Anonymous companies provided a way for China’s economy to bloom, because even though they circumvented government restrictions and helped people avoid taxes, they also minimized economic turbulence and allowed for foreign investment. Tax haven–based companies provided the vehicle for foreigners to invest in Chinese subsidiaries without the difficulty of bringing money directly into the country. In order to buy equipment or make other purchases, Chinese businessmen found it easier to park money offshore, buy the material, and then import it.
Chinese entrepreneurs quickly learned that they could create offshore subsidiaries and then sell their goods to their own companies at low cost. The subsidiary company would then resell the product at a significant markup. This way, the Chinese-based firm reported low taxes in China and repatriated the profits from the resale by its subsidiary back to the country as nontaxable foreign investment. The process was known as “round-tripping.”
Trillions of dollars left China, a fact easily ignored since an exponentially larger amount of foreign direct investment was flowing into the country.
The offshore system also provided a convenient way for the newly wealthy to hide their money and disguise the receipt of illegal payments. Many of the winners in China’s new economy were connected to government officials. Among the most powerful were the so-called princelings, the children of China’s Communist elite, part of what has become known as the “Red Nobility” for those connected by blood or marriage to the country’s leadership, past and present. China does not require officials to disclose their assets publicly. Until journalists—first foreigners and then locals—started hammering away, the activities of the country’s leaders were largely a mystery.
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IN 2012, BLOOMBERG NEWS and the New York Times published a series of articles that revealed the hidden wealth of the families of China’s top leaders, including then vice president Xi Jinping and then prime minister Wen Jiabao. The reporters cut through layers of partnerships and opaque investment vehicles to show how the politically connected gorged themselves on money from state-owned companies and cash from wealthy businessmen seeking favors. China’s authoritarian regime quickly banned access to the two news organizations on the Chinese Internet, a censorship blockade known as “The Great Firewall.” They also opted not to renew a visa for one of the reporters involved.
Now ICIJ was in possession of the hard data to build on these journalistic revelations. No one had ever seen the full breadth of Chinese offshore activities. Nor had local reporters ever taken the lead, in collaboration with foreign colleagues, to delve systematically into such a sensitive subject.
Journalists from the United States, Germany, Spain, Taiwan, Hong Kong, and mainland China crowded together on the second floor of Eliot Hall, a massive and majestic colonial-era building on the University of Hong Kong campus. The meeting was deliberately discreet. The woman in charge of bringing everyone together, Yuen-Ying Chan, a wizened Hong Kong–based journalism professor Cabra calls the “Yoda of ICIJ,” did not tell her university colleagues it was taking place.
Chan was one of the original foreign journalists at the Harvard meeting where CPI’s Charles Lewis had launched ICIJ in 1997. She was also one of the reporters behind its first major exposé on Big Tobacco in 2000. Born in Hong Kong, Chan had worked for twenty-three years for several U.S. media organizations, including the New York Daily News. Upon her return to Asia, she and a colleague exposed the Clinton administration’s tawdry prospecting for campaign cash in Asia. A senior official in Taiwan’s ruling party sued the reporters for libel. Her victory in the lawsuit set an important precedent for independent journalism in Asia, earning her the International Press Freedom Award from the Committee to Protect Journalists. In 1999, she founded the Journalism and Media Studies Centre at the University of Hong Kong, where she quietly helped train a generation of dedicated professional Asian journalists.
Chan enlisted the Hong Kong daily Ming Pao and Taiwan’s CommonWealth Magazine for the project. Both publications were run by editors she knew and could trust. The biggest coup was the inclusion of Caijing, a Beijing-based investigative finance and economics magazine on the mainland known at the time for its independent reporting and elite readership. After the original project’s publication, it had contacted ICIJ requesting to partner on Offshore Leaks.
Caijing actively pushed the boundaries of government censorship. One of its reporters, Luo Changping, had recently exposed the secret financial activities of a top economic planning official. While the magazine had not named the official, Luo did so on Weibo, China’s version of Twitter. Months after the story was published, the official was dismissed.
