, Canada, Australia?
¥4.6 bil
Hai Ying
海 莺
General manager, Yunan securities Co.
49
US ¥80 mil
Hu Xing
胡星
Vice director, department of transport, Yunnan

Jan. 2007
Singapore

Huang Yao
黄瑶 *
Vice chairman, Guizhou political consultative conference; deputy provincial party secretary of Guizhou
61 Oct. 2009

¥9.54 mil
Jiang Jifang
蒋基芳 *
Chief, Henan tobacco bureau; CEO and party group secretary, Henan Tobacco Co.
59 April 2002
US ¥20 mil

Lan Pu

蓝甫

Deputy mayor, Xiamen, Fujian
59
Australia
¥5.06 mil
Li Yongsheng
李永生
Chief, Planning department, Hainan province




Liu Guisu
刘桂苏
Chief, Hainan provincial treasury

April 1998
US
Lu Haiying
陆海莺
CEO, Yunan Securities Co.
49
US ¥80 mil
Lu Wanchao
陆万朝
Chief, Hainan provincial grain bureau




Lu Wanli
卢万里
Chief, Guizhou department of transport
57
Fi ji
¥55 mil
Luo Qingchang
罗庆昌
Chairman of the board, Yunan tourist co. (group)
42
US ¥33.8 mil
Luo Yingguo
罗荫国
Party secretary, Maomin municipality, Guangdong
57 Feb. 2011

100 mil+
Ou Lingao
欧林高*
Deputy chairman, Dongguan municipal People’s Congress, Guangdong

2013 Hong Kong
¥17 mil
Pang Jiayu
庞家钰 *
Vice chairman of Shaanxi People’s Political Consultative Conference
63 Feb 2007

480,000
Shi Faliang
石发亮 *
Chief, Department of transportation, Henan

2002 US 19 mil
Tong Yanbai
童言白 *
Chief, Henan highway bureau; chairman,Henan highway development Co. Ltd
53 Jan 2004
Australia

Wang Guoqiang
王国强 *
Party secretary, Fengcheng municipality, Liaoning
24 April 2012
US
¥200 mil
Wang Jianye
王建业
Chief, finance and trade bureau of Shenzhen municipal planning bureau.

July 1993
Burma, Thailand
¥13 mil
Wang Yanwei
王雁威
Vice chairman, Huadu district PPCC, Guangzhou

June 2013


Wang Zhengzhong 王振忠

Deputy chief, bureau of public security of Fuzhou, Fujian province
49 May 2002
US ¥100 mil+
Wen Ling
温玲
Vice chairman, Nanshan PPCC, Shenzhen

March 2012
US? ¥200 mil
Wu Zhanhui
吴湛辉 *
Vice secretary in chief, Dongguan municipal government, Guangdong

Oct 2013
Hong Kong
¥170 mil
Xin Weimin
忻伟明
Deputy magistrate, Luwan district of Shanghai


Hong Kong

Yang Guangliang
杨光亮
Executive vice mayor, Maomin, Guangdong




Yang Xianghong
杨湘洪
Member of CCP Wenzhou standing committee and secretary of Lucheng district
53
France

Yang Xiuzhu
杨秀珠
Vice mayor, Wenzhou and deputy chief, Zhejiang construction bureau
58 April 2003
US, Holland
¥200 mil

Yu Zhendong

余振东 *

President, Kaiping branch of Bank of China(Guangdong)
38
Hong Kong, US
US$483 mil
Zhou Jinhuo
周金伙 *
Chief, Industrial and commercial bureau, Fujian

2006 Hong Kong, US
¥100 mil
Zhu Bin
朱兵 *
Member of party standing committee, Yongkong, Zhejiang and secretary of political-legal committee
49 April 2009
US

Sources: Xinjingbao, 12 August 2013; People’s Daily, 5 June 2012 at http://politics.people.com.cn/GB/18069787.html (accessed 22 October 2014); various newspaper reports and online resources.


As described earlier FCOs could utilize the overseas branches of state-owned corporations under their influence or underground banks; they could also commit fraud in foreign trade and investment paperwork or contracts, or financial derivatives.

