GREG WOOD

Trade with China: Proceed with caution

GREG WOOD

Special to The Globe and Mail

Published Thursday, Mar. 30, 2017

Greg Wood is a former Australian high commissioner to Canada

 *notice the faces on these two as they are roundly booed by Australians at a football game...

Last week, Australian Prime Minister Malcolm Turnbull took visiting Chinese Premier Li Keqiang to a game of Australian rules football. *The crowd booed them both loudly. It was the third jarring reminder to Mr. Li of the perils of democracy, Australian style.

Some days earlier, at a strategic studies conference in Singapore, Foreign Minister Julie Bishop somewhat gratuitously told China that it could only reach its full economic potential if it went further to embrace democracy. And this week, an unprecedented alignment across Australia’s political spectrum combined to reject the “ratification” of Australia’s extradition treaty with China, widely seen as a victory for human rights.

When it comes to China, the tension in Australia between morals and mammon is omnipresent, as are tensions between our trade and strategic interests. Still, it was unexpected that a treaty of importance to China would be shot down. For Mr. Turnbull, it was yet another political miscalculation.

Australia and China are becoming economically intertwined, but politically and strategically, we are at best uneasy and often conflicted. Chinese assertiveness in the South China Sea is a profound concern, though we have become more cautious in saying so. Our free-trade agreement with China, negotiated a year ago, adds to both the possibilities and the tensions in bilateral relations.

The extradition agreement was negotiated in 2007, together with a deal on prisoner swaps. It was signed in the dying days of the conservative John Howard government, then left to languish for nine years and five prime ministerships. China, at the highest level, has regularly requested its implementation. Final ratification began a year ago.

The government majority on the parliamentary committee predictably gave its approval, though through gritted teeth. It welcomed “… the human-rights safeguards provided … but … cannot dismiss concerns over the lack of transparency of Chinese justice system, allegations of the ill-treatment and torture of prisoners, and the continuing imposition of the death penalty.” The opposition Labor Party rejected signature at least until the legislative framework to govern Australia’s extradition policy is comprehensively reviewed. If this happens, the treaty will probably need to be re-negotiated, something China is unlikely to accept.

Australians get regular reminders of the workings of the Chinese justice system. The courts and the Communist Party work in lockstep. Currently, 15 employees of an Australian casino operator of varying nationalities are in jail, as yet not charged. When they are, they will be convicted of whatever. As Mr. Li was departing Australia, news broke that an outspoken Chinese academic, Feng Chongyi, a Chinese citizen but Australian permanent resident, had been stopped from leaving China, apparently under investigation for “endangering state security.”

Mr. Feng has criticized Chinese government control of Chinese student organizations in Australia and other forms of influence peddling. Of concern are donations by Chinese property developers to both main political parties, a Chinese businessman covering the travel outlays of one outspoken “powerbroker” in the senate, and China’s funding of some centres for academic research. More subtly, and with due disclaimers, the leading Australian financial paper now runs a regular insert provided by the Chinese government.

Bilateral trade had grown rapidly before Australia and China concluded a free-trade agreement (FTA). It’s negotiation was undertaken in great haste: the former Abbot government set itself a deadline and imprudently met it. The scope, complexity and intrusiveness of these so called “trade” agreements is becoming ever wider, their societal reach more profound. In Australia, what hasn’t kept up is the public (or parliamentary) consultation, and drawing out in advance the implications and likely consequences.

In crude terms, the deal in the FTA was that in return for limited improvements in our market access into China, Australia relaxed vetting of Chinese investment in Australia. That’s a sensitive trade-off.

It’s too early to say what, if anything, the FTA will deliver, trade-wise. Australian exports to China are actually down. But hope springs eternal and all else involving China is being judged against the trade relationship. This means our sensibilities can be easily tweaked. Channelling Donald Trump, Mr. Li noted that Australia currently runs a $50-billion trade surplus with China.

The sources of tension in the FTA are many. Purchases of land and property are one area causing growing public unease, along with infrastructure proposals. A recent poll says 87 per cent of Australians are opposed to foreign purchases of farm land. Beggaring belief, a Chinese firm with military connections was allowed to take over the management of our northernmost port of Darwin. Other infrastructure investment proposals since have been rejected.

