Chinese Corruption Case Highlights U.S. Crackdown On Bribery

A fallen former official who is adjudged a flight risk. Alleged dodgy dealings in rural Africa. Almost $3 million in bribes. A mystery Chinese tycoon and a billion-dollar Russian oil deal.

Hong Kong is rapt with attention over the case of Patrick Ho Chi-ping, the city’s one-time Home Affairs secretary, a cabinet-level position. Ho stands charged with violating the Foreign Corrupt Practices Act, at times while standing in the halls of the United Nations. The Hong Konger has been denied bail, a judge ruling he is rich enough and has motive to flee. So for the time being Ho resides in a U.S. jail. His lawyer said he would appeal the decision.

It is likely that more and more similar cases will be brought against Chinese citizens and companies in particular. Investors need to beware the situation, and be aware that single-company risk in China is more-significant than almost anywhere else on the planet. A good argument for index funds, if ever I heard one.

The Department of Justice is keen to display its newly muscular approach to corruption, Pei-li Wong, managing director and the leader of the Asia forensic desk at BDO USA, toldReal Money.

It likes to make a public splash with headline cases “to motivate companies to voluntarily declare misconduct,” Wong says, which can then result in reduced fines and penalties.

There has been an uptick in the number of enforcement actions by the department since it doubled the size of its Foreign Corrupt Practices Act prosecution team in 2016. That’s when it began a pilot program to promote transparency in bribery prosecutions, making them more obvious both in crime and punishment to the public, and to encourage self-confession.

The case against Ho is intricate and mainly involves the United States, simply because funds were funneled through its banking system. If proven, this makes it international money laundering. But the alleged scheme also taints, if proven, China’s Belt and Road initiative to build infrastructure linking China with the world to its west.

The U.S. Department of Justice says Ho acted as a front for a Chinese energy company, which, it says, via him bribed the president of Chad, as well as the president and foreign minister of Uganda to win business. The department alleged that this attempt to secure an “improper advantage” sought to sweeten the foreign officials to use their influence within their respective governments to funnel work to the energy company.

In late November, Chad rejected the allegations, calling them “a fierce attack against our head of state.”

Wong at BDO says it’s common for companies to use middlemen or third parties to bribe foreign officials. Even gifts, internships for relatives or free trips to Disneyland can qualify of bribery, she explains. Cold hard cash is still the simplest manner.

Besides the Foreign Corrupt Practices Act, companies can also be accused of racketeering under the Racketeer Influenced and Corrupt Organizations Act if they run afoul of the “books and records” provisions maintained by the U.S. Securities and Exchange Commission.

The racketeering laws kick in for the SEC if a public company identified a bribe on its books as, say, a cost of goods sold. U.S. authorities have “multiple tools to go after a company,” Wong notes — and appear more and more willing to do so.

To make matters even more worrisome for companies operating in emerging economies, it is not always clear who exactly counts as an “official” of a foreign government.

In countries such as China, where many companies and institutions are owned or backed by the state, business transactions in the telecommunications, infrastructure and oil and gas sectors are particularly fraught. Even business dealings with doctors, nurses, and employees of other state-controlled institutions could be ruled as involvement with a representative of a government entity.

Ho, who was arrested in New York on Nov. 18, faces up to 20 years in prison if convicted. He stands accused alongside Cheikh Gadio, the former foreign minister of Senegal, who was arrested the day before. Gadio started running a consulting company after leaving office, and the U.S. government says he was also part of the “conspiracy.” It has filed charges in the Southern District of New York, where the United Nations is based.

The complaint says Ho met both Gadio and the Ugandan foreign minister at the United Nations in 2014. Gadio allegedly told Ho to “reward” the president of Chad with a “nice financial package.” That was a bribe “to obtain valuable oil rights,” the U.S. authorities say.

Idriss Déby has been the president of Chad since 1990, including the period involved in the complaint.

Ho then arranged for the Chad president to receive a cool $2 million bribe from the energy company, the complaint states. In return, the president of Chad allowed the Chinese company to bid on rights to a large oil field, Bloc H, without facing any international competition, the authorities allege.

