Seizing Bo Xilai’s French villa may be just the beginning.
China’s corrupt officials and crooked businessmen have smuggled billions of dollars overseas, much of which has ended up in real estate in the United States, Canada, Australia and the United Kingdom—particularly in high-end neighborhoods in London, New York, Los Angeles, Sydney and Toronto. Now the Chinese government is embarking on a worldwide hunt to seize the properties with help from foreign governments, according to asset recovery and anti-corruption specialists.
Since Wang Qishan, the Communist Party chief tapped to head China’s new anti-corruption drive, took office last fall, he has been pushing to crack down on capital flight from the country. In recent months, Chinese officials have quietly said they are specifically targeting foreign assets, and sought help from organizations like the OECD, anti-corruption groups and the foreign government agencies including the U.S. Commerce Department about their newly aggressive pursuit of overseas real estate.
Chinese officials “are interested in understanding where the assets are” in the U.S., and “the U.S. has said it will work with them,” said Nathaniel B. Edmonds, a former Department of Justice official and a partner with the Washington, D.C . law firm Paul Hastings. In July, Canada and China agreed to seize, share and return the proceeds of crime.
Beijing’s interest in hunting down the proceeds of corruption takes place amid a similar push around the globe, with countries like Libya seeking to take back the assets that their corrupt officials have squirreled away. “There is an increased push to use asset recovery mechanisms in the context of corruption globally,” said Faisal Osman, a barrister with the London firm ARM Stolen Asset Recovery.
President Xi Jinping’s corruption crackdown has resulted in a surge of convictions—in the first quarter of this year alone, China’s prosecutors handled nearly 3,700 corruption cases involving $87.5 million. And the campaign has claimed some prominent scalps, many of which involved prominent foreign property holdings. When the Jinan People’s Court sentenced former Politburo member Bo Xilai to life in prison in September, it also announced plans to seize a villa owned by his wife on the French Riviera. Separately, a home in Walnut, California, believed to be owned by ex-railway minister Zhang Shuguang, is also a likely target for Beijing’s asset hunt.
Those high-profile cases may be just the beginning.
Estimating exactly how much corruption-tinged cash has fled China in recent years is difficult, but Ran Liao, senior program coordinator for Transparency International, a non-profit that works with governments and the private sector to curb corruption, said estimates run as high as 500 billion yuan ($82 billion) taken overseas in recent years. Other mind-boggling estimates abound:
- A leaked report from China’s central bank estimated that from the early 1990s to 2008, some 18,000 officials and employees of state-owned enterprises pilfered a total of 800 billion yuan from state coffers, with the culprits most likely to flee to the U.S., Canada, Australia and the Netherlands.
- China’s anti-corruption unit, the Central Commission for Discipline Inspection, predicted in another leaked report that $1 trillion may have fled China in 2012.
- “Grey income”—household revenue above what’s declared officially—reached an estimated $1 trillion in 2011, according to the China Society of Economic Reform.
For a corrupt official with money to invest, putting funds directly into an overseas bank or stock market can be risky, because financial institutions are required by global anti-money laundering agreements to report suspicious funds. But real estate agents in most countries have no such requirements. So when Chinese buyers land with suitcases full of cash, as they have in recent months, real estate deals can get done quickly.
Chinese buyers spent $30 billion on overseas real estate in 2012, estimates Juwai.com, a property website. Of that, $9.1 billion went to the United States and much of it specifically to California. And almost 70 percent of the purchases made by Chinese buyers in the United States were made entirely in cash, according to the most recent report from the National Association of Realtors.
Australian regulators approved $4 billion in real estate purchases by Chinese investors in the 2011/12 fiscal year, the most recent figures available. Canada keeps no hard data about foreign investors in real estate, but Chinese buyers in one year outnumbered local buyers in Vancouver by a three to one margin. They also bought 27 percent of new homes sold in London last year.
The soon-to-retire Chinese bigwig who has stashed money and relatives abroad in preparation for his escape is such a common character in China that it has its own phrase: luo guan, or “naked official.”