New details about Chinese murderer’s offshore dealings just one secret revealed in Panama Papers

Th., April 7,

 2016

New details about Chinese 

murderer’s offshore 

dealings just one secret 

revealed in Panama 

Papers

Thu., April 7, 2016

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 drunk and dazed on the hotel bed.

Then she dripped the mixture into Heywood’s mouth.

Hotel staff found his body two days later.

Gu eventually confessed to the 2011 crime. She had been driven to murder, she said, by Heywood’s threats to expose the millions of dollars in real estate she held in an offshore account, kept secret for more than a year.

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 jeopardize 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 to further obscure her ties to the company or to make it easier for the associate to act swiftly as events unfolded, a trove of secret records shows.

7 days ago

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 long-standing concerns about how China’s elite use tax havens to conceal their wealth.

The leaked documents that provide fresh details about Gu’s overseas dealings also reveal new information about the offshore holdings of the families of other powerful Chinese.

The cache of documents was obtained by the International Consortium of Investigative Journalists, the German newspaper Suddeutsche Zeitung and other media partners. The records, more than 11 million documents, reveal the inner workings of Mossack Fonseca, a Panamanian law firm that specializes in building corporate structures that can be used to conceal assets.

Among the law firm’s Chinese customers is Deng Jiagui, the brother-in-law of China’s “chairman of everything” — president, Communist Party chief and military chief — Xi Jinping, who has made anti-corruption a hallmark of his rule. Deng Jiagui acquired one offshore firm via Mossack Fonseca in 2004 and two more in 2009. It is unclear what the companies were used for and all three were dormant when Xi became Communist Party chief in 2012.

The daughter of Li Peng, the former premier best known internationally for overseeing the military crackdown on the 1989 Tiananmen Square protests, and her husband own Cofic Investments, a British Virgin Islands company incorporated in 1994. In internal emails, Li Xiaolin’s lawyers say the company’s funds came from helping facilitate the export of industrial equipment from Europe to China.

Ownership was cloaked for years by the use of so-called bearer shares, which are registered without names. They have long been considered a vehicle for money laundering and other wrongdoing, and have been gradually disappearing worldwide as jurisdictions toughen regulations to stop the flow of dirty money.

This generation of the Red nobility seems to have learned about the offshore world at a young age. The granddaughter of Jia Qinglin, a Standing Committee member until 2012, has offshore assets. Jasmine Li Zidan became the owner of an offshore company called Harvest Sun Trading Ltd. in 2010 — when she was a freshman at Stanford University.

Jasmine Li has built a surprisingly large business for someone still in her 20s: her two BVI shell entities were used to set up two companies in Beijing with total registered capital of $300,000. Since the BVI companies owned Li’s shares in the Beijing companies, the family name was kept off the public registration documents.

The other current and former Standing Committee members with relatives connected to offshore dealings are:

Zhang Gaoli, a current Standing Committee member, has a son-in-law named Lee Shing Put, who was a shareholder of three companies incorporated in the BVIs.

Liu Yunshan, a current Politburo member, has a daughter-in-law named Jia Liqing who was the director and shareholder of Ultra Time Investments Ltd., a company incorporated in the BVI in 2009.

Zeng Qinghong, who was vice-president of China from 2002 to 2007, has a brother named Zeng Qinghuai, who was the director of a company, China Cultural Exchange Association Ltd., that was incorporated in Niue and then re-domiciled in 2006 in Samoa.

Hu Dehua, the son of the late Hu Yaobang, who served as head of the Chinese Communist Party from 1982 to 1987, was shareholder, director and beneficial owner of a company incorporated in the BVI in 2003. Hu Dehua registered the company using his home address, the courtyard home where his father lived while party chief.

As well as the politically connected princelings, Mossack Fonseca’s Chinese customers include the super wealthy such as Shen Guojun, who founded the Chinese shopping mall chain Intime. Shen was a shareholder, with the kung-fu star Jackie Chan and others, of a company called Dragon Stream Ltd. that had been incorporated in the BVI 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. Correspondence shows the purpose of the company was “investment in China.”

Shen Guojun, Jackie Chan and Kelly Zong Fuli did not respond to ICIJ’s requests for comment.

An analysis of the leaked records by ICIJ shows that by the end of 2015, Mossack Fonseca was collecting fees for more than 16,300 offshore companies incorporated through offices in Hong Kong and China. Those companies represented 29 per cent of Mossack Fonseca’s active companies worldwide and made greater China the law firm’s single leading market. Its busiest office globally is Hong Kong.

International rules on money laundering require middlemen like Mossack Fonseca to scrutinize government officials and their families to make sure their money was not accumulated through graft. Some clients, such as Shi Youzhen, the wife of Zong Qinghou, the soft drinks magnate, were subject to “enhanced due diligence,” including queries about the assets held by her offshore companies.

An examination of the files shows the firm signed up other Chinese clients without determining if they had family ties to top political figures.

