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#Anti Money Laundering

Who are China’s ‘problem rich’? (1)

International Compliance Association

China , PEPs , rich

The Hurun Report has been producing an annual list of China’s wealthiest people for the past 15 years, based upon estimations of how rich someone is according to the information made public about them. Both the Forbes and Hurun lists agree that Wang Jianlin is China’s richest man with somewhere between USD14bn and USD22bn under his control. Putting aside the trifling USD8bn difference for a moment, a new small but significantly wealthy and connected group of people has emerged in China. The so called ‘problem rich’ are under the spotlight for all the wrong reasons.
 
A report on the NTD television has claimed that 27 members of China’s rich list have been jailed in the past ten years. Their crimes fell largely into three categories: corruption and bribery - seven of the defendants here were charged with offering a bribe to an entity or individual; property violation, including embezzlement; and disrupting the managerial order of companies and enterprises. 
 
There is a further set of corroborating factors which, when connected to the Hurun rich-listings, could provide some interesting avenues for enhanced due diligence (EDD). Wealth on this level is a relatively new phenomenon in China. Most, if not all, of the people on this list did not inherit their money; they have made good - or bad in some cases - on China's liberalised economic policies which have allowed them to become entrepreneurs. 
 
A large number of China’s extremely wealthy, and plain old ordinary wealthy, have connections at some level to the state. Research carried out by the Shanghai Academy of Social Sciences found that the parents of 15.6% of China's nouveau riche were party activists, and that a large number of the wealthiest citizens had previously worked at, and often ran, state owned enterprises.  The connections run straight to the top of the party apparatus, with three children of high ranking party cadres being worth around USD1.6tr in 2011, according to research carried out by Bloomberg. This diagram makes simple the complex web of connections between eight of the so called ‘red nobility’ and highlights some interesting links.
 
Sources of information on politically exposed persons (PEPs) are constantly updating and new sources need to be assessed for their credibility and integrity. There is no point in adding a series of rumour based info to your register of folks worthy of EDD if the information will only end up spewing out a series of false positive results or even misdirection which could lead to an incorrect risk profile and waste time and resources.
 
NTD is the New Tang Dynasty media outlet, based in the US and founded by Chinese Americans and claims to provide uncensored news on China to the Chinese diaspora. The full list of the 27 who have been jailed is not part of the news programme, unfortunately, but some of the names included are in the report.
 
Ding Shumiao, a Shanxi businesswoman indicted for bribing Liu Zhijun, a former Minister of Railways with RMB49m. Zhou Zhengyiand Zhang Rongkun, former billionaires from Shanghai, are now serving 16 and 19 years respectively. More information on the people connected to Zhou Yongkang, who may or may not have appeared on previous Hurun lists, is here. Zhou has held various positions in government and state enterprises and is under investigation for corruption, implicating several members of his family in the probe.  
 
Although you could spend time searching through the Hurun lists of the past 15 years to track down the 27 offenders, its website was unavailable at the time of writing. The link is here for future reference.


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