World Economy

Money Laundering Investigation Stymied by China

Money Laundering Investigation Stymied by ChinaMoney Laundering Investigation Stymied by China

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.

  Perils of Non-Cooperation

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.

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 US lawsuit brought by Converse Inc., which says the Wenzhou company sent tens of thousands of fake sneakers to the US and Croatia.

The perils of non-cooperation are becoming clearer as Chinese businesses go global.

Chinese companies have invested $46 billion in the US 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 US financial markets, with the 2014 IPO of e-commerce giant Alibaba ranked the largest in history.

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 US according to the party’s Central Commission for Discipline Inspection.