Contact is taking a holiday!

The Guardian, 21 January 2014

Relatives of political leaders including China’s current president and former premier named in trove of leaked documents from the British Virgin Islands

By James Ball and Guardian US Interactive Team

More than a dozen family members of China’s top political and military leaders are making use of offshore companies based in the British Virgin Islands, leaked financial documents reveal.

The brother-in-law of China’s current president, Xi Jinping, as well as the son and son-in-law of former premier Wen Jiabao are among the political relations making use of the offshore havens, financial records show.

The documents also disclose the central role of major Western banks and accountancy firms, including PricewaterhouseCoopers, Credit Suisse and UBS in the offshore world, acting as middlemen in the establishing of companies.

The Hong Kong office of Credit Suisse, for example, established the BVI company Trend Gold Consultants for Wen Yunsong, the son of Wen Jiabao, during his father’s premiership — while PwC and UBS performed similar services for hundreds of other wealthy Chinese individuals.

The disclosure of China’s use of secretive financial structures is the latest revelation from “Offshore Secrets”, a two-year reporting effort led by the International Consortium of Investigative Journalists (ICIJ), which obtained more than 200 gigabytes of leaked financial data from two companies in the British Virgin Islands, and shared the information with the Guardian and other international news outlets.

In all, the ICIJ data reveals more than 21,000 clients from mainland China and Hong Kong have made use of offshore havens in the Caribbean, adding to mounting scrutiny of the wealth and power amassed by family members of the country’s inner circle.

As neither Chinese officials nor their families are required to issue public financial disclosures, citizens in the country and abroad have been left largely in the dark about the elite’s use of offshore structures which can facilitate the avoidance of tax, or moving of money overseas. Between $1tn and $4tn in untraced assets have left China since 2000, according to estimates.

China’s rapid economic growth is leading to a degree of internal tension within the nation, as the proceeds of the country’s newfound prosperity are not evenly divided: the country’s 100 richest men are collectively worth over $300bn, while an estimated 300m people in the country still live on less than $2 a day. The Chinese government has made efforts to crack down citizens’ movements aimed at promoting transparency or accountability among the country’s elite.

The confidential records obtained by the ICIJ relate to the incorporation and ownership of offshore companies, which is legal, and give little if any information as to what activities the businesses were used for once established. Offshore companies can be an important tool for legitimate Chinese businesses, especially when operating overseas, due to restrictions and legislation in the country.

One Chinese political family whose financial affairs have not escaped scrutiny — at least in the west — is that of the former premier, Wen Jiabao. In November, the New York Times reported that a consultancy firm operated by Wen’s daughter, who often goes by the name Lily Chang, had been paid $1.8m by the US financial services giant JPMorgan.

The payment has become one of the targets of a probe by US authorities into the activities of JPMorgan in China, including an examination of the firm’s hiring practices, which are alleged to have included the deliberate targeting of relatives of influential officials.

However, the ICIJ files reveal the role of the BVI’s offshore secrecy in obscuring Chang’s links with her consulting firm, Fullmark Consultants. The company was set up in the BVI by Chang’s husband, Liu Chunhang, in 2004, and he remained as sole director and shareholder until 2006, when he took a job in China’s banking regulation agency.

Nominal ownership of the firm was transferred at that time to Zhang Yuhong, a Wen family friend, who the New York Times reported had connections with the Wen family’s business interests.

The company established for Chang’s brother Wen Yunsong, with the aid of Credit Suisse, was dissolved in 2008, with little hint as to its purpose or activities in the two years it was operational. One purpose for such companies is to allow for the establishment of bank accounts in the company’s name, a legal measure that nonetheless makes tracing of assets a more complicated task.

No members of the Wen family, nor Zhang, responded to any of multiple approaches for comment, made over a period of several weeks by ICIJ reporters.

However, in a recent letter dated December 27th apparently sent to a Hong Kong columnist amid public anti-corruption probes into other former officials, Wen Jiabao is reported to have denied any wrongdoing during his premiership, or in how his family obtained their reported wealth.

“I have never been involved and would not get involved in one single deal of abusing my power for personal gain because no such gains whatsoever could shake my convictions,” he is reported to have written.

A spokesman for Credit Suisse refused to comment on any specific case or client, but said the bank had “detailed procedures for dealing with politically exposed persons” which complies with money laundering regulations in Switzerland and elsewhere.