The documents show, for example, that no one at Mossack Fonseca acknowledged or identified Deng Jiagui as Xi Jinping’s brother-in-law when it helped Deng incorporate offshore companies.

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

Li Xiaolin did not respond to repeated requests for comment.

In a letter to ICIJ, Mossack Fonseca said the firm has “duly established policies and procedures” to identify and handle cases involving politicians or people associated with them. It said the company considers those kinds of cases to be “high risk” and conducts more intense checks and periodic follow ups. “We conduct thorough due diligence on all new and prospective clients that often exceeds in stringency the existing rules and standards to which we and others are bound.”

Business people in China often attempt to curry favour with top leaders by helping their spouses, children, grandchildren and other close family relatives. The nature of these secretive ties was laid bare during the trials of Gu Kailai and her husband Bo Xilai, who depended heavily on a plastics tycoon called Xu Ming. As Bo said during his corruption trial in August 2013: “Xu Ming has provided a vast amount of financial assistance to my family. . . I have helped him achieve ‘rapid advances,’ and he helped me to look after my son.”

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

Gu, the daughter of a People’s Liberation Army general, worked as a butcher’s assistant during the Cultural Revolution but became a successful lawyer.

Bo, the son of one of the powerful “Eight Elders” of the Communist Party, ran the sprawling metropolis of Chongqing and, by 2011, was a leading candidate for the Politburo Standing Committee and the nation’s next domestic security czar.

As her husband’s star rose, Gu acquired a six-bedroom villa in Cannes, France. 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 (U.S.) offshore.

The company selling the nonexistent steel workshop took a small cut and then transferred the rest to Russell Properties S.A., a BVI company secretly co-owned by Gu and a business associate, French architect Patrick Henri Devillers. Russell Properties S.A. transferred money to a company in France that purchased and managed the villa.

Nothing on paper linked Russell Properties to Gu or her powerful husband.

Gu used the Villa Fontaine St. Georges as an investment, hoping it would generate rental income. She testified that she hid her ownership because she wanted to “minimize” her tax. And, she said, “I did not want others to know I had overseas assets.”

She asked Heywood, a family friend who exuded equal parts flash and mystery, to manage the villa. He was known to drive around Beijing in a Jaguar with the numerals “007” on the licence plate. The Guardian reported that he referred to Gu as an unforgiving “empress.”

Heywood became part of a cottage industry of operatives who serve as fronts for wealthy Chinese. These proxies, known in China as “white gloves,” often hold the real owners’ stakes in real estate and other investments. It has become a lucrative business in China.

For Heywood, it would also turn out to be deadly.

Gu had promised Heywood a cut of a real-estate deal in Chongqing but Heywood believed he wasn’t getting his fair share. In early 2011, Gu 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.

Gu and Heywood met on Nov. 13, 2011, in the Lucky Holiday Hotel in Chongqing to discuss the dispute, according to reports of her trial. 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 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, then went to her room in the hotel.

Little more than two weeks later, the leaked files show, Mossack Fonseca helped transfer ownership shares of Russell Properties S.A. to Patrick Henri Devillers, the French architect who had assisted Gu in setting up the company in 2000.

Devillers used the address of Gu’s former law partner in Beijing on the transfer paperwork. According to court documents, Russell Properties had initially been held 50/50 by Gu and Devillers via two Channel Islands proxies.

It’s not clear why the transfer was made so soon after the crime or why Gu’s share was transferred to Devillers. It seems strange that Devillers would choose to put the company in his name and use Gu’s former business address on the paperwork, essentially leaving his and her fingerprints on the company. The result was that Devillers was able to establish contact with Mossack Fonseca, giving him greater immediate control of the company.

By early 2012, Devillers was often in the news 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. During this time, Devillers emailed Mossack Fonseca to request that they allow him to transfer Russell Properties to an offshore agent called Morgan & Morgan Trust.

On June 7, 2012, BVI regulators launched an investigation into Russell Properties S.A., requesting information from Mossack Fonseca. Four days later, a Mossack Fonseca compliance officer alerted her colleagues in an email that Devillers appeared to be linked to an investigation in China.

Mossack Fonseca emailed Devillers directly, sending him increasingly anxious notes that included links to news stories about the scandal and his alleged role in it. “The articles mentioned a person with your name and nationality,” the law firm wrote. “Please advise us whether the person in question and you are the same person.” He appears not to have replied.

In its response to the British Virgin Islands authority, the law firm stated that a man named Patrick Henri Devillers was the sole shareholder and director of Russell Properties, and “our last contact regarding this company.” It made no mention of the company’s apparent links to the scandal unfolding in China, though it promised to dig deeper and provide more information later.

Devillers now lives in Cambodia. He testified in the trials of Gu and Bo but was never charged with any crime. He did not answer ICIJ’s repeated 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. In December 2015, Chinese authorities reduced her punishment to life in prison.

The court judgment against Bo ordered the villa be confiscated by the Chinese government. Chinese state media reported in 2014 that it was up for sale.

Suggested price: $8.5 million.