People pedal past a building shaped as a Chinese ancient coin on April 21, 2007 in Shenyang of Liaoning Province, China. (China Photos/Getty Images)People pedal past a building shaped as a Chinese ancient coin on April 21, 2007 in Shenyang of Liaoning Province, China. (China Photos/Getty Images)

After a record amount of capital outflows from China in 2016, Beijing is looking to reverse course this year.

Chinese authorities’ efforts to restrict capital outflows appear to be working. Foreign exchange reserves rose for four consecutive months through May, as inflows finally exceeded outflows. Outbound direct investment dropped almost 46 percent during the first six months of 2017 compared to the same period last year, according to official data.

Beijing is using a multipronged approach to stem the money flow. Regulators have restricted fundraising activities of insurance companies, a main source of recent foreign acquisitions. The China Banking Regulatory Commission (CBRC) in late June asked banks to check their exposure to several conglomerates with activities abroad, including the Dalian Wanda Group. And most recently, regulators are applying stricter standards before approving foreign investments and using state-controlled media to root out offenders.

China is especially targeting so-called “asset transfers,” or purchases of foreign assets with little to no potential economic returns. Such purchases, regulators believe, are purely used to shift or launder funds abroad.

“China will continue to encourage only genuine and rule-abiding outbound investments by financially competent companies,” said Wang Chunying, a spokesperson at the State Administration of Foreign Exchange (SAFE), according to Caixin, a mainland business magazine. SAFE is China’s foreign-exchange regulator.

Reading between the lines, it’s clear that regulators believe some recent high-profile foreign acquisitions were backed by dubious financing, and the quality of such assets raises questions.

Leveraging Media

Beijing has also utilized the state-controlled media to step up criticism of the recent string of high-profile overseas acquisitions by Chinese companies, where academic and business experts publicly question the motivation behind such deals.

During a July 18 segment shown on state-owned China Central Television (CCTV), the host asked why a little-known Chinese appliance retailer would buy the Italian soccer club Internazionale, also known as Inter Milan, given that the company had been losing money for the last five years.

“Some companies are already highly indebted at home, yet they spend lavishly with bank loans abroad. … I think many overseas acquisition deals have a low chance of generating cash flow, and I cannot exclude the possibility of money laundering,” said Yin Zhongli, a researcher with the Chinese Academy of Social Sciences, during the CCTV segment, according to the South China Morning Post. The Chinese Academy of Social Sciences is a think tank affiliated with the State Council, China’s cabinet.

Publicly traded shares of Suning, the appliance retailer that bought Inter Milan, immediately fell intraday following the CCTV segment. Yin Zhongli, the academic researcher, later clarified that he did not intend to call out Suning in particular, but was commenting in general about Chinese firms buying assets abroad.

I cannot exclude the possibility of money laundering.

— Yin Zhongli, researcher, Chinese Academy of Social Sciences

Curbing Dealmakers

SAFE spokeswoman Wang said the regulator would focus its attention on cross-border deals in real estate, hotels, entertainment, cinemas, and sports clubs.

The industries cited by SAFE are not coincidental—such companies were main targets of China’s dealmakers during the recent acquisition frenzy.

China’s banking regulator recently asked banks to look into their exposures to several Chinese conglomerates, including Anbang Insurance Group Co., Dalian Wanda Group Co., HNA Group Co., Fosun International Ltd., and Rossoneri Sport Investment Lux, which acquired Italy’s AC Milan soccer team in April.

Foreign real estate and hotels are frequent targets of insurer Anbang and conglomerate HNA, while Hollywood movie studios and cinemas have received heavy investment from commercial developer Wanda.

Ownership of foreign sports clubs has also drawn Chinese regulatory scrutiny. Rossoneri’s original proposal to buy AC Milan almost fell apart after it was postponed several times, due to Beijing’s refusal to sign off on certain funds leaving China. The deal finally concluded in April after billionaire investor Paul Singer’s hedge fund Elliott Management stepped in to provide partial financing. Besides the two Italian clubs, Chinese companies also have ownership stakes in English club Aston Villa, Spanish club Atletico Madrid, and French club OGC Nice.

HNA may be finding itself shunned by leading Wall Street banks and advisers.