“Credit Suisse is required by Swiss law to uphold bank client confidentiality and is therefore unable to comment on this matter,” he said. “In the absence of any further information, the media cannot be certain that they have a full understanding of the matter. As a result, they will not be able to portray it accurately or objectively.”

The ICIJ records also detail a company connected to Deng Jiagui, the husband of the older sister of Xi Jinping, China’s president, who has cultivated a public image as an anti-corruption campaigner. According to the BVI records, Deng, a real-estate developer and investor, owns a 50% stake in the BVI-incorporated Excellence Effort Property Development. Ownership of the remainder of the company traces back to two Chinese property tycoons, who last year won a $2bn real estate bid.

Other “princelings” — a widely-used term for the families of China’s political elite — with offshore ties include: Li Xiaolin, a senior executive in one of China’s state-owned power firms and the daughter of former premier Li Peng; Wu Jianchang, the son-in-law of China’s late “paramount leader” Deng Xiaoping; and Hu Yishi, a cousin of former president Hu Jintao.

China’s political elite were not the only individuals taking advantage of the BVI’s offshore anonymity. At least 16 of China’s richest people, with a combined estimated net worth in excess of $45bn, were found to have connections with companies based in the jurisdiction.

Among those was Huang Guangyu, the founder of China’s largest electronics retailer and once the country’s richest man. Huang and his wife had a network of more than 30 companies in the BVI, according to the ICIJ records. Huang subsequently fell from grace and was in 2010 sentenced to 14 years in prison for insider trading and bribery.

Despite his imprisonment, Huang’s offshore network is not standing idle. In 2011, one of his BVI firms made an unsuccessful bid for the Ark Royal, the retired aircraft carrier which was once the flagship of the British navy. According to press reports, Huang planned to turn the carrier into a shopping mall, but navy officials decided instead to scrap the ship.
 

In total, the ICIJ database — which covers just two of the BVI’s numerous incorporation agencies — lists more than 21,000 addresses in China or Hong Kong as directors or shareholders of offshore companies, demonstrating the country’s status as one of the premier buyers of offshore services. In recent years, offshore jurisdictions have aggressively courted the Chinese market, with many opening offices and promotional sites in Hong Kong.

The BVI’s courtship of China’s rich and powerful may prove an embarrassment for the United Kingdom. The BVI remains a British overseas territory, and while largely independent in practice, UK authorities retain a degree of responsibility and connection with the islands.

The UK’s Prime Minister David Cameron has publicly pledged to take action against offshore secrecy and offshore tax avoidance, including in crown protectorates such as Jersey and Guernsey, and overseas territory, meaning further exposure of the role of the BVI could prove a political embarrassment.

The role of major Western financial institutions in establishing offshore structures has also attracted scrutiny, despite being a routine and entirely legal function for many of them.

The ICIJ records show both PricewaterhouseCoopers and UBS had extensive contacts with incorporation agents in the BVI and other territories in the region. In total, UBS helped incorporate more than 1,000 offshore institutions for clients from China, Hong Kong or Taiwan, while PwC had a role in establishing at least 400.

Both PricewaterhouseCoopers and UBS declined to comment on any specifics regarding their activities in the BVI, or with China’s rich. However, spokesmen for both companies said their activities complied with appropriate law and ethical codes.

“As a matter of policy, PwC member firms do not comment about clients or their business,” said a spokesman for PwC China.

“PwC’s tax advisory practice helps our clients make informed business decisions, balance their responsibilities to do the right thing for multiple stakeholders, often across many countries, and meet their tax requirements.”

A UBS spokesman said: “We operate to the highest standards in our business operations to meet all our legal and regulatory requirements.”

The amassed wealth and alleged corruption among China’s political elite has been a topic of growing interest not only in the Western media, but also — to a limited extent — within China itself.

Spurred on by President Xi’s public statements around anti-corruption efforts, a Chinese academic and activist, Xu Zhiyong, inspired a “New Citizens’ Movement” in the country — an informal civil society group which among other goals aims to increase the financial transparency of the country’s elite and curbing corruption.

The movement, however, has faced strong opposition from Chinese authorities. Numerous participants in the New Citizens Movement have been arrested at public gatherings, while its founder Xu is in prison facing charged of “gathering a crowd to disrupt public order”, and faces up to five years in prison. Meanwhile, international journalists who have reported from within the country on the wealth of China’s political elite have faced immigration difficulties from the government, or trouble with authorities.