Black Money in Vancouver from China

Canada Loses Luster as Destination for Corrupt Chinese Cash

Bloomberg News

Canada may soon become a harder place to park illicit cash.

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Chinese fugitives who touched down in Vancouver or Toronto with suitcases of illicit cash might find it harder to keep their fortunes.

Canada became the first country to reach a deal with China to share forfeited assets in an effort to target international organized crime, according to the official Xinhua News Agency. Once the pact is signed, one country will be able to get money back if a fugitive transfers illegal assets to the other, according to Xinhua.

“Canada is not, and will not be seen as, a safe haven for the proceeds of crime,” said Canadian Foreign Affairs Minister John Baird in a news release about the pact.

Canada is one of the top destinations forChinese high-ranking corrupt officials, according to a report published by China’s central bank in 2011. Up to 18,000 corrupt officials and employees of state-owned enterprises have fled with more than $123 billion from mid-1990s, according to the report.

Many in the Chinese public regard Canada as a haven for corrupt officials. A number of high-profile criminals with millions in assets fled there, including Lai Changxing, who Chinese officials considered the primary suspect in a multibillion-dollar smuggling operation, and Gao Shan, former president of a Bank of China branch in northern city of Harbin accused by Chinese officials of fraud.

Legal or illegal, Chinese love to park their wealth in Canada, sometimes flying there with suitcases full of cash. According to documents provided to The Wall Street Journal by the Canada Border Services Agency Officials, Toronto and Vancouver airports seized around $13 million in undeclared cash from Chinese nationals from April 2011 through early June 2012.

Part of the reason that Canada has been a hiding place for Chinese economic criminals is that the North American country doesn’t have an extradition treaty with China. Canada doesn’t support the death penalty, which China is often accused of abusing. Many countries with diplomatic relations with China haven’t signed extradition treaties with the country due to distrust to China’s legal system, including the U.S.

Still, many indicted criminals, including Messrs. Lai and Gao, have come back to China – Mr. Lai was deported and Chinese media has said Mr. Gao turned himself in. According to the official Xinhua News Agency, prolonged legal battles and financial sources have been critical issues for fugitives. Draining their financial resources could limit their ability to live abroad.

In an interview with The Wall Street Journal on Thursday, Canada’s Mr. Baird said the agreement “will hopefully facilitate people not being able to take the proceeds for their crime into Canada and somehow feel immune from state action.”

Roughly $2.83 trillion illicitly flowed out of China from 2005 to 2011, according to research conducted by the organization Global Financial Integrity.

The amount partly explains why China has stepped up its effort to chase the corrupt officials and the assets in recent years. Chinese government has signed extradition treaties with Spain, Portugal, Italy, Australia and France among other developed countries where wealthy criminals usually choose as hiding places. To get the fugitives back to Chinese courts, China has promised not to execute the criminals in many cases.

China does not have an asset sharing pact with the United States, but was a recipient of shared asset from the U.S. according to the State Department.

–Xiaoqing Pi and Brian Spegele