As do all countries in negotiations, China will point to what it’s agreed with others, including Australia. If Canada is to draw one conclusion from Australia’s experience, it’s for political leaders to take the Canadian people with them, openly, in advance. Both with trade and extradition, Australia is already paying a price for not doing so.

Eight charged in second largest drug bust in Victoria's history

BRENNAN CLARKE

Victoria — From Thursday's Globe and Mail

Published Wednesday, Sep. 09, 2009 10:40PM EDT

RCMP and Victoria police Wednesday announced the second-largest drug bust in the history of the city's police department, one year after the contraband was seized in a complex sting operation involving wiretaps and undercover surveillance in communities all over the south island.

"This is a massive bust for the Victoria area," said Staff Sergeant Dave Goddard of the RCMP's federal drug enforcement branch.

"I think you can safely say [the street value]is in the millions of dollars. We're looking at an organization that was capable of bringing into Victoria one to 10 [kilograms]at any given time."

A sampling of evidence on display at RCMP headquarters Wednesday included half a dozen one-kilogram blocks of cocaine, several oversized Ziploc bags stuffed with thousands of ecstasy tablets and steroid pills, at least $50,000 in cash and a 9-mm Glock handgun.

Police said a host of drug possession and drug trafficking charges have been laid against eight individuals - six from Victoria, one from Shawnigan Lake and one from Chemainus.

RCMP have issued Canada-wide arrest warrants for three other men - 31-year-old Gerrod Leslie Badham of Shawnigan Lake, 27-year-old Jimmy Ou Yang of Vancouver and 23-year-old Charlie Huy Tran of Vancouver.

Most of the alleged offences occurred from July, 2008, to September, 2008, but according to court records, the charges weren't approved by the Crown until last month

Victoria police Inspector Clark Russell, a senior member of the Vancouver Island major crimes unit, said rigorous federal disclosure requirements and the need to catalogue vast amounts of wiretap evidence and other exhibits prevented police from announcing the seizure until this week.

Insp. Russell said that except for a 16-kilogram cocaine seizure that Victoria police made in 2006, last September's drug bust was the largest he can remember during his 30 years in the department.

Despite the large amount of drugs and cash involved in last fall's raids, RCMP said the suspects do not appear to be linked to any well-known B.C. gangs.

"Just because there's no association to any known gangs doesn't mean these aren't organized criminal groups," Staff Sgt. Goddard said.

The investigation began in 2007, when RCMP noticed a spike in the amount of cocaine available on Vancouver Island. After five months of groundwork, police received judicial approval to tap the suspects' phones.

Most of the suspects named yesterday were arrested last summer during a Victoria police crackdown on street-level drug dealers that also targeted a "dial-a-dope" operation linked to the Vancouver-based Red Scorpions gang.

On Sept. 9, 2008, Victoria police and the RCMP drug squad seized 2.2 kilograms of cocaine, 3.3 kilograms of ecstasy, 230 vials of steroids and about $60,000 in cash from two Victoria area homes.

A series of "warrant executions and seizures" two weeks later - at locations police yesterday declined to identify - netted another nine kilograms of cocaine along with drug trafficking paraphernalia including money counters and a vacuum sealer.

Regionally, the largest drug seizure on record occurred in 2001 RCMP intercepted a cargo ship laden with 2 ½ tonnes of cocaine.

RCMP have charged the following individuals with drug-trafficking and possession for the purposes of trafficking:

- 30-year-old Chad Stevenson of Shawnigan Lake;

- 29-year-old Alfred Sun-Kin Kong of Victoria;

- 29-year-old Ryan Charles Sranko of Victoria;

- 29-year-old Jesse Timmerman from Victoria;

- 29-year-old Jason Conrad of Chemainus;

- 31-year-old Bich Ngo of Victoria;

- 33-year-old Jarrod Francis Nicol of Victoria;

- 34-year-old Asif Riaz Khan of Victoria;

The following three persons are subject to Canada-wide arrest warrants in relation to this case.

- 31-year-old Gerrod Leslie Badham of Shawnigan Lake;

- 27-year-old Jimmy Ou Yang of Vancouver;

- 23-year-old Charlie Huy Tran of Vancouver.