Anbang chairman Wu Xiaohui was detained by Chinese authorities in June. Anbang had been one of the most active foreign dealmakers over the last three years. It owns the Waldorf Astoria hotel in Midtown Manhattan—currently closed for renovation—and Chicago-based Strategic Hotels & Resorts. In 2016, Anbang famously launched a failed bid to acquire Starwood Hotels & Resorts Worldwide.

Wu is believed to be a close ally of an influential political faction, led by former Party leader Jiang Zemin, that is in opposition to the Xi leadership. Jiang was head of the CCP for more than a dozen years (1989–2002) and continued holding sway over the Chinese regime through a network of cronies for another 10 years (2002–2012). Since entering office in 2012, Xi has waged a battle to uproot the influence of Jiang and his faction.

Sources close to Zhongnanhai, the central headquarters of the CCP, told The Epoch Times in June that Wu is one of the key “white gloves,” or money launderers, for the Jiang political faction and the family of Zeng Qinghong, the former Chinese vice premier and longtime Jiang confidant.

HNA and U.S. Banks

Another active foreign acquirer, HNA may be finding itself shunned by leading Wall Street banks and advisers.

Last week, Bank of America Corp. told its bankers to stop working with HNA Group and its affiliated entities on future transactions, due to concerns about the group’s debt levels and opaque ownership structure, according to a Bloomberg report. The report also stated that other banks, including Morgan Stanley and Citigroup Inc., gave similar directives to their staff.

A source at a major Wall Street bank confirmed the Bloomberg report.

Currently, HNA is closing on the purchase of a majority stake into hedge fund SkyBridge Capital LLC. SkyBridge’s founder and co-managing partner is Anthony Scaramucci, President Donald Trump’s new communications director.

Approvals are required from banks’ compliance departments before bankers can conduct business with potential clients, a process known as KYC (know your client), which scrutinizes a potential client’s credit-worthiness, track record, and ownership. Citigroup and Morgan Stanley struggled to obtain sufficient clarity on HNA’s sources of funding and its ownership structure, according to the report.

Similar to other Chinese conglomerates, HNA has a Hong Kong publicly listed arm, HNA Holding Group Co. Ltd., which is owned by a parent company with obscure ownership identities.

HNA’s ultimate structure is a complex web of investment trusts, provincial and local government agencies, and small-business ventures.

Thirteen individuals ultimately control 76 percent of the company through intermediary companies. Chen Feng, the public face of the company, controls 15 percent of HNA and has connections with former presidential candidate Jeb Bush and American investor George Soros. HNA’s biggest owner, Guan Jun (with a 29 percent stake), doesn’t work for the company and is a relative unknown. Listed addresses for Guan through various public filings and records include a side street beauty salon in western Beijing, a shabby Beijing office building, and a nondescript apartment building in southwest Beijing, according to the Financial Times.

HNA is also highly indebted. At the end of 2014, HNA had a combined debt of 196.9 billion yuan ($29.5 billion) on its balance sheet, compared to only 73.2 billion yuan ($10.9 billion) of equity, according to prospectuses filed with the Irish securities regulators in connection with a 2015 $1 billion bond offering of one of its subsidiaries.

While actions of individual U.S. banks may have little to do with Chinese politics or regulatory desires, the path forward for Chinese companies looking to acquire foreign assets is becoming more and more difficult.

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HONG KONG—Hong Kong has long been known as an international money-laundering hub, especially for mainland China.
According to the Panama Papers, Hong Kong has 2,212 intermediaries (including banks, law firms, and accountants), surpassing the United Kingdom and Switzerland as the region with the most offshore companies. Hong Kong is also the region with the most active clients—37,675 in total—in terms of the number of offshore company incorporations.
The Associated Press reported last month that China has become an international money-laundering hub, and most of the money first came to Hong Kong.
According to the FBI, the fraud has cost thousands of companies, many of which are U.S. companies, US$1.8 billion in just over two years through China and Hong Kong.
Liu Jianchao, deputy director of the National Bureau of Corruption Prevention, said during China’s annual political meetings, the “Two Sessions,” that corrupt mainland officials are using Hong Kong as a channel to launder money. According to an internal source in the Central Commission for Discipline Inspection (CCDI), 90 percent of the money is laundered in Hong Kong.
How money is channelled in and out of Hong Kong will be one of the focuses of the investigation.
After the Panama Papers came to light, former vice-chairman of the Central Military Commission Guo Boxiong was reported to have pleaded guilty and been handed over to prosecutors. Guo was found to have taken bribes worth US$12.3 million (approx. HK$95.4 million) and been involved in money laundering.
A woman born in the 1990s was reported to have laundered billions of dollars for the faction of former Chinese Communist Party leader Jiang Zemin and former vice-chairman of the Central Military Commission Xu Caihou’s family through various banks in Hong Kong.
The Panama Papers released by the International Consortium of Investigative Journalists (ICIJ) date back to a year ago, when an anonymous informant released the information to the German newspaper Süddeutsche Zeitung. The latter coordinated with the ICIJ to work with more than 400 reporters from 100 media organizations across 80 countries to analyse the 11.5 million files.
As more data is revealed, more companies and people in Hong Kong will be implicated.
Translated by Su Lin. Edited by Sally Appert.