The final step is to arrange for their own exits. Usually these prospective fugitives would prefer to remain in their current positions to continue to accumulate wealth and climb the career ladder if their crimes remain undiscovered. They usually have in their possession passports (often more than one, either Chinese or foreign), fake identity cards and the necessary paperwork to clear the border checkpoints. They often take advantage of their official business trips abroad, which become more frequent, to prepare for their exit. They may also leave the country as tourists and never return if they have not succeeded in moving their family out. National holidays such as May Day, National Day and Chinese Lunar New Year often see a surge in the flight of fugitive officials.

Problems in Fighting Fugitive Officials

The Chinese government has had many false starts and half-hearted initiatives in fighting FCOs. On January 27, 2005 the State Forex Bureau (SFB), Ministry of Foreign Affairs (MFA), Ministry of Public Security (MPS), Ministry of Supervision (MOS) and Ministry of Justice (MOJ) jointly announced a program to monitor the transfer of assets overseas by public sector employees and their relatives; around the same time, the CDIC introduced a pilot program that required party-state officials and SOE executives to report the immigration status and studies abroad of their family members.

On January 1, 2007 China’s “anti-money laundering law” took effect. At a press conference in January 2010, Deputy Commissioner of the CDIC Li Yufu announced an inter-ministerial coordination mechanism consisting of the CDIC/Ministry of Supervision, MPS, MOJ and MFA etc. to prevent the flight of public employees. In September 2011, 10 provinces launched a pilot program for the prevention and apprehension of FCOs. A new State Council regulation that requires all Chinese citizens to report their overseas financial assets to the State Forex Bureau took effect on 1 January 2014.


One major reason for this ability to amass a big fortune over a relatively short period of time is the concentration of power in the hands of leading cadres.


As mentioned earlier, a new bureau of international cooperation was established in the CDIC in March 2014, and in May a high-level conference on FCOs was held in Beijing with participants from the Supreme Procuratorate, Supreme Court, MFA, Ministry of State Security, MPS, MOJ and People’s Bank. It was the highest level coordination meeting ever. On May 11, 2014, the official People’s Daily warned that foreign destinations are “no longer a safe haven” for corrupt officials who seek to flee the country.

However, as is with all cross-border crimes, the fight against fugitive officials has a myriad of political, legal and logistical difficulties. Domestically the legal and institutional loopholes and weaknesses, and the lax enforcement of laws have allowed corrupt officials to plot their escape and prepare for their hideouts while remaining undetected for years.

International Hurdles

Chinese anti-corruption officials have disclosed that they are seeking the cooperation of the OECD and foreign government agencies such as the US Department of Commerce and Department of Justice. In June 2013, the Chinese and Canadian governments reached an agreement whereby Canada would help China by following up on leads to retrieve and return stolen money to China. On October 20, 2014, the Sydney Morning Herald reported that the Australian government has agreed to assist the Chinese government in extraditing FCOs and freezing their assets; the law enforcement agencies of the two countries have picked a group of targets from a list of 100 suspected FCOs to work on first. Beijing scored a major victory during the 2014 APEC summit in reaching agreement with member states to cooperate in fighting corruption.

China has four main approaches in pursuing FCOs: extradition, repatriation, persuasion and litigation. Extradition must be based upon bilateral treaties but China has treaties with only 36 countries, mostly neighboring countries. It has no extradition treaty with most Western countries that are top destinations for the FCOs. For example, in FH15, China only succeeded in repatriating two fugitives from the US while 283 were returned from neighboring countries such as Thailand, Malaysia, the Philippines, Cambodia, Indonesia etc., accounting for 33 percent of the total. Western countries often accuse China of human rights violations and refuse extradition if the death sentence is a possibility. This may account partially for the effort of the Chinese government to reduce the number of crimes punishable by death in recent years.

Repatriation is normally based on juridical cooperation between the two countries and a person is repatriated only when he/she has violated the law of the hosting country, such as immigration law. These two approaches are time consuming and constrained by the Western norms against death sentences and the criminalization of political dissidents. So far the rate of success has been low. The United Nations Anticorruption Convention, to which China became a signatory on December 10, 2003, offers China an additional legal channel, albeit with limited effects so far.