Mansion Massing Overwhelming Vancouver's Neighbourhoods And Sitting Vacant

Hello, Anyone Home

How Chinese Investors Are Using Drug Cartel Tactics in the Canadian Real Estate Market

How Chinese Investors Are Using Drug Cartel Tactics in the Canadian Real Estate Market

Money is moving from China to Vancouver in some "inappropriate" ways, and the Chinese government isn't happy about it.

Canada's freakshow real estate market has been drawing a lot of international attention as of late. A few weeks back I talked to an infamous Wall Street short seller who is betting against one Canadian mortgage lender, and claims our housing bubble may be ready to burst.

When I asked why he thinks we're in for a bumpy ride, Marc Cohodes pointed to Chinese capital outflow restrictions, which limit citizens from moving more than $50,000 out of the country per year. He said investors from China are breaking those rules in order to move massive amounts of money into Vancouver real estate, and the Chinese government could choose to crack down on this at any moment.

It turns out Vancouver-based anti-fraud lawyer Christine Duhaime has been keeping a close eye on Chinese millionaires who are maneuvering around those rules when migrating to Canada. Working for clients like the Bank of China, she's successfully gone after at least one person who defaulted on $10 million in Chinese bank loans, and who also spent $8 million on Lower Mainland property. Last month she tweeted the case was "of global significance for China."

Of course the extent to which international millionaires, particularly from China, impact Vancouver's housing market is still up for debate. Preliminary data from the BC provincial government pegs foreign investment at just five percent across Metro Vancouver, though many observers have called out those self-reported numbers as pretty much useless.

But for the Chinese millionaires who do choose to work around capital outflow restrictions, Duhaime says one of the most common and widespread methods is "smurfing." She says it's a tactic also used by Colombian drug lords, and court documents show at least one Canadian bank has helped a woman buy a home this way. VICE reached out to Duhaime to learn more about how this all works, and what Chinese authorities are doing about it.

VICE: Can you break down the basics of smurfing for us?Christine Duhaime: The analogy I use is from the drug trafficking world when they're dealing with bulky amounts of cash. What smurfing does is take these large amounts of money, and breaks it up to reduce the volume of it in order to avoid being detected. A large transaction would require threshold reporting of cash, whereas many little transactions fall below the reporting requirement for anti-money laundering. In the case of drug lords, instead of taking a gym bag full of money to the bank, what they'll do is employ many people to go to all sorts of different banks with smaller amounts of bills and change it over so it's useable to the gang.

How is this tactic used to move money out of China? 
In China, each person is limited to moving up to $50,000 out of the country each year. People move money all the time, sometimes legitimately, in order to get around these currency controls. The way I have seen it being used is that a person will hire or use many, many smurfs who will each fill out a bank form to wire $50,000 each on behalf of another person. In these bank forms, they claim to be the owner of the funds, when in reality they are not. One employment law case found a person from China had a large sum of money that was moved to Vancouver this way. A whole number of people each went to a bank, each made deposits so she could buy her house. When you have transaction after transaction of exactly $50,000, that is suspicious.

Vancouver, still expensive. Photo 

Is this a widespread thing? How would you know?It has to be widespread for this reason: you can't send money out of China with your government identity past the $50,000 point. I have boxes of evidence in my office of wires that Chinese foreign nationals have sent over several years to Canada, all in different names of people and all for the same person. In the situations I have seen, it was employees of the Chinese foreign national that were used to smurf money out of China to Vancouver to buy luxury homes. There are other ways to move more money out with permission from the Chinese government, if there's a legitimate reason like you're involved in litigation or owe alimony payments. But almost nobody ever goes for that permission because they don't want the government to know how much they have, or they do not want to disclose how they came to acquire such a large amount of money.

Is there an above-board way to do this?I can't imagine any. And the reason is because each of those people fill out a form in which they say they're the owner of the $50,000, so they're lying on a bank form. To ask multiple people to do that for you is not an easy thing, it's not a natural way to move money around.

Do you think the Chinese government is going to crack down on this kind of thing?The Chinese are very concerned about it, they definitely don't like it. They are already cracking down on it. And not only that, they are tracing where the funds went that were smurfed out to identify instances where there may be financial crime involved. One of the things that is surprising about people who smurf is that it can be detected going years back. They've approached some countries around the world about who they want back. They've managed to succeed in some cases, to bring people home to prosecute.