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ASHDOD, Israel—Gilbert Chikli was rolling in money, stolen from some of the world’s biggest corporations. His targets: Accenture. Disney. American Express. In less than two years, he made off with at least 6.1 million euros from France alone.
But he had a problem. He couldn’t spend the money. A tangle of banking rules designed to stop con men like him stood between Chikli and his cash. He needed to find a weak link in the global financial system, a place to make his stolen money appear legitimate.
He found it in China.
Gilbert Chikli, 50, and his wife Shirly Chikli, 31, at their home in Ashdod, Israel, on March 28, 2016. Chikli, a visionary fraudster, ripped off some of the world’s biggest corporations, and then laundered millions in China, which is serving as a massive money laundering machine for foreign criminals, an AP investigation has found. (AP Photo/Oded Balilty)
“China has become a universal, international gateway for all manner of scams,” he said in an interview with The Associated Press. “Because China today is a world power, because it doesn’t care about neighboring countries, and because, overall, China is flipping off other countries in a big way.”
A visionary con man, Chikli realized early on—around 2000, the year before China joined the World Trade Organization—the potential that lay in the shadows of China’s rise, its entrenched corruption and informal banking channels that date back over 1,000 years. The French-Israeli man told the AP he laundered 90 percent of his money through China and Hong Kong, slipping it into the region’s great tides of legitimate trade and finance.
Today, he is in good company.
Criminals around the world have discovered that a good way to liberate their dirty money is to send it to China, which is emerging as an international hub for money laundering, an AP investigation has found. Gangs from Israel and Spain, North African cannabis dealers and cartels from Mexico and Colombia are among those using China as a haven where they can safely hide money, clean it, and pump it back into the global financial system, according to police officials, European and U.S. court records and intelligence documents reviewed by the AP.
Chinese men sit outside the Bank of China headquarters in Beijing, China, on Feb. 25, 2016. Convicted con man Gilbert Chikli is credited with masterminding a fraud that has cost major multinational companies $1.8 billion in just over two years. Chikli said he laundered 90% of his money through China and Hong Kong. Police traced tens of thousands in transfers from Chikli front companies to Bank of China accounts. (AP Photo/Ng Han Guan)
China’s central bank and police refused repeated requests for comment.
In a regular briefing with reporters Monday, Chinese Foreign Ministry spokesman Hong Lei said the government “places great emphasis” on fighting crimes such as money laundering and is working to expand international cooperation. “China is not, has not been, nor will be in the future a center of global money laundering,” he said.
Chikli is widely credited in France with inventing a con that has inspired a generation of copycats. Chikli’s scam, called the fake president or fake CEO scam, has cost companies around the world $1.8 billion in just over two years, according to the FBI. And the damages are rising fast.
Security cameras poke over the high wooden fence that encircles Chikli’s property, a sleek, three-story home in Ashdod, a port city on the Mediterranean. Beyond that, a swing set, pink-and-purple tricycle and orange ball jumble his lawn. And then there is Chikli himself, tan and smiling at his massive front door. He was sentenced in absentia to seven years in prison by a French court last year and remains a wanted man, but here in Israel, he lives openly and talked about his criminal exploits with pride during four hours of interviews with the AP.
“It’s the power of persuasion,” he said. “It’s not easy to turn the head of a bank president.”
Dirty money has long washed through China, but has been viewed primarily as a domestic problem. Now, mounting evidence shows that non-Chinese criminals are learning to tap entrenched, sophisticated Chinese systems to move money illegally— largely beyond the reach of Western law enforcement.
The house belonging to convicted con man Gilbert Chikli is seen in the port city of Ashdod, Israel, on Nov. 10, 2015. (AP Photo/Tsafrir Abayov)
China’s underground financial systems are of rising concern to top policymakers there, who are struggling to stem massive capital flight as the economy slows. Despite strict currency controls, a record net $711 billion gushed out of China last year, not counting foreign direct investment, according to estimates by Fitch Ratings.
A lot of that money leaks out illegally. Corporations undervalue exports or overvalue imports to move capital abroad, for example. Money changers and underground banks routinely help mainland Chinese slip cash out of the country in excess of the official $50,000-a-year limit. Global Financial Integrity, a Washington-D.C. non-profit, ranks China as the world’s largest exporter of illicit money.
“Wherever I go in the world, there is a growing Chinese presence,” said John Cassara, a former financial intelligence agent at the U.S. Treasury Department. “It’s only natural that the Chinese are going to bring their financial systems with them—their above-board financial systems and their underground systems.”
“It’s completely off the radar screen,” Cassara said. “No one knows about it.”
But Chikli knew.
“Gilbert Chikli knows that China is a springboard to be able to bounce money off of,” said the con man, who often spoke of himself in the third person. “It’s not a secret. The whole world knows that China is a hub for sending and receiving money.”
People walk beneath a sign for foreign currency exchange in Hong Kong on March 2, 2016. China and Hong Kong are emerging as a global hub for money laundering, with criminals from around the world slipping their dirty money into the region’s great tides of legitimate trade and finance, taking advantage of entrenched corruption and informal banking channels that date back over 1,000 years. (AP Photo/Kin Cheung)
The ‘Fake CEO Scam’
The first con,

