Chinese evidence, Canadian charges: Accused says fraud case built with coercion

Edward Gong is accusing Canadian investigators of relying on coerced confessions. What does his case mean for the bigger questions of due process, international law and China’s notorious criminal justice system?

CRAIG OFFMAN, STEVEN CHASE

TORONTO AND VANCOUVER

PUBLISHED NOVEMBER 8, 2018UPDATED NOVEMBER 8, 2018

Open this photo in gallery

Businessman Gong Xiao Hua, also known as Edward Gong, has been a Canadian since 2008. Authorities in his native China allege that he masterminded what they consider an illegal pyramid scheme.

THE GLOBE AND MAIL

Evidence gathered by Chinese police is being used against a Canadian businessman in an Ontario court in a case that will test the ties between law-enforcement agencies in China and Canada.

Gong Xiao Hua, also known as Edward Gong, was arrested last December after a joint probe by the Ontario Securities Commission (OSC) and the Royal Canadian Mounted Police in collaboration with China’s Ministry of Public Security and authorities in New Zealand, where some of the alleged proceeds of crime were transferred.

Mr. Gong is perhaps best known to Canadians as one of the faces in a photo with Prime Minister Justin Trudeau at an event in 2016, where the Liberal Leader courted members of Toronto’s Chinese community at a cash-for-access fundraiser. As Mr. Gong helped Mr. Trudeau make dumplings with other donors, the RCMP and regulators were already making inquiries into Mr. Gong’s business dealings, according to court records. In December, they launched an active investigation.

Open this photo in gallery

Mr. Gong, far left, watches as Trudeau makes dumplings at a 2016 fundraiser.

DAWA NEWS

The OSC accuses Mr. Gong, 53, of masterminding the fraudulent sale of hundreds of millions of dollars in stock of his health-supplements company, O24, to Chinese citizens and funnelling a significant percentage of the money to bank accounts in Canada and New Zealand to use for personal benefit. Chinese authorities have alleged that, from Canada, Mr. Gong engineered what they consider an illegal pyramid scheme.

Mr. Gong and his lawyers say the evidence gathered by Chinese authorities was the result of coercion and should be thrown out.

O24 was a multilevel marketing company. A salesperson can earn money by selling health supplements and from commissions made on sales by people whom they in turn recruit. Those initial salespeople often earn more by recruiting others than from their own sales. In Canada, multilevel marketing is legal. In China, it is the target of major crackdowns.

Mr. Gong faces four charges under Canadian law, including fraud and money laundering, for allegedly selling worthless stock certificates from 2012 to 2017. In court documents, a senior Ontario Securities Commission investigator describes O24 as an empty company that had already been dissolved.

The alleged victims are in China. The OSC and RCMP were drawn in because the alleged plot was run from Toronto. “We are alleging that criminal activity took place in our jurisdiction,” OSC spokesperson Kristen Rose said. “When this happens, it undermines the integrity of our capital markets and harms investors, and we will take action.”

The Canadian charges depend to a significant extent on police investigations in China, including interrogations of detained associates of Mr. Gong and testimony from O24′s alleged investors.

In response to the allegations, Mr. Gong retained Craig Hannaford, the former head of the RCMP’s capital-market-fraud investigation unit. Mr. Hannaford, now a partner at the investigations firm Inquisit Solutions, travelled to China to interview O24 associates, customers and distributors. Among them were two former associates who told him Chinese authorities tried to extort money from them and that they were physically coerced to give evidence against Mr. Gong. On video testimony viewed by The Globe and Mail, they also told Mr. Hannaford that Canadian police never independently interviewed them.