Once branded spies, Chinese tech trio settles in Canada after immigration officials back down

A single rogue officer in Canada’s Hong Kong consulate is believed responsible for unsubstantiated and explosive espionage accusations against ex-employees of telecoms giant Huawei, that have now been retracted

PUBLISHED : Wednesday, 11 January, 2017

Three ex-employees of Chinese tech giant Huawei, who were accused of espionage by Canadian authorities during their immigration applications, have now been granted permanent residency after officials backed down on the unproven and explosive claims, the South China Morning Post has learned.

Jean-Francois Harvey, whose Harvey Law Group acted on behalf of the mainland Chinese trio, said the now-withdrawn accusations appeared to have been the work of a single officer in the Canadian consulate-general’s office in Hong Kong.

Harvey said an identification code on correspondence proved that the same case officer dealt with all three clients, who have settled in Canada in the past four months.

They were “definitely not” spies, said the lawyer.

The SCMP reported last May that two of the would-be immigrants had been informed by Canada’s immigration department that their applications for permanent residency were going to be rejected.

Once branded spies, Chinese tech trio settles in Canada after immigration officials back down

“[There] are reasonable grounds to believe that you are a member of the inadmissible class of persons described in section 34(1)(f) of the Immigration and Refugee Protection Act,” read a letter to one of the then-employees of Huawei. That refers to people who belong to an organisation engaged in espionage, government subversion or terrorism. A second applicant was told the same in relation to their spouse, who was employed by Huawei at the time.

Trudeau’s party was told donor was China graft suspect, but kept taking his money: leaked email

The third case was only recently disclosed to the SCMP by Harvey. All three have quit the company, said Harvey.

Huawei, the world’s third-biggest smartphone maker and a major provider of global telecoms infrastructure, has long been cited by the United States as a Chinese espionage risk, but Harvey’s clients were believed to have been the first individuals singled out by any foreign government in such a way.

Huawei has repeatedly denied involvement in espionage.

Harvey said that in challenging the accusations, the trio signed detailed declarations, affirming that they were not spies.

I cannot even imagine a supervisor at the Canadian consulate-general in Hong Kong approving such a thing. This was not a ... a ‘management decision’

LAWYER JEAN-FRANCOIS HARVEY

“They [Canadian immigration authorities] just gave up after each of them signed an affidavit, saying that they were never involved in anything like that, that they have never done any spying or anything that was a threat to Canada in any way, and that was it,” Harvey said.

“We received the medical form a few weeks later, and they got their visas.”

The SCMP has obtained correspondence sent by immigration authorities to two of the immigrants that bears the same two-letter, five-digit code; Harvey said he could not share any correspondence involving his clients, but confirmed that his copies carried the same code and said that it designated their case officer. Harvey said the third client also received correspondence with the same code, indicating it too came from the same officer.

“This officer probably just typed ‘Huawei’ into Google, saw the previous allegations, which were never proved, and just went for it,” said Harvey, whose Hong Kong-based practice focuses on business immigration worldwide.

Corrupt Chinese tycoon caught lying to Canadian court

“I cannot even imagine a supervisor at the Canadian consulate-general in Hong Kong approving such a thing. This was not a group thing. It was not a ‘management decision’, that’s for sure.”

Harvey said individual case officers had “quite strong discretionary powers” and “they can sometimes apply the rules as they see fit.”

In 2012, a US House intelligence committee concluded Huawei was a threat to national security. The firm has been barred from bidding on US and Australian broadband projects.

But in contrast, the company is deeply involved in Canada’s market, providing network technology and equipment for major wireless operators, such as Bell and Telus.

Harvey said the initial rejections amounted to “accusation by association, probably by a junior officer”. “CIC has a huge workforce, handling hundreds of thousands of applications every year,” he said, referring to Canada’s immigration department by its former acronym. “Not all of them are so competent. There are good and bad.”

Harvey said the clients had all settled in a Canadian maritime province, which he declined to specify, under a provincial nominee programme, an economic stream for skilled workers and businesspeople.

