Money laun­der­ing in­ves­ti­ga­tion stymied by main­land China, Italy says


As Italy’s econ­omy was head­ing off a cliff, po­lice couldn’t help but no­tice that the coun­try’s Chi­nese com­mu­ni­ties were boom­ing. Luxury cars rolled past Chi­nese bet­ting par­lors and gar­ment fac­to­ries. Chi­nese im­mi­grants were buy­ing up Ital­ian cof­fee bars and real es­tate. Their pros­per­ity, how­ever, was not re­flected in lo­cal tax records.

“What do they do with the money?” said Pi­etro Suchan, then deputy public pros­e­cu­tor in Florence. “Do they eat it?”

The an­swer, af­ter a four-year in­ves­ti­ga­tion by Italy’s fi­nan­cial po­lice, was no. They dis­cov­ered that more than 4.5 bil­lion eu­ros ($4.9 bil­lion) — the pro­ceeds of coun­ter­feit­ing, pros­ti­tu­tion, la­bor ex­ploita­tion and tax eva­sion — had been smug­gled out of Italy to China in less than four years us­ing a money-trans­fer ser­vice. Nearly half that money was fun­neled through one of China’s largest state banks, the Bank of China, which earned more than 758,000 eu­ros in com­mis­sions on the trans­fers, ac­cord­ing to Ital­ian in­ves­tiga­tive doc­u­ments ob­tained by The As­so­ci­ated Press.

Bei­jing, which is seek­ing West­ern help in hunt­ing its own eco­nomic fugi­tives, did not co­op­er­ate with the in­ves­ti­ga­tion, Ital­ian of­fi­cials said.

Once the money left Italy, it van­ished be­hind China’s great legal fire­wall.

De­spite the deep eco­nomic ties be­tween China and the West, in­con­sis­tent co­op­er­a­tion, in­com­pat­i­ble legal sys­tems and China’s se­crecy laws have al­lowed crim­i­nals to glob­al­ize more ef­fec­tively than law en­force­ment — and made it harder for West­ern com­pa­nies and courts to put them out of busi­ness.

“We did not have the pos­si­bil­ity, de­spite many at­tempts made, to have an of­fi­cial con­tact with the ju­di­cial au­thor­i­ties and po­lice of China,” said Suchan, who over­saw the in­ves­ti­ga­tion. “We have dis­cov­ered 50 per­cent of the truth.”

China’s for­eign min­istry said in a faxed state­ment that Chi­nese au­thor­i­ties knew noth­ing of the Ital­ian case. “China is al­ways com­mit­ted to deep­en­ing law en­force­ment co­op­er­a­tion with other coun­tries, jointly crack­ing down on transna­tional crimes and pun­ish­ing crim­i­nals,” the min­istry wrote.

The AP has traced some of Italy’s miss­ing money to an im­port-ex­port com­pany owned by the Chi­nese gov­ern­ment. The com­pany, Wen­zhou Ce­re­als Oils and Food­stuffs For­eign Trade Cor­po­ra­tion, has been ac­cused of re­peat­edly ship­ping coun­ter­feit goods, some to the United States. But it has also taken shel­ter be­hind the fire­wall, re­fus­ing to re­spond to a U.S. law­suit brought by Con­verse Inc., which says the Wen­zhou com­pany sent tens of thou­sands of fake sneak­ers to the U.S. and Croa­tia.

Per­ils of Non-Co­op­er­a­tion

That fire­wall has also helped coun­ter­feit­ers use ma­jor, state-run Chi­nese banks as fi­nan­cial shel­ters on a sig­nif­i­cant scale, AP found in an ar­ti­cle pub­lished last month. The banks, in­clud­ing the Bank of China, have pro­cessed credit card pay­ments for on­line sales of fake goods and held ac­counts for coun­ter­feit­ers.

West­ern com­pa­nies that have pur­sued Chi­nese coun­ter­feit­ers in the U.S., where many fakes are sold, have been blocked by China’s se­crecy laws. The banks say they are caught in a juris­dic­tional dis­pute be­tween the U.S. and China, which main­tains that bank se­crecy is a mat­ter of na­tional sovereignty.

The per­ils of non-co­op­er­a­tion are be­com­ing clearer as Chi­nese busi­nesses go global. Chi­nese com­pa­nies have in­vested $46 bil­lion in the U.S. since 2000, mostly in the last five years, ac­cord­ing to the Rhodium Group, a New York re­search firm. Chi­nese banks have ex­panded their reach, open­ing over­seas branches and buy­ing stakes in for­eign banks. Chi­nese firms have vo­ra­ciously tapped U.S. fi­nan­cial mar­kets, with the 2014 IPO of e-com­merce gi­ant Alibaba ranked the largest in his­tory.

In the shadow of this rapid ex­pan­sion, a quiet war is brew­ing over whose rules will ap­ply. At is­sue is how much China will ad­here to ex­ist­ing norms, forged largely by West­ern pow­ers, and how much it will try to re­shape them on its own terms.

“Chi­nese fi­nan­cial in­sti­tu­tions can ef­fec­tively op­er­ate be­hind a fire­wall that keeps them largely im­mune from the ju­ris­dic­tion of U.S. courts and reg­u­la­tory agen­cies, leav­ing U.S. part­ners, com­peti­tors and in­vestors vul­ner­a­ble,” ac­cord­ing to a re­port last month from the U.S.-China Eco­nomic and Se­cu­rity Re­view Com­mis­sion, which ad­vises Congress.

Ju­di­cial co­op­er­a­tion has be­come a top pri­or­ity for China’s Com­mu­nist Party, which is ramp­ing up ef­forts to repa­tri­ate cor­rupt of­fi­cials who have fled over­seas. In April, China launched a new ini­tia­tive, “Skynet,” to trace fugi­tives and their over­seas money and re­leased a list of its 100 most wanted eco­nomic crim­i­nals. Forty of them are thought to be in the U.S, ac­cord­ing to the party’s Cen­tral Com­mis­sion for Dis­ci­pline In­spec­tion.

The Ital­ian case re­mains stalled, how­ever, as pros­e­cu­tors try to lo­cate 300 de­fen­dants, most of them Chi­nese. The Bank of China said it had “no clues of the al­leged crim­i­nal ac­tiv­i­ties un­der­ly­ing the trans­fers of money.” Lawyers for Money2Money, the fi­nan­cial trans­fer ser­vice, said their clients are not guilty.

Many of the trans­fers, frac­tioned into small sums to avoid scru­tiny, were a way for Chi­nese im­mi­grants to avoid pay­ing taxes, ac­cord­ing to hun­dreds of pages of court doc­u­ments re­viewed by The As­so­ci­ated Press. Other mi­grants were caught with heaps of coun­ter­feit purses and shoes. Po­lice also traced money to men run­ning Chi­nese pros­ti­tu­tion rings.

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