Assets of top communist party brass revealed: China money trail ends with murderhttps://indianexpress.com/article/world/world-news/assets-of-top-communist-party-brass-revealed-china-money-trail-ends-with-murder/

Assets of top communist party brass revealed: China money trail ends with murder

Documents shed light on shell companies created by officials, businessmen and celebrities; and a murdered British national

panama papers
Bo Xilai and his wife Gu Kailai had a dispute with British associate. ( Source: Reuters)

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.

[related-post]

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

WATCH| Panama Papers: How Mossack Fonseca Helped Stash Away Billions Of Dollars

Advertising

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 jeopardise 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 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 China’s elite uses 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,” has a brother-in-law who has had companies in tax havens. Relatives of at least seven other men who have served on the 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 Mao Zedong, the founding father of the People’s Republic of China.

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.

Communism meets Capitalism

The leaked records shine light on how some Chinese political elites use the offshore world to keep their finances discrete.

Not all offshore dealings are illegal but incorporations in the BVI and elsewhere can be used to obscure financial relationships between political elites and wealthy patrons, to hide assets and evade tax. These are but a few of the techniques greasing the wheels of modern Chinese capitalism with communist characteristics.

Mossack Fonseca’s customers from China include the super wealthy such as Shen Guojun, who founded the Chinese shopping mall chain Intime. Shen was a shareholder, together with the kung fu star Jackie Chan and others, of a company called Dragon Stream Limited that was incorporated in the British Virgin Islands in 2008.

Another billionaire, Kelly Zong Fuli, the daughter of billionaire soft drink magnate Zong Qinghou, acquired a BVI shelf company called Purple Mystery Investments with help from Mossack Fonseca in February 2015. Shen Guojun, Jackie Chan and Kelly Zong Fuli did not respond to ICIJ’s requests for comment.

Mossack Fonseca also appears for years to have not acknowledged or not realised the family ties of Li Xiaolin, former Chinese Premier Li Peng’s only daughter.

Mossack Fonseca didn’t object to the use of bearer shares to control the company Li Xiaolin and her husband owned, Cofic Investments, until 2009. The files show the law firm didn’t dig into the backgrounds of the real shareholders of the company even as the ownership structure was transferred in 2010 from bearer shares to another secretive arrangement, a foundation in the tiny Central European principality of Liechtenstein.

By this time, Li Xiaolin had established herself in China as more than just the daughter of a famed political leader. She had become a top executive in the Chinese energy sector — earning the nickname “China’s Power Queen” — and had become a delegate to the Chinese People’s Political Consultative Conference, an advisory body to the Chinese legislature. Geneva-based lawyer Charles-Andre Junod, who was a director of Cofic Investments, declined to comment but said he has always respected relevant laws.

Li Xiaolin did not respond to repeated requests for comment.

A company worth $1

Another princeling who slipped through Mossack Fonseca’s vetting process without much attention was Jasmine Li, the granddaughter of a former Standing Committee member. Had the Mossack Fonseca employees checked, they might have discovered a financial relationship between her and another of their customers, Zhang Yuping, the chairman and founder of Hengdeli, a Chinese luxury watch distributor.

Zhang was the sole shareholder of a BVI company called Harvest Sun Trading Ltd.

Public records show that Harvest Sun was used to buy shares in a publicly listed company in Hong Kong called China Strategic Holdings in April 2010. A few months later, in August, Harvest Sun sold some of the shares, and it then offloaded its remaining stake in September.

In December 2010, MF’s records show, Zhang transferred ownership of the now empty shell company to Jasmine Li.

The selling price: $1.

The Mossack Fonseca records show that Li also has a second BVI company called Xin Sheng Investments Limited. Li used Harvest Sun and Xin Sheng to set up two similarly named Beijing companies with interests in entertainment and real estate. The offshore companies acted as shields to her identity. Li did not respond to ICIJ’s request for comment.

White gloves

For more than a decade, Gu Kailai had managed to keep her stake in her offshore company in the Caribbean secret, which in turn allowed her to keep her villa on the Mediterranean under wraps.

She and her husband, Bo, had all the ingredients of a Chinese power couple.

Gu, the daughter of a former People’s Liberation Army general, worked as a butcher’s assistant during the Cultural Revolution but went on to become a successful lawyer. Bo ran the sprawling metropolis of Chongqing and, by 2011, was a leading candidate for the Politburo Standing Committee.

As her husband’s star rose, Gu acquired the six-bedroom villa in Cannes along the French Riviera. The home was bought in 2001 with funds from Xu Ming. Xu got around China’s strict capital controls by faking the purchase of a steel workshop in order to transfer the $3.2 million offshore.

The company selling the nonexistent steel workshop took a small cut and then transferred the rest to Russell Properties S.A., a British Virgin Islands company secretly co-owned by Gu and a business associate, French architect Patrick Henri Devillers.

On paper, nothing linked Russell Properties to Gu or her husband.

Gu used the Villa Fontaine St Georges as an investment in the hope that it would generate rental income. She later testified that she hid her ownership of the company and the villa because she wanted to “minimise” her tax. To manage the villa, she turned to Heywood, a family friend who exuded equal parts flash and mystery.

By helping Gu, Heywood became part of a cottage industry of operatives who serve as fronts for wealthy Chinese who want to keep their overseas assets secret. These proxies were known in China as “white gloves”.

Acting as a white glove for the corporate and Party elite has become a lucrative business in China. For Heywood, it would also turn out to be deadly.

The unraveling

Mossack Fonseca “inherited” Russell Properties SA as part of a batch of offshore companies that were transferred from another registered agent in mid-2011.

At the time, the company’s shares were held by IFG Trust and IFG Secretaries, proxies located in Jersey in the Channel Islands. The registers of directors and shareholders didn’t mention Devillers or Gu and there was no obvious link to China.

Then things began to unravel.

Gu had promised Heywood, who was managing the French villa, a cut of a real estate deal in Chongqing. Heywood believed he wasn’t getting his fair share. In early 2011, Gu later testified, Heywood approached her son, Bo Guagua, to press him to ask his family for more money. Heywood threatened to reveal Gu’s ownership of the villa, Gu claimed.

According to reports of her trial, Gu and Heywood met on November 13, 2011, in the Lucky Holiday Hotel in Chongqing to discuss the dispute. They had dinner, then went to his room for drinks. He drank half a bottle of Royal Salute whiskey and vomited before being dragged to his bed by a Bo family assistant Zhang Xiaojun. Heywood asked Gu for water. She mixed rat poison and tea in a soy sauce container and fed it to him in sips. Gu waited until she couldn’t feel Heywood’s pulse any longer, then went to her own room in the hotel and went to bed.

Little more than two weeks later, the leaked files show, MF helped transfer ownership shares of Russell Properties SA, the shell company that controlled the villa, from the IFG proxies to Patrick Henri Devillers, the French architect who had assisted Gu in setting up the company in 2000.

By early 2012, Devillers was often in the news in China, Britain, France, Australia, and the United States for his links to Gu’s murder trial and Bo Xilai’s corruption scandal. Yet, according to the leaked files, for several months in early 2012, Mossack Fonseca appeared to remain oblivious to the case.

Devillers now lives in Cambodia. His testimony was used in both the trials of Gu and Bo but was never charged with any crime. He did not answer ICIJ’s requests for comment.

Bo is serving a life sentence for bribery, embezzlement and abuse of power, although he says that someday he will be vindicated.

Gu was sentenced to death for murdering Heywood.

Advertising