A spokesperson for Immigration, Refugees and Citizenship Canada said that “due to privacy concerns, we cannot comment on specific cases without consent”.

Scott Bradley, Huawei’s vice-president of corporate and government affairs in Canada, said: “This is not a matter that involves Huawei, and we will not comment further.”

Harvey said the three former Huawei employees, whose names the SCMP has agreed not to reveal, held positions that were “relatively low-level”.

Victor Lum, vice-president of Well Trend United, a Beijing-based immigration consultancy that acted on behalf of two of the immigrants, told the SCMP last May that they held positions that “could not be more mundane”. “The only common thread is that they work for Huawei, the largest telecom equipment manufacturer in the world, with over 170,000 employees, and R and D institutes all over the world, including, ironically, Canada,” Lum said at the time.

Lum - who spent 12 years as a Canadian visa officer - said the rejection of immigration applicants on suspicion of espionage was exceedingly rare, and he had only heard of two or three such cases while working for Ottawa.

Neither the US nor Australian governments have provided evidence of spying by Huawei or its staff. Last year, Huawei was given an all-clear in Britain by a board which concluded it posed no national security risk.

Canada’s tax agency is ‘out for blood’: not from global-income cheats, but from its leaking auditors

Auditors past and present, frustrated by lack of action in the Vancouver real estate arena, describe a departmental culture that sees law enforcement and principles lose out to the pursuit of easy audits against ‘the little guys’

Aug 26 2016

The Hongcouver blog’s Canada Revenue Agency sources - auditors past and present - are nervous.

“CRA is vicious and will retaliate if they find out I gave you anything, believe me.”

“I’m going to go dark after this. There’s just too much heat.”

“Please be very careful and advise your other source to completely delete all email and texts.”

After successive leaks to the South China Morning Post – revealing last month secret plans to crack down on foreign-funded real estate deals in Vancouver, then last week exposing how the agency knew about the huge scale of the problem for 20 years while effectively ignoring associated tax cheating – the CRA sprang into action.

Leak reveals secret tax crackdown on foreign-money real estate deals in Vancouver

Not in further pursuit of the suspected tax cheats - but in an attempt to pursue the leakers.

In the past few days, two of the SCMP’s three CRA sources discussed the response by the agency in greater Vancouver.

Meetings have been held. Staff have been questioned. Reminders given about duty, responsibility and values.

Said a current auditor: “Since the [July] leak, everyone has been reminded of ethics. ‘You have a duty, to your employer’, those kinds of things. There were group sessions and emails [in which we were told] if we have concerns, we should talk to team leaders and they will funnel it up, and something will happen. But nothing usually does. No one is willing to go further up the chain to say ‘we don’t even have the resources to do these audits.”

In stark contrast to the previous lackadaisical pursuit of suspected tax cheats – with just one successful audit of undeclared global income having been executed in BC last year - the internal response to the leaks has been swift, starting within a day of the SCMP’s July 14 report, the auditor said.

A retired auditor who is in contact with current staff said employees had been hauled in and “interrogated” about the leaks.

The culture of ‘Teba’

I asked both sources to expand on an issue that still bothered me about their stories: if the CRA is well aware of wide-scale tax cheating among foreign-earning real estate buyers in Vancouver – and has been so for decades - why has it not done more about it?

Canada tax chiefs knew foreign money’s big role in Vancouver housing market 20 years ago, leaked documents show, but they ‘ignored’ auditors’ warning

Both seemed to think me naïve. They cited what they saw as a huge cultural problem within the CRA that deterred such pursuit: a devotion to “Teba”, or tax earned by audit. In other words, the bottom line.

[Teba is] why we end up beating up on the little guys instead, who run gas stations and small businesses, the ones who will put up the least resistance

CRA AUDITOR

They said audits are seen primarily as a means of raising revenue, as opposed to enforcing the law, executing moral rightness or acting as a deterrent to future cheating. A lengthy-but-principled investigation into an obstructive foreign-earning cheat wasn’t something applauded by bosses – it was to be avoided by both managers and auditors. “Like the plague,” said the retired auditor.

The current auditor cited the recently exposed KPMG case (in which self-confessed cheating clients of the world accountancy giant were granted secret amnesty by the CRA if they handed over their back taxes and some interest) as demonstrating that the agency took the easiest path to revenue, regardless of the ethical implications.

