Will there be “heads on a stick?” Wealthy economic fugitive from China allegedly a PEP & prominent developer in Vancouver with bank accounts

Will there be “heads on a stick?” Wealthy economic fugitive from China allegedly a PEP & prominent developer in Vancouver with bank accounts

By Christine Duhaime | April 30th, 2015

More AML fines? 

Will the failures by banks to comply with the politically exposed person (“PEP“) regime cost them another round of billion dollar fines? I’m beginning to think it might in the context of the growing number of Chinese economic fugitives that appear to be in Vancouver, Toronto and New York.

PEPs

A PEP is a foreign national who is politically exposed. Banks everywhere, including in Canada, are required to actively ask foreign wealthy clients about their sources of wealth when on-boarding them to confirm if they are PEPs and that the funds are legitimately acquired. As you can imagine, its expensive to implement and comply with PEP laws and some banks rely on so-called “checking” or “vetting” services that we all know are no more effective that Google to identify PEPs, or don’t do any vetting of PEPs or source of wealth at all. PEPs are at high risk for money laundering and other financial crimes which is why banks are required to vet them and their sources of wealth.

Alleged fugitive on Interpol list living richly in Vancouver under alias

The South China Morning Post published a story today that one of Vancouver’s leading property developers, Michael Ching Mo Yeung, is living in Vancouver under an alias, and is wanted by China for allegedly removing tens of millions of dollars in state assets to Canada. According to the SCMP, Mr. Yeung, the president and CEO of Mo Yeung International Enterprises Ltd., is actually Cheng Muyang, the son of a former high ranking Chinese government official tied to allegations of corruption.  Proceeds of crime from his alleged corrupt conduct have not been recovered by China. Father and son were, and are, both PEPs. According to the SCMP, Mr. Yeung magically earned over $10 million over a short period of time in Hong Kong with which he used to immigrate to Canada. Cheng Muyang is on Interpol’s list of wanted fugitives.  Mr. Yeung alleges he is not Cheng Muyang, despite the identical facial features, but apparently admitted he is related to him. Therefore, even if he is not Cheng Muyang, he is still a PEP attached to Cheng Muyang. My guess is that the SCMP is not wrong on this issue.

PEPs that cannot confirm wealth are unbankable

The reason I think ignoring PEP rules will cause regulatory issues for banks is because assuming the allegations against Mr. Yeung are true and he is Cheng Muyang, if PEP rules were followed, a Vancouver bank would have known after five minutes of  due diligence that Mr. Yeung was a PEP and would have been unable to ascertain through independent verification that his wealth was legitimately earned or acquired. Had banks done their jobs under PEP law, he would have been unbankable. Yet it appears that Mr. Yeung has numerous corporate and personal bank accounts all over Vancouver which he uses to develop properties, pay lawyers and live in Vancouver unimpeded. If he is Cheng Muyang, that’s a serious financial crime problem and a regulatory and reputational problem for banks. And its a bigger problem for government agencies and foreign relations.

Suspect PEPs in Canada continue to have bank accounts

China is searching for hundreds of economic fugitives who are PEPs, a large number of whom, it appears, are living in Canada. That as PEPs, they obtained banking relationships in Canada without hiccups with what China alleges is proceeds of crime and laundered billions of that proceeds of crime through Canada’s banking system, is astounding.

Heads on a stick

In the anti-money laundering banking compliance world, we talk often about the pressure on prosecutors, especially in US,  to produce what the head of the OCC referred to as “heads on a stick”, meaning parking criminal responsibility for AML/CTF failures by banks on the heads of individual officers and directors of those banks.

My guess is that the US will take an active role in this file, and in particular, PEP compliance by banks vis a vis wealthy PEPs from China and that this may be the file where a few top heads at banks will roll. Why? Because it is a highly politicized file in several countries that is causing enormous embarrassment to governments that unwittingly opened their doors to wealthy foreign nationals with proceeds of crime.

Importance of file for China

This file is incredibly important for China on many levels and from what I can tell, foreign government agencies are failing to understand that, and the resentment of China over the acceptance of foreign countries of their fugitives with proceeds of crime.

To wit, today China’s Minister of Foreign Affairs, Hong Lei, agreed to answer just four questions for the Chinese media and chief among them was the case of Cheng Muyang. Here is the Q&A:

“Q: Media reports suggest that Michael Ching, a real estate businessman in Canada is Cheng Muyang on China’s wanted list of corrupted officials fleeing overseas. Can you confirm this? If so, is China asking for his extradition?

A:  Staying abroad does not mean being able to stay outside the law. The Chinese government is determined to crack down on corruption. No matter where the corrupts flee, the Chinese side will bring them to justice. Absconders like Cheng Muyang are bound to receive due punishment.”

Government relied on bank compliance

If government agencies are smart, they will say that they rightfully relied on regulated banks to have identified and vetted  PEPs and their funds under national anti-money laundering laws designed for that purpose. And if they were smarter still, they would start to insist on greater compliance by banks in anti-money laundering law in order to preserve the integrity of the banking sector.