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MADRID—A Spanish judge has ruled that six executives of China’s state-owned ICBC bank in Madrid should be detained pending a judicial probe into suspected money laundering and tax fraud, a court statement said Saturday.
Three Industrial and Commercial Bank of China officials were sent to jail while investigations continue. Three others were given the option of paying 100,000 euros ($111,300) bail, the statement said.
Five executives were arrested Wednesday on suspicion of money laundering, crimes against Spain’s tax authority and forgery. The sixth, who previously worked in ICBC’s Madrid offices but now works in the Luxembourg branch, was nabbed Friday.
All court interviews were held with interpreters present and all six waived their right not to testify. The court statement said the bank continued to operate normally and Wednesday’s search of its Madrid premises “took place within the strict framework of pre-trial investigations.”
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The Chinese embassy in Madrid said in a statement that the Chinese government “requires Chinese companies to maintain a strict compliance of the law.”
The statement said the bank was using “the latest anti-money-laundering system” which it said was provided by Spanish authorities.
It said the head of ICBC Europe arrived in Madrid “to help” as soon as he had been informed of the search.
Police said the tax agency’s National Fraud Investigation Office and the European Union’s EUROPOL agency were collaborating in the probe.
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The police said the operation was a follow-up on one in 2015 that targeted gangs using the bank to launder to China some 40 million euros ($45 million) proceeding from Chinese-run bargain stores in Spain.
China’s Deputy Foreign Minister Liu Xing spoke Friday with Spain’s embassy official Jose Luis Garcia Galan to convey his government’s hopes that the legal rights of Chinese businesses and personnel in Spain would be guaranteed.