Caijing demonstrated that if allowed, Chinese journalism could ferret out wrongdoing for the authorities to act upon. At the Hong Kong meeting, it was not clear if Caijing would publish stories—that would depend on what the team found—but it would help in the reporting. The government in Beijing had launched a widely publicized campaign against corruption, and those embarking on the project hoped that their reporting might dovetail with the crackdown.
The first day of the meeting Cabra focused on security. She taught the group how to use an email encryption program called PGP (Pretty Good Privacy) and virtual private networks to shroud the identity of Internet users and how to access the secret ICIJ website where the data could be searched. Code names were created for top officials the group suspected might be found in the data.
The second day focused on the data itself. The original plan was to do batch searching of high-profile names to look for matches, says Alexa Olesen, a China expert who led the ICIJ reporting team. Olesen had a degree in East Asian studies from the University of Chicago and a master’s in Chinese literature from the School of Oriental and African Studies from the University of London. She had spent more than a decade in Asia, including eight years as an Associated Press reporter in Beijing.
“We didn’t know what there would be in the data, maybe real estate, maybe corruption,” she recalls. “It was new territory. The Chinese use of offshore hadn’t been mapped this way before.”
After the meeting concluded, the group gathered for dinner at a seafood restaurant, swapping a square table for a round one. Looking around the table, Olesen remembers feeling excitement. There was a palpable sense of shared purpose. The team had come from places whose political establishments had long been at odds with each other. Yet, here they were, working together, bonded by a common belief that journalism in the public interest could make the world a better place.
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MOSSFON WAS ONE of the pioneers in selling anonymous companies in China. The firm opened a Hong Kong office in 1987, when the city was still a British territory. Panama and Liberia had long been the two most popular jurisdictions for Hong Kong’s elite to hide their money, but when Panama’s Manuel Noriega and Liberia’s Samuel Doe trashed their respective countries, the appetite for offshore companies from these places diminished.
Mossfon set up shop in Hong Kong to promote a new jurisdiction, the British Virgin Islands, which did not have messy political problems. Ramón Fonseca spent a month living in a Hong Kong hotel. He would pick different buildings full of law offices and go door-to-door delivering Mossfon brochures and schmoozing with whoever would listen.
The firm’s office was originally run by an Indian woman, but as the 1997 handover of Hong Kong from the British to the Chinese neared, it became clear the firm needed a native Mandarin speaker to head its efforts. In Panama, Mossfon had enlisted the services of Austin Zhang to help with its translation work. Born Zhang Xiaodong in Shaanxi in northwest China, Zhang had traveled the world, eventually landing in Panama, which has a sizable Chinese population. He was working for a local Chinese-language newspaper when Mossfon hired him as a translator. Zhang received a crash course in the offshore business while spending a year translating documents and brochures. He eventually wrote a booklet in Mandarin on how to set up an offshore company.
In 1997, Zha
ng moved to Hong Kong. His goal was to plant the Mossfon flag on the mainland. He was both bright and driven, and so the partners took a chance and gave him the go-ahead. Within three years, Mossfon had opened its first office in Beijing. Zhang became an acknowledged expert on offshore company creation, quoted widely in Chinese media and invited to speak at state-sponsored conferences on the subject. He was so successful, the firm opened satellite offices around China to market its wares.
China’s economy was expanding rapidly, creating new wealth at an extraordinary pace. Zhang taught clients not only how to hide ownership through offshore companies but why such a service was valuable in the first place. His notes from meetings in the mid-2000s are almost breathless in their excitement over the possibilities.
Reporting back from northeastern China in 2005, Zhang described how there were many rich and well-operated companies. It was important to build ties of friendship, known as guanxi, with local officials. “North Eastern is an important strategic area for China in natural resources, heavy industries, oil, shipping and trade,” he wrote. “The economy will develop fast. This will support our long-term development for providing offshore services and other commercial services to clients.”