The absence of an assets disclosure law for public officials and their families also means the lack of an early warning system against would-be FCOs.


As a result, the Chinese government has pioneered the “persuasion” method and achieved some success. 40 percent of the fugitive suspects returned to China since FH14 began were a result of this “persuasion” method. Persuasion needs the cooperation of the law enforcement of the hosting country to track down the fugitives and put them in such a situation that their voluntary return to China becomes an acceptable choice.


Seeking juridical cooperation in the absence of an extradition treaty has proven to be a lengthy, difficult and costly process. For example, it took 12 years for China to have Lai Changxing, the main culprit of the massive smuggling case in Xiamen, Fujian province in the 1990s, repatriated from Canada to stand trial in China. Lai’s case once crippled the entire government of Xiamen, brought down more than 600 officials and public sector employees, including high-ranking officials such as a deputy minister of public security; it resulted in 14 death sentences, 16 life sentences and the flight of 70 officials abroad. Lai was later sentenced to life in prison.

Another example is Yang Xiuzhu, former deputy mayor of Wenzhou and construction bureau chief of Zhejiang province, who embezzled a record high of 220 million yuan of public funds. Yang fled to Singapore in 2003 and then moved to the United States and Europe before she was finally arrested in the Netherlands in 2005; she has yet to be returned to China to stand trial.


Despite repeated promises to assist China in the fight against corruption by the American government, over the last 10 years the Chinese police have brought only a handful of fugitives home from the United States. One was the high-profile fugitive Yu Zhendong, former head of the Kaiping branch of the Bank of China, Guangdong, whose crime involved a record US$482 million in public funds. “They always think Chinese judicial organs violate suspects' human rights,” said Wang Gang, a senior official from the MFA. For example, America extradited Yu Zhendong on the conditions that the Chinese court would not sentence him to death and that his prison sentence would not exceed the 144 months sentenced by an American court for money laundering. Yu’s accomplices, who refused to return to China, were imprisoned in the United States. Xu Chaofan was sentenced to a 25-year term and Xu Guojun to 22 years by a federal court in Las Vegas on May 6, 2009.


Domestic Loopholes

Like in so many areas of political life, the Chinese system has no shortage of rules, laws and institutional safeguards. However, the excessive concentration of power in the hands of leading cadres (party chiefs in particular) and the pervasive culture of guanxi have neutralized many system safeguards.

There is a comprehensive set of rules and regulations governing the foreign travel of leading cadres and other public sector employees. The higher the ranking, the stricter is the formal procedure. In recent years the coverage of rules has expanded to include family members of cadres. However, the successful escapes of so many FCOs belie the porosity of the rules. The concentration of power means that the cadres can often pressure the individuals in charge of enforcement to bend the rules and make exceptions. Collusion in corrupt deals and obligations in interpersonal guanxi networks have contributed to lapses in enforcement.

The absence of an assets disclosure law for public officials and their families also means the lack of an early warning system against would-be FCOs. The CCP has long required its leading cadres to self-report on “relevant personal matters,” including family housing, financial assets, income, marriage, immigration status of children and spouse, investment etc. However, the provisions are vague and it was not until December 28, 2013 that the CCP’s Central Organization Department laid out in greater details the operational rules on the transfer of assets abroad by public officials. There is still no requirement for officials to publicly disclose changes in their assets, nor was intra-party self-reporting subject to verification until January 2013 when the CDIC announced that it would begin verification by random sampling.

In conclusion, it is true that there remains a lot to be done in “building the cage for constraining power”. Redistribution of power in the political system is more fundamental in tackling the root cause of the problem. While the OS has yielded encouraging results, the problem is far from being solved. The current approach is top-heavy, relying on strong pressure from above that requires unabated determination and undivided attention from the top leadership. It is unsustainable in the long run and ultimately unattainable in the sense that both the inspectors and the inspected belong to the same political family with considerable personnel exchange in between. More durable pressure has to be unleashed from below — from the population whose interests are hurt by these FCOs. This however requires a system redesign that the current leadership is not prepared to do, because it would entail altering the logical flow of power in the system.


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