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Behind the illicit flow of drugs into the United States and the violence waged in Latin America by criminal cartels, the Chinese regime is hard at work. For drug cartels and narcoterrorist groups, the Chinese regime has become the leading source of synthetic drugs and precursors for drugs like methamphetamine, and a leading source for the weapons used by those in the drug business.
Many of these drugs are wreaking havoc on the bodies and minds of users and their communities—with some causing long-term psychotic behavior, and others linked to overdose and death.
For example there are more than 150 publicly listed Chinese chemical companies selling the drug alpha-PVP, also known as “flakka,” according to New York Times. Flakka is replacing cocaine use in Florida, and has been the cause of at least 18 deaths and numerous bizarre arrests in the state.
As for methamphetamine, a 2012 national survey found there are an estimated 1.2 million users in the United States, according to the National Institute on Drug Abuse. Side effects of the drug include “significant anxiety” and violent behavior, and “psychotic symptoms can sometimes last for months or years.”
A soldier stands guard inside a clandestine chemical drugs processing laboratory discovered in Mexico on Feb. 9, 2012. Chinese gangs are supplying Mexican drug cartels with chemicals to create methamphetamine. (Hector Guerrero/AFP/Getty Images)
These drugs, and many others like them, have a critical feature in common: they, or the otherwise controlled chemicals used to make them, originate in China—and for years Chinese regulators have shown little interest in helping stem the flow.
“The Chinese role is that of a facilitator to Mexican and Latin American organized crime activities,” said Dr. Robert J. Bunker, adjunct research professor at the U.S. Army War College, in an email interview.
The Chinese Communist Party (CCP) has found its way into both legitimate and underworld markets in Latin America, according to Bunker. “Combine these with their linkages to pariah regimes in the region, such as Venezuela, and their interactions with Hezbollah and Iranian operatives,” Bunker said, “and we end up with a ‘Star War’s Bar’ type of scenario.”
In the famous bar scene from the 1977 film, the character Obi-Wan Kenobi says, “you will never find a more wretched hive of scum and villainy.”
It’s a situation, Bunker said, where the Chinese regime “via its sizeable number of corrupt officials—many with organized crime linkages—will basically sell anything, or provide any kind of service at this point to make a profit: weapons, precursor drugs, cloned goods, gambling, and money laundering.”
A ‘Drug Warfare’ Drug War
There is more to the drug war than meets the eye. “Recent Chinese doctrine articulates the use of a wide spectrum of warfare against its adversaries, including the United States,” according to an Oct. 13, 2014, report from U.S. Army Special Operations Command.
“Drug warfare” is one piece of this “wide spectrum of warfare,” the report states, noting that it ties to a broader Chinese military strategy meant to “destabilize an adversary.” It falls under the umbrella of “culture warfare,” which is an unconventional warfare strategy meant to decay the moral fabric of a rival nation, and thereby weaken it.
For communist regimes including the CCP, the use of drug warfare against their adversaries isn’t anything new. In his book, “Red Cocaine,” last updated in 1999, former CIA Deputy Director for Intelligence Joseph D. Douglass detailed the history of the strategy.
He writes communist regimes “have been using narcotics for several decades as a decisive weapon in the ongoing low-level warfare they are waging against Western civilization,” and adds, “During the five years to 1990, for instance, data and other source testimony were forthcoming linking almost every Communist country to drug trafficking.”
The strategy was exposed many times over by high-level officials defecting from the Soviet Union—including Czech defector Gen. Jan Sejna. Its use was also detailed in the Stalin-era “The Communist Manual of Instructions on Psychopolitical Warfare,” which can now be found in the public domain.
Drug warfare was used by the British during the Opium Wars against China in the 19th century, which led to China ceding control of Hong Kong to British rule in 1841, and later helped lead to the collapse of the Qing Dynasty in 1912.
For the CCP’s founder, Mao Tse-tung, opium was a weapon to be used in his efforts to gain control over China. Douglass writes that in 1928 Mao instructed one of his subordinates, Tan Chen-lin, to “begin cultivating opium on a grand scale.” This was a push both to gain needed supplies and to drug noncommunist states.
After the CCP established its control, Douglass wrote, “opium production was nationalized and trafficking of narcotics, targeted against non-Communist states, became a formal activity of the new Communist state.”
That “formal activity” never ended—despite being exposed by separate investigations in Japan and the United States in 1951.
But today, the drug warfare that in the past was done in a cloak and dagger fashion is now done openly.
Feeding the Epidemic
For drug cartels, China is the main source of precursor chemicals, including ephedrine and pseudoephedrine used to make the drug methamphetamine. It is also the main source of other synthetic drugs, many of which can be ordered online directly from Chinese laboratories. Most synthetic drugs are difficult to categorize—and to regulate—because Chinese labs change their chemical makeup to dodge U.S. laws.
The use and addiction to methamphetamine and other synthetic drugs is growing in the United States—since they’re often inexpensive, easy to get, and can mimic the effects of other drugs on the market. There are synthetic clones of just about every illegal drug on the market.
While the CCP has arrested some groups selling the drugs on their own soil, according to PBS, the drugs for exports are still “being manufactured in the open.”
A drug addict prepares a needle to inject himself with heroin in front of a church in the Skid Row area of Los Angeles on April 6, 2014. (AP Photo/Jae C. Hong)
The CCP’s policy on these chemicals has allowed illegal drugs to thrive abroad. Mexican cartels produce more than 90 percent of the methamphetamine used

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