Report outs China elite's offshore banking accounts

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BEIJING -- This was supposed to be the week the ruling Chinese Communist Party crushed a nascent popular movement that has pressed for fuller disclosure of the hidden wealth of party leaders.

The crackdown wasn't very well-timed. As Chinese authorities were launching the closed trial of a prominent leader of the New Citizens Movement, a group of international journalists released investigative reports detailing how many Chinese leaders and their families have hidden some of their vast wealth in the British Virgin Islands and other places offshore.

The reports, compiled by the International Consortium of Investigative Journalists, reveal a greater scope of offshoring by China's political elite than had previously been reported. Having spent six months poring over a cache of 2.5 million leaked files, the consortium found that 22,000 Chinese had taken advantage of offshore tax havens. Among those were Deng Jiagui, brother-in-law of Xi Jinping, China's president and Communist Party chairman; Wen Yunsong, the son of former Premier Wen Jiabao; and Li Xiaolin, the daughter of former Premier Li Peng.

"Chinese officials aren't required to disclose their assets publicly, and until now, citizens have remained largely in the dark about the parallel economy that can allow the powerful and well-connected to avoid taxes and keep their dealings secret," said the report, a project of the Center for Public Integrity. "By some estimates, between $1 trillion and $4 trillion in untraced assets have left the country since 2000."

Previous reports by The New York Times and Bloomberg News have opened a window into the riches and lifestyles of Chinese leaders and their families, often referred to as "princelings" in Beijing. China's use of tax havens for various financial transactions has long been tracked or reported on by the International Monetary Fund and other groups.

But the investigative journalists' reports add to the revelations by offering insight into the illicit use of tax havens by the Chinese elite, said Brian LeBlanc, an economist at Global Financial Integrity, a Washington organization that tracks transfers of wealth from developed and developing countries.

"The use of shell corporations and hidden bank accounts suggests that the amount of wealth truly held by Chinese residents in tax havens could be substantially understated," Mr. LeBlanc said in an email. He said numerous questions remained about how such vast amounts of money were able to be transferred to tax havens without catching the attention of Chinese bank regulators.

For China's ruling party, revelations about elite offshoring of wealth are damaging in several ways. They conflict with official policy that homegrown wealth should be reinvested in China's infrastructure and development. They also threaten to fan a popular backlash against a party that is making a big show of cracking down on cronyism.

That fear of unrest is seen as a driving reason China has retaliated against several foreign journalists who write about the wealth of party leaders. It has blocked the websites of The New York Times and Bloomberg from Chinese viewers. This week, the International Consortium of Investigative Journalists and The Guardian reported that their websites had been blocked as well, after they published reports about the "People's Republic of Offshore" investigation.

The day before the first report was issued, Internet usage in China was disrupted for hours in an incident that Chinese media initially blamed on hackers. Western experts, however, later disputed that claim. Some accused China's censors of inadvertently causing the glitch by diverting traffic to -- instead of attempting to block traffic from -- a website affiliated with the banned Chinese group Falun Gong.

Mr. LeBlanc said much work needed to be done to determine how wealthy Chinese were able to route their riches out of a tightly controlled country into tax havens. One possible way, a form of money laundering, he said, is for well-connected Chinese to obtain false trade invoices with importers and exporters.

His group estimates that roughly 90 percent of the $1.08 trillion in illicit financial flows that left China during the decade that ended in 2011 were transferred through importers and exporters who had altered invoices.


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