China In U.S. Courts: Not New, but...What Happened?



On July 30, @Kate_OKeefe and @aviswanatha’s article “China’s New Tool to Chase Down Fugitives: American Courts” appeared in the WSJ:





The article reveals troubling facts about CCP authorities’ efforts to go after wayward Party members holding roles in state-owned companies (including that the CCP authorities investigating a manager’s alleged corruption threatened to put his toddler son up for adoption).


However, the key issue presented by the facts as reported isn’t addressed. Who is going to go after the more interesting story behind the cases the WSJ discusses?


To do that, one has to realize that the story’s headline & premise are simply incorrect. China has been looking to U.S. courts as a means of retrieving stolen state assets for almost two decades. Use of the U.S. legal system to hold PRC fugitives to account is most emphatically NOT new.


Examination of the Bank of China Kaiping Branch embezzlement case underscores this fact and also illuminates what the @WSJ piece overlooks: To recap, three managers at a BOC branch in Southern China ran an embezzlement scheme from 1991-2001 (!) that skimmed over $485M from the Bank. The BOC employees wagered millions at casinos in Asia and North America; chartered planes; tipped lavishly; and as part of their plan to flee to the U.S., entered into false marriages with American citizens to secure citizenship/residence. The PRC Embassy in the United States said that it was the biggest bank embezzlement case since the founding of “New China” in 1949. 


The U.S. took China’s concerns seriously and played an active role in helping bring the crooks to justice. In 2003, one of the embezzlers was arrested by US authorities. In 2004, @jonathanwatts reported for The Guardian that another of the embezzlers had been extradited (!) from the US to China to stand trial. The NewYork Times reported in 2006


Details of the elaborate Kaiping embezzlement have emerged in a series of civil and criminal cases that show how some of the missing funds were transferred from the Bank of China branch at Kaiping to Hong Kong and invested in property or laundered through casinos in Macao and Las Vegas.” (emphasis added) 

To sum up, PRC, Hong Kong and U.S. authorities engaged in a coordinated effort for a number of years to deal with these bad actors, including through use of the U.S. legal system. When in 2009 the embezzlers still remaining in the U.S. and their various wives (fake and real) were convicted in a trial in a U.S. federal court, the DOJ press release painted an impressive picture of the extensive and close collaboration that had resulted in the case’s resolution: 


The U.S. Attorney’s Office for the District of Nevada provided significant support for the prosecution and coordination of witnesses from throughout the United States and overseas.  The case was investigated by the FBI’s Las Vegas Field Office and U.S. Immigration and Customs Enforcement of the Department of Homeland Security.  Essential support was also provided by the FBI’s offices in Beijing and Hong Kong.  The government of the People’s Republic of China, in particular the Ministries of Justice and Public Security along with the Hong Kong Department of Justice and Hong Kong Police Force, also provided substantial assistance in producing evidence and making witnesses available, both for testimony at trial and videotaped depositions. (emphasis added)

Contrast the picture that emerges from the BOC Kaiping case, which involved extradition of one of the accused back to China, to the current situation as reported by the WSJ with an unidentified U.S. official quoted as saying “We would be concerned about any evidence that would suggest that Chinese state-owned enterprises are bringing lawsuits in the United States in an effort to pressure individuals to return to China.” 


So, the big issue isn’t that PRC state-owned entities are using U.S. legal proceedings to go after ill-gotten gains. The critical question is why there is apparently no longer close cooperation amongst U.S. legal authorities and those in the PRC in pursuing corrupt actors hiding funds in the U.S.? Why is the PRC surreptitiously sending agents to the U.S. to go after errant PRC nationals instead of working with the FBI, as it has in the past? 


The obvious possibility (deterioration in the PRC-US relationship) isn’t particularly illuminating. What would be is the story of how this happened. Was it a slow unraveling as the overall relationship frayed? Did the “wolf warrior” rhetoric exchanged by the Ministry of Foreign Affairs with their U.S. counterparts make the Ministry of Justice personnel less willing to be seen as collaborating with their U.S. counterparts? Maybe it is simply the trust is broken.


The WSJ’s reporting does suggest an interesting CCP-driven angle that would be worth exploring, as it might explain at least part of why SOEs are directly filing suit in U.S. courts instead of relying on the Ministry of Justice to pursue international cooperation. Recall, the WSJ reports that it’s the Central Commission for Discipline Inspection that is behind these ‘new’ efforts. 


What the WSJ doesn’t make clear is that the CCDI is not a government agency -- it’s part of the Party apparatus and in fact holds the most potent enforcement powers against bad actor CCP members. In fact, in cases of bribery/corruption involving Party members, the CCDI takes the lead in both investigation and discipline. The People’s Procuratorate (the prosecutor) and court system get involved only after the CCDI has completed the Party’s disciplinary process. 


So, if the WSJ reporting is correct, the fact that it’s the CCDI going after the allegedly dirty SOE managers and their families, rather than the Ministry of Justice (in tandem with the Ministry of Foreign Affairs), that is an indication of the CCDI’s continued rise in importance and power in the Xi era.


Moreover, the choice by an SOE like Changsha Metro Group (which would have required board approval) to commence expensive litigation (Skadden no less!) against its former CEO may be an indication the Board members and other senior executives are attempting to show their good faith (and the absence of negligence or complicity with Peng’s crimes). In other words, as is so often the case with China, what occurs outside of China’s borders is often driven by concerns about what is (or may be) happening internally in China: in this case, the possibility of Party members' falling afoul of the neo-mass movement energy the CCDI is manifesting in the Xi era.  


One final thought: various observers have criticized SOE’s use of American courts in pursuing alleged kickbacks and corporate theft schemes. To that I say ‘meh’. The more significant China-US legal development this week is the news reported by the South China Morning Post that American citizen Simon Chu is now a suspect, alleged to have violated Hong Kong’s new National Security Law.



Now THAT is troubling.




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