“CRA is given a set amount of money by Ottawa and they expect a return on their money,” the auditor said. “We’re the only department that makes money, and foreign-linked audits take a lot of time. It’s hard to verify sources of income coming out of mainland China. Hong Kong is somewhat open, but otherwise - it’s hard.”

Even with 50 auditors newly assigned to real estate cases, pursuit of undeclared global income would prove difficult – in spite of that issue having been first on a list of the CRA’s real estate related projects in the July leak.

Foreign home buyers in Vancouver hit with HK-style 15pc tax, but millionaire migrants will be exempt

“Everything is about Teba, and with global income it can be very low, because the cases are so complicated, and they [CRA] hate going to prosecution,” the auditor said. “That’s why we end up beating up on the little guys instead, who run gas stations and small businesses, the ones who will put up the least resistance.”

The July leak included a breakdown that listed not just the Teba of various real estate audit types conducted in BC last year - global income, flips, capital gains, GST – but also the Teba per hour of audit. Sure enough, the single global income audit yielded the lowest Teba/hr at C$155, compared to about C$300/hour for flips and capital gains, and C$800/hour for GST cases.

The retired auditor, who was involved in last week’s leak of a 1996 CRA study that revealed the huge extent of foreign-funded property-buying in greater Vancouver and widespread suspected tax cheating, concurred with the general point.

“Auditors do not have the tools to get the information we need to do these audits and these taxpayers are very smart with lots of money to hire the best accountants and lawyers to stall us and throw up road blocks …nobody [in CRA] wanted to do these audits and would do whatever they could to avoid them,” the source said.

“Let me stress that: no one wants these types of files. They take forever and usually the returns are not great and we know it. We know there is more [money there] but the information is just too hard for us to get. So, you do what you can and then you get out. It is very, very frustrating.”

Immigration and auditors don’t talk much

Both sources highlighted another problem: the lack of a simple mechanism for auditors seeking basic information from Citizenship and Immigration Canada, such as an immigrant audit target’s declarations of assets made during the application process and upon landing.

“Auditors do ask … The taxpayer may or may not give it to you,” the former auditor said, adding “it is hard for them to deny the existence of it since they are required to provide it to CIC.”

But this hinged on the co-operation of the auditee. The former auditor, who has discussed the issue with current CRA staff, said: “There was/is no cooperation between CRA and Citizenship and Immigration Canada that we are aware of. If there is, then a memorandum of understanding would have to exist. There may in fact be one - but no one I talked to knows of it.

“And even if there is then you have to go through an intergovernmental affairs officer to get anything - red tape and time. There is no bulk data that we ever knew of, no data base easily accessible by an auditor.”

ThThursda, 25 August,2016ursday, 2 August, 2016

Asked whether auditors could obtain immigrants’ asset declarations from CIC, and, if so, how easy it was, a CRA spokeswoman said: “The CRA continues to work with Immigration, Refugees and Citizenship Canada [CIC] and other federal, provincial and territorial government departments to develop and explore further opportunities to improve information sharing in support of our respective mandates.”

Without specifying CIC, she had prefaced the remark by saying CRA “can obtain or share information with various federal government departments, provinces and territories in support of the CRA’s compliance efforts…All information obtained or shared is done so in accordance with the terms of various memoranda of understanding or legislation such as the Privacy Act.”

Nevertheless, the current auditor said auditors were hamstrung by a lack of auditor-level communication with CIC. “We’ll definitely catch guys flipping houses. But global income is going to be another story. We need more resources for that. I don’t know how - until someone starts coordinating with immigration and customs, to see how much they are coming and going, what they are declaring each time, until that information gets down to the auditor level - I don’t know how we’ll do it.”

The source said auditors did not generally speak to immigration staff, and that instead information would have to be sought via “high-level contacts” within the two departments. Information such as asset declarations to CIC were “not readily available at the auditor level” the auditor said.

This is not to say that the sources underestimate the investigative powers of the CRA.

Both signed off by telling me not to expect to hear from them again in the immediate future.

“They are out for blood,” the former auditor said. “You do realise they can easily tap your phones and email?”