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 drunken 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 a dark secret: millions of dollars in real estate held in an offshore account on the other side of the world.
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 in an effort to further obscure her ties to the company or to make it easier for the trusted associate to act swiftly as events unfolded, a trove of secret records shows.
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 longstanding concerns about how members of China’s elite use tax-haven hideaways to conceal their wealth.
The leaked documents that provide fresh details about Gu’s overseas dealings also reveal a wealth of new information about the offshore holdings of the families of other powerful Chinese. The documents reveal that Xi Jinping, China’s “Chairman of Everything,” — his titles include president, Communist Party chief and military chief — has a brother-in-law who has had companies in tax havens. Relatives of at least seven other men who have served on the tiny Standing Committee — including two members currently serving with Xi — also have offshore holdings, the records show.
One of these relatives is a grandson-in-law of the late Chairman Mao Zedong, the founding father of the People’s Republic of China.
It is no secret that many of the children and grandchildren of China’s revolutionary heroes have found success in the business world. China has the world’s second largest economy and has hundreds of billionaires. But the extent to which some of the country’s most politically connected have tapped offshore networks to keep their assets hidden from the public eye is not well known. And the mechanics of how they do it is little understood.
The cache of documents was obtained by the International Consortium of Investigative Journalists, the German newspaper Süddeutsche Zeitung and other media partners. The records — more than 11 million documents in all — come from the files of Mossack Fonseca, a Panamanian law firm that sells shell companies and other offshore structures to customers who want to keep their finances private.
Among the law firm’s high-flying Chinese customers is Deng Jiagui, the brother in law of China’s paramount leader 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.
The companies were called Supreme Victory Enterprises Ltd., Best Effect Enterprises Ltd. and Wealth Ming International Ltd. It is unclear what the companies were used for. Supreme Victory was dissolved in 2007, and the other two companies had become dormant by the time Xi became Communist Party chief in 2012. Deng Jiagui did not respond to ICIJ’s requests for comment.
Another prominent client is the daughter of Li Peng, China’s premier from 1987 to 1998. Li is best known internationally for overseeing the bloody military crackdown on the 1989 Tiananmen Square pro-democracy protests.
His daughter, Li Xiaolin, and her husband own Cofic Investments, a British Virgin Islands company incorporated in 1994. In internal emails, Li’s lawyers say the firm’s funds came from helping facilitate the export of industrial equipment from Europe to China. The files show that ownership was cloaked for many years by use of so-called bearer shares, which are registered without names — if the bearer certificates for a company are in your hands, you own the company. Bearer shares have long been considered a vehicle for money laundering and other wrongdoing, and have been gradually disappearing worldwide as jurisdictions toughen regulations aimed at stopping the flow of dirty money.
The new generation of so-called red nobility seems to have learned about the offshore world at a young age. The granddaughter of Jia Qinglin, who served as the No. 4 member of the Politburo Standing Committee 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.
Since then, Jasmine Li has built a surprisingly large business for someone still in her 20s: her two British Virgin Islands shell entities were used to set up two companies in Beijing with total registered capital of $300,000. By having the two BVI companies own Li’s shares in the Beijing companies, she was able to keep her family name off the public registration documents.
The five other current and former Standing Committee members whose relatives are 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 British Virgin Islands: Zennon Capital Management, Sino Reliance Networks Corporation and Glory Top Investments Ltd.
Liu Yunshan, a current Politburo Standing Committee 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 British Virgin Islands 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 first in Niue and then re-domiciled in 2006 in Samoa.
The late Hu Yaobang, who served as head of the Chinese Communist Party from 1982 to 1987, has a son named Hu Dehua who was shareholder, director and beneficial owner of Fortalent International Holdings Ltd., a company incorporated in the British Virgin Islands in 2003. Hu Dehua registered the company using his home address — the traditional courtyard home where his father lived while party chief.
