China’s latest tactic in Operation Fox Hunt, its campaign to force those who have fled abroad to return to face corruption charges, has had the extraordinary, if unintended, consequence of uniting America’s bitterly divided political elite. Last June, the American wife and children of accused fraudster Liu Changming were detained in China after a brief visit; his wife held in a “black site” and his children barred from leaving. The ostensible the reason for holding them is because they are being investigated for “economic crimes,” but almost surely, as the family claims, the real reason is to pressure paterfamilias Liu to return to China to stand trial for corruption offenses. Trump National Security Advisor John Bolton, avowed Trump opponents Senator Elizabeth Warren and Congressman Joseph P. Kennedy III, and leaders of Harvard and Georgetown universities are all demanding the Americans be permitted to leave China at once (accounts here and here).
Holding family members hostage to force a relative to surrender to authorities is a species of collective punishment, a patent human rights’ violation universally condemned by the world community. No wonder the Boltons, Warrens, Kennedys, Harvards and Georgetowns find themselves on the same side of the issue.
Reporting by the New York Times, however, suggests that there could be more to the case than appears at first glance. That there may be reason for both the Chinese government and the strange bedfellows its policy has created in opposition to examine their actions in view of the global fight against corruption. The Times reports the family lives in a $2.3 million home in a Boston suburb and that through a series of trusts and corporate vehicles registered using the Boston address, Liu’s wife Sandra Han controls or at least has her name associated with a $4.17 million place on Manhattan’s Upper East Side, a $2.77 million condo in Lower Manhattan, and other properties together worth at least $10 million. The wife and children say they severed ties with Liu in 2012. The Times reporters nonetheless found a “Changming Liu” is “linked” to the same home his daughter lists on her Harvard Business School alumni page.
The Times is careful to say it has no evidence that any of the family’s wealth comes from the proceeds of corruption. At the same time, the reporters explain what the Chinese call “the naked official,” a government employee who moves his or her family to a country with good schools and an easy path to citizenship while he or she proceeds to loot the government treasury. In 1998, as Liu was rising through the ranks of China’s Bank of Communications, his wife and daughter relocated to California. Liu and his wife bought a condominium in an upscale Los Angeles suburb in 1999, around the time the son was born, and in 2004, with Liu continuing to climb the bank’s corporate, they traded up to a home in a gated-community in Armonk, New York.
In 2007, a massive fraud was uncovered at the bank, and Liu was charged with making fraudulent loans of some $1.4 billion, an unknown amount of which was allegedly loaned to companies he secretly owned. Liu fled China and remains in hiding.
Like the Times, this writer has no evidence that the Liu family has violated any law, Chinese or American or that any of the real estate it owns was purchased with money from criminal activities. But as an exercise, suppose what the Times seems to hint at in its article were true. That the wealth Liu Changming’s family enjoys is not from hard work, investment acumen, luck, or some combination but from Liu’s alleged bank fraud instead. If this were the case, might Bolton et. al.’s condemnation of Chinese actions require some nuance?
It might be objected that the wife and children naïvely assumed that they were simply the beneficiaries of the high salary Liu senior was paid as a bank executive. But while non-Chinese might not think it unusual for the family of a bank executive to afford the lifestyle the Times describes, it is a different case in China. Today, Chinese bankers make only a fraction of what counterparts in other countries earn, and in the late 1990s and early 2000s salaries would have been an even smaller fraction.
On these facts, the wife might well have known her husband’s salary couldn’t cover the cost of the LA condo, the Armonk home, and the expenses the family incurred splitting its time between China and the U.S. Even if she didn’t know, she would surely have suspected something was up and either deliberately avoided learning the money’s origin or was purposefully indifferent to its source, terms readers will recognize as describing “willful blindness,” the equivalent under American of actually knowing the funds were the proceeds of crime, and thus sufficient to convict an individual of the money laundering.
Following through the exercise that assumes Liu’s family lived off money Liu allegedly obtained through bank fraud, if the family purchased property in the U.S., its members could be charged with violating American anti-money laundering law. A purchase might have violated China’s AML statute, or other Chinese law making it a crime to be the knowing beneficiary of a crime. If so, the government’s claim it is investigating the Liu family for economic crimes would be true, and grounds would exist for detaining them at least temporarily (though of course not in a black site).