Around the same time, one of Zhang’s Chinese colleagues at Mossfon spoke at a conference for exporters and importers. “To lower the political risks, we need to avoid showing the investment is from China,” he told them. “We can ‘filter’ the origin by putting it in a transfer station (subsidiary), presenting it as if it’s from Luxembourg, the Cayman Islands, etc.”
In a meeting a year later with a potential customer who held trademarks for his business in China, Zhang told the man a troubling story. He described the case of a large Chinese manufacturer of wood flooring. According to Zhang, a competitor had instigated a government investigation of the company, which found that its products contained “polluted elements.” If the company had only had an offshore structure, with a trademark held outside China, it would never have been made public who owned it, Zhang explained. The implication was that the company could have dodged the investigation by changing its name and ownership. The potential customer suddenly understood the value of corporate anonymity.
“I could see from his face that he was really excited,” Zhang wrote in his notes, “quite different from his way of talking to me at the beginning when he said there was nothing we could do in his trademark business.”
Zhang and his Mossfon colleagues were in the business of providing solutions for a rapidly changing economic and political situation. For another client, who wanted to invest but was prohibited by government regulations, Zhang suggested the man make his daughter the owner of the company, since she had an American green card.
By far Zhang’s most audacious solution was the creation of fake shareholders, known in the trade as nominee beneficial owners. This was an actual person paid to pretend to own the company. The fake beneficial owner allowed clients to achieve the kind of anonymity that had once existed with bearer shares before they were restricted. Using a fake shareholder or owner, the company could open bank accounts or evade government supervision without anyone but Mossfon knowing who the person really was.
In 2008, Zhang contacted Mossfon’s main office for help in one such arrangement. His Chinese customer wanted a fake owner from Panama. In the requested scheme, the Panamanian nominee shareholder would own and be sole director of a Samoan company for three months. During that time, the Panamanian would register the company in China. After three months, the fake owner would transfer the Samoan company to the actual Chinese owner. For the purposes of the Chinese registry, though, the Panamanian would continue to be listed as the owner. The Chinese government and public would never know who actually owned the company.
The partners were leery of the arrangement. Mossfon had employed fake owners themselves, although rarely, and usually after a degree of due diligence or for particularly well-heeled clients. It was Ramsés Owens at Mossfon Trust who was often behind such machinations. Owens advised Zhang not to do it, even if his competitors did. He told him that Panama had explicitly outlawed such activity.
“Is competition offering NOMINEE BENEFICIAL OWNERSHIP services despite the fact it is a sensitive service?” Owens asked Zhang in his email. “Austin, be very careful.”
(The files indicate that Owens did not take his own advice. A year later, he offered a similar service to Marianna Olszewski, a New York–based financial self-help author. Olszewski wanted to move $1 million she had in a bank account in Guernsey to another country but did not want to have to declare the transfer. Owens offered a “Natural Person Trustee.” His assistant explained that it was “a very sensitive matter” and the “fees are quite high.”)
Zhang affirmed that he had been offering this service for some time. When Mossfon suggested that he use a foundation instead, Zhang dismissed the idea. Local banks weren’t familiar with the structure, he wrote. It would take too long for them to review it and gain approval. In the end, Zhang sent the customer elsewhere.
By that point, he could afford to be more selective. The firm had eight offices on the mainland. In time, Greater China would account for approximately a third of Mossfon’s overall business. And the British Virgin Islands became so popular, it entered the lexicon. To have a “BVI” became shorthand in China for any offshore company, regardless of where in the world it was located.
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ONCE THE ICIJ team discovered what appeared to be members of the Red Nobility in the leaked files, they had to verify that the names actually corresponded to these politically connected individuals. The data contained only basic information with perhaps a few identifying details. In each ICIJ leak investigation, the data was only the beginning of the reporting process. Names had to be checked. Companies researched to learn their activities. Stories filled out. Subjects contacted for comment.