Mao Zedong, who led Communist China from 1949 to his death in 1976, has a grandson-in-law who incorporated Keen Best International Limited in the British Virgin Islands in 2011. Chen Dongsheng is the head of a life insurance company and an art auction house and was the sole director and shareholder of Keen Best.
China’s Foreign Ministry did not respond to a faxed request for comment by ICIJ. Asked whether China plans to investigate any of the China-related companies or holdings revealed in the leaked documents, ministry spokesman Hong Lei told a regular press briefing in Beijing on Tuesday that he had no comment on the “groundless accusations.”
Communism meets capitalism
The leaked records shine light on how some Chinese political elites use the offshore world to keep their finances discrete.
Not all offshore dealings are illegal, but incorporations in the BVI and elsewhere can be used to obscure financial relationships between political elites and wealthy patrons, to hide assets, evade tax and enable anonymous stock purchases. They also allow high-profile individuals to set up an onshore business in the name of their offshore shell company without anyone knowing it’s theirs. These are but a few of the techniques greasing the wheels of modern Chinese capitalism with communist characteristics.
Jackie Chan. Photo: Gage Skidmore (CC BY-SA 2.0)
Along with politically connected princelings, Mossack Fonseca’s customers from China include the super wealthy such as Shen Guojun, who founded the Chinese shopping mall chain Intime. Shen was a shareholder, together with the kung fu star Jackie Chan and others, of a company called Dragon Stream Limited that was incorporated in the British Virgin Islands in 2008.
Another billionaire, Kelly Zong Fuli, the daughter of billionaire soft drink magnate Zong Qinghou, acquired a BVI 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.
The Panamanian law firm — considered one of the top five incorporators of offshore companies in the world — set up Mossack Fonseca Secretaries Limited in Hong Kong in August 1989 and, in its early days, operated out of an office in the Kowloon Centre in Tsim Sha Tsui, a bustling, neon-lit neighborhood known for its museums and shopping. It established its first office in mainland China in 2000. Today, according to its website, it has offices in eight mainland cities: Shenzhen, Ningbo, Qingdao, Dalian, Shanghai, Hangzhou, Nanjing and Jinan.
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 percent of Mossack Fonseca’s active companies worldwide and made greater China the law firm’s single leading market. Its busiest office in Asia — and globally — is Hong Kong.
International rules on money laundering require middlemen like Mossack Fonseca to give extra scrutiny to 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 Wahaha beverage company 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, however, without determining whether they had family ties to top political figures.
The documents show, for example, that no one at the firm acknowledged or identified Deng Jiagui as Xi Jinping’s brother-in-law when it helped Deng incorporate offshore companies in the British Virgin Islands in 2004 and 2009.
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.
Mossack Fonseca didn’t object to the use of bearer shares to control the company Li Xiaolin and her husband owned, Cofic Investments, until 2009, when the British Virgin Islands introduced tougher anti-money laundering standards that forbid their use. The leaked files show the law firm didn’t dig into the backgrounds of the real shareholders of the company even as the ownership structure was transferred in 2010 from bearer shares to another secretive arrangement, a foundation in the tiny Central European principality of Lichtenstein.
By this time, Li Xiaolin had established herself in China as more than just the daughter of a famed political leader. She had become a top executive in the Chinese energy sector — earning the nickname “China’s Power Queen” — and had become a delegate to the Chinese People’s Political Consultative Conference, an advisory body to the Chinese legislature.
Emails show that Mossack Fonseca finally learned that Li Xiaolin and her husband were the real owners of Cofic Investments in 2014, in response to a query from British Virgin Islands financial regulators.
It is not clear from the files what the query was about but even then, at least some of the law firm’s employees appear not to have made the connection that Li Xiaolin was a prominent player in Chinese politics and business.
Geneva-based lawyer Charles-Andre Junod, who was a director of Cofic Investments, declined to comment but said he has always respected relevant laws.
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.”