If China had legal grounds for holding Liu’s family, and was using their detention to force his surrender, it would seem not that different from U.S. prosecutors’ tactic of pressuring a criminal defendant to plead guilty by threatening to press charges against a relative. A practice so common it has gained its own moniker, a “wired plea.” Challenges on human rights grounds to wired pleas are routinely rejected by federal courts; and in an opinion joined by now U.S. Supreme Court Justice Ruth Bader Ginsburg, the U.S. Court of Appeals for the District of Columbia unequivocally ruled that “plea wiring does not violate the Constitution.” The judges conceded that the practice can appear distasteful but concluded that threatening to put a family member on trial for offenses associated with the main defendant’s offense “does not seem to be the sort of widely-shared intuition upon which a constitutional rule should be based.”
There are clear differences between the hypothesized situation of the Liu family situation and those involving wired pleas in American federal courts. Most obviously the human rights dimension. With a wired plea, the prosecutor must have a good faith basis for charging or threatening to charge a suspect’s relatives, and even a hint that the relative had been mistreated or abused physically would result in the case being thrown out. In holding Liu’s wife incommunicado in a “black site” with no information on where she is or the conditions of her detention, Chinese authorities have gone far beyond any action an American prosecutor could even contemplate let alone take.
Furthermore, the Chinese have given no indication of how the wife will be held in the black site or when the children will be allowed to leave China. If Liu senior never surrenders (perhaps he has passed away under a false identity) will the family be held indefinitely? Moreover, the latest IMF review of Chinese AML law suggests Chinese law does not criminalize the purchase of property abroad with the proceeds of corruption in China, and at least to one limited to English language searches of Chinese law, no other Chinese law surfaces under which the Liu family could be charged. Hence, there would seem to be no crime for which a Chinese prosecutor could claim the need to hold the family pending the completion of an investigation.
The value of conducting an exercise such as the one above is that it can show where reforms are necessary. In the one based on the hypothetical case involving the Liu family’s plight, the need for several is apparent.
First and most obviously, the Chinese government should be sure that the knowing receipt or use of corruption proceeds is a crime. The anti-money laundering laws provide one avenue; they could be amended to criminalize the purchase of property anywhere in the world from funds an individual knows to be the proceeds of a crime, or who remains willfully blind to the funds’ origin. A second approach would be to borrow from a Nevada state statute, substituting “corrupt official” for “prostitute” in its law making any person who “knowingly accepts, receives, levies or appropriates any money or other valuable thing, without consideration, from the proceeds of any prostitute” a felon. Other approaches are available too. Whichever one the Chinese choose, it would give their prosecutors, where the facts warrant it, a good-faith basis to charge a corruption suspect’s family, mistress, or other who knowingly live off or benefit from criminal money with a crime.
Were the Chinese to couple such a law with the responsible treatment of those suspected of violating it, putting an end to such practices as detention in black sites, they would have a way to pressure suspects to return or to coax a family member into disclosing where they can be found without raising the serious human rights objections their current tactic does. Or at least if critics use U.S. jurisprudence as the touchstone.
For those in the international community who find that jurisprudence, as now Justice Ginsburg and colleague conceded, “distasteful,” who are appalled by the practice of threatening to prosecute a suspect’s relative to force him or her to surrender, the imagined facts in the Liu hypothetical offer a lesson as well. The need to press nations where corrupt officials and their families flee to introduce civil unexplained wealth orders of the kind the United Kingdom recently enacted and guest blogger Hamid Shariff urged other nations copy in last week’s post. Such a law attacks the wrong, living off the proceeds of another’s crime, directly.
So long as corrupt Chinese officials, or officials in any country for that matter, think “going naked” is a viable strategy, they will continue trying it. And governments victimized by it will continue to look for ways to counter it. In laying the groundwork for what ultimately became the unexplained wealth law, the British government asserted that “removing assets from those living off the proceeds of crime is a valuable end in itself in a just society.” There can be no gainsaying that claim. The challenge is to ensure the means for seeking that end are consistent with rule of law principles and respect for human rights.