In China, the task was even more arduous—and not only because available public information was limited. Most tax havens did not permit the use of Chinese characters for company, director, or shareholder names. Offshore providers employed Romanized spellings of Chinese names in documents and emails referencing their customers. This often led to confusion. For example, Austin Zhang’s last name in Hong Kong was frequently spelled Cheung. Both names were common ones. In the same way, Wang might be spelled Wong or Ye as Yeh.
Alongside the name of the company owner, the documents often included an identification number specific to mainland China. This helped narrow the search somewhat. The eighteen-digit number, which all Chinese citizens are given, contains the date of birth, sex, and the region where the person was born. Addresses, news reports, public records, and known associates all helped winnow down the possibilities. Nonetheless, sometimes a name could not be confirmed and thus was omitted from the final article.
Portcullis TrustNet, one of the two companies whose files ICIJ’s Gerard Ryle obtained for Offshore Leaks, had moved aggressively into China around the same time as Mossfon. TrustNet cultivated top accounting firms like PricewaterhouseCoopers, Deloitte & Touche, and KPMG. The firm also worked with Swiss banks including UBS, which created more than one thousand offshore structures for clients in Hong Kong, Taiwan, and mainland China.
In the data, the team found relatives of at least five current or former members of China’s Politburo Standing Committee, which rules the country through its leadership of the Communist Party. Deng Xiaoping’s son-in-law was present. So was the son of one of the Eight Great Eminent Officials, a group of elders who held sway in the Communist Party in the 1980s and ’90s. Both the son and son-in-law of former premier Wen Jiabao had companies in the data. Wen’s son Wen Yunsong created one BVI company with the help of Credit Suisse. The information further punctured the carefully crafted image of Wen Jiabao, who stepped down in 2013, as a grandfatherly reformer concerned with the well-being of the poor.
Not surprisingly, the wealthiest and most connected used multiple incorporators. Deng Jiagui, a succ
essful developer who was the brother-in-law of China’s president, Xi Jinping, owned half of Excellence Effort Property Development, a BVI company registered by TrustNet. The other half was owned by a pair of real estate tycoons who benefited from winning government land auctions worth billions of dollars. Deng Jiagui also dealt with Mossfon. He acquired three companies from the Panamanians between 2004 and 2009.
Li Xiaolin, the daughter of Li Peng, China’s former premier, had the distinction of appearing in nearly every leak investigation ICIJ conducted. Her father earned the nickname “the Butcher of Beijing,” for overseeing the brutal repression of pro-democracy protesters in 1989. A senior engineer with a taste for luxury goods, Li Xiaolin is known as “the Power Queen,” for her job leading a state-controlled energy company. Her interests have also strayed into other lucrative activities such as secretly helping a multinational insurance company break into the Chinese market. She was a director of two TrustNet companies, and her HSBC Swiss bank account held almost $2.5 million in 2006–2007. She also had a Mossfon company with her husband that exported industrial equipment from Europe to China.
Of all the Chinese elites with connections to ICIJ’s leaked data, none was more notorious than Bo Xilai. His story neatly captures the combination of corruption and hypocrisy that is perhaps the greatest gift the secrecy world affords China’s rulers. Bo was the son of Bo Yibo, an associate of Mao Zedong and one of the Eight Immortals of the Communist Party of China. Both father and son suffered cruelly during the Cultural Revolution. Deng Xiaoping rehabilitated the father and set Bo Xilai on a course that led him into government.
As mayor of Dalian in the 1990s, Bo Xilai transformed the port city into a prosperous metropolis that attracted foreign investment and tourists. In 2007, he was appointed party chief of Chongqing, a city-province with a population of thirty-three million known as “Fog City.” From this position, he launched a vicious and high-profile anticorruption crusade dubbed “Smash the Black.” His main henchman was the local police chief, Wang Lijun, the star of Iron-Blooded Police Spirits, a TV reality series.
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