CAPITALISM'S ACHILLES HEEL Dirty Money and How to

Dirty Money at Work 147
United Kingdom, Singapore, Switzerland, and the Cayman Islands. BOC
repeatedly added to the mounting unpaid loan balances. Allegedly, a Chinese
municipal SOE was a partner in laundering schemes. After paying the
$10 million fine, BOC sued Chou and Liu and won a $35 million judgment,
and the couple also faced indictment in Manhattan in 2004. Other
schemes at BOC’s New York branch may have been even bigger.
Beijing authorities apparently concluded that embezzlement from BOC
in New York, and also perhaps from Los Angeles and Hong Kong, could not
have gone on without Wang’s knowledge. His career was finished, and he
was tried and sentenced in 2003 to 12 years in prison.
State Administration of Foreign Exchange. The acronym SAFE should
not remotely imply that China’s hundreds of billions in foreign exchange reserves
are safe in the hands of the state administrative body. On the contrary,
a “black hole” in China’s reserves has never been explained.
During the late 1990s, as inflows of foreign direct investment and trade
surpluses swelled to around $70 billion to $90 billion a year, foreign exchange
reserves grew by less than $10 billion a year. Flight capital accounts
for much of the gap but not all. Some of the gap seems to have arisen from
direct misuse of reserve funds. “Questions over what happened to billions in
‘missing’ reserves remain unanswered to this day. ... Officials at several government-owned
banks in China . . . have confirmed they have in the past received
funds from the reserves in transactions that were not made public.” 197
Zhu Xiaohua was director of SAFE in 1992 and 1993 and later head of
China Everbright Bank in Hong Kong from 1996 to 1999. Amid allegations
of corruption, loan scandals, and tax evasion at Everbright, Zhu was recalled
to Beijing and promptly disappeared from view for three years.
Li Fuxiang, former head of foreign exchange trading at Bank of China
in New York, was director of SAFE from 1998 to 2000. He seems to have
committed suicide by jumping out of a seventh-floor window at a Beijing
hospital. Apparently the arrest of Zhu and his subsequent interrogation unnerved
Li.
Among other allegations, Zhu and Li were suspected of funneling
some $200 million of state reserve funds from SAFE through China Everbright
to invest in a Shanghai international investment company. As the
global intelligence firm Stratfor summarized: “Li’s death comes amid reports
that he was recently called to assist in the investigation of former