That was even though Brazilian interests had allegedly bribed other Chadian officials to win the same rights, before the president personally settled the matter, according to the allegations. Gadio also allegedly told Ho by email that “time may be of the essence” with the bribe because “several companies are knocking at his door including American and Australian aggressive businessmen!”

Ho, the complaint says, “impressed” the president with his offer of “secret or very confidential financial assistance” for his “political campaigns” and to set up a trust for him and his “social programs” and “military equipment.” In an email, Ho allegedly said the $2 million was a “donation” to the president at his “personal disposal” to support “social and other programs” as he sees fit.

Ho also allegedly paid Gadio $400,000 for his time by wiring money from Hong Kong via New York to a Dubai bank account that the Senegalese man selected. Gadio’s Dakar-based consultancy promotes its ability to open doors in Africa thanks to Gadio’s “broad network” and “strategic connections.” Gadio, who calls himself a personal friend of Déby, thought the Chinese were short-changing him for using his close connections to their benefit, the complaint explains. But he accepted $400,000 in the hopes of further business to come, the document shows.

Ho also allegedly wired $500,000 to the Ugandan foreign minister. The Ugandan minister, for his part, allegedly appointed the chairman of the Chinese energy company as a “special honorary advisor” to the president of the U.N. General Assembly – a post the Ugandan just happened to hold. The roles held identify the unnamed Ugandan in the complaint as Sam Kutesa, who is still Ugandan’s minister of foreign affairs.

This was also supposed to be a long-term arrangement, according to the U.S. Department of Justice. It says Ho gave gifts and promises of “future benefits” to the Ugandan foreign minister and the president of Uganda. The energy company offered to share the profits of a potential joint venture in Uganda with businesses owned by the families of both Ugandan men.

The Ugandan bigwigs are related: Kutesa’s daughter is married to Ugandan President Yoweri Museveni’s son. They were allegedly lining up for the Chinese company to buy a Ugandan bank, for starters, the complaint says.

Uganda said its foreign minister had acted “in fulfillment of his official functions as president of the U.N. General Assembly”. “It is therefore erroneous to insinuate or infer that Hon. Sam Kutesa, from references made to him and CEFC…is linked to the bribery allegations,” the Ugandan foreign ministry said in a statement.

The complaint does not name the Chinese oil company but instead says it is a “Shanghai-headquartered multibillion-dollar conglomerate” operating internationally in energy and finance. It says Ho runs a non-governmental organization based in Hong Kong and Virginia that is both funded by the energy company and has “special consultative status” to the United Nations.

Ho heads the China Energy Fund Committee, or CEFC, an organization funded by CEFC China Energy. It has headquarters in Hong Kong and Virginia, as well as that U.N. status. That would make the Shanghai-headquartered conglomerate the Shanghai-based company CEFC China Energy. The company denied any wrongdoing, saying in a statement that it “conducts its business activities in strict accordance with the law.”

Ho, who is married to the Taiwanese actress Sibelle Hu, served as Hong Kong’s Home Affairs secretary from 2002 to 2007. He also then served on the Chinese People’s Political Consultative Conference, part of China’s largely rubber-stamp Congress.

The Department of Justice said, in beginning its pilot transparency program, that making bribery cases high-profile should help companies to “make more rational decisions when they learn of foreign corrupt activity by their agents and employees,” ideally revealing it to authorities.

“If a company opts not to self-disclose, it should do so understanding that in any eventual investigation that decision will result in a significantly different outcome than if the company had voluntarily disclosed the conduct to us and cooperated in our investigation,” the department warned rather ominously.

The department’s criminal division will fight to prosecute “corrupt individuals who put at risk a level playing field for corporate competitiveness, regardless of where they live or work,” acting Assistant Attorney General Kenneth Blanco said about the Ho case. “Their bribes and corrupt acts hurt our economy and undermine confidence in the free marketplace.”

Author: Alex Frew McMillan

Source: RM