Thursday, August 8, 2013

French Laundry, or Chinese?

Crisp Wines, Cleaned Cash

The two articles below – on a mansion in Cannes thought to be owned by disgraced Chinese politician Bo Xilai, and suspicions of French winery purchases by Chinese for the purpose of laundering money offshore – may or may not be directly related. However, both shed light on the shady practice used by some wealthy Chinese (as well as from other nationalities) of buying international properties through an inscrutable network of intermediate holding companies to mask the true identity of owners.
The Bo Xilai story in the Wall Street Journal comes just as his corruption trial in China is finally getting under way. The Cannes villa, a six-bedroom structure with a swimming pool, a 4,000 square meter garden and views of the Mediterranean, is legally owned by a French company that is controlled by two firms based in Luxembourg, whose legal representatives are three local lawyers. Got that? More interesting is that the property was once managed by Neil Heywood, the British businessman who Bo’s wife murdered by poisoning.  One of the reasons he allegedly fell out so comprehensively with her was over disputed fees related to properties managed in international locations, including France.
The SCMP article points to a wider trend of Chinese buying French wineries through offshore holding companies, and then re-selling them after a short holding period. The “harvest” is a cellar full of cleaned-up cash that is more broadly liquid in the international banking system. Chinese investors currently own approximately fifty properties in Bordeaux alone, and will soon be the most prevalent nationality of foreign owners in the region, overtaking Belgians. It remains to be seen who the long term owners – i.e. those buying the properties with the aim of actually producing wine - of many of these properties ends up being, once the initial spin cycle of ownership is completed and ulterior motives for purchases come out in the wash.

1 comment:

  1. I have two friends, one is my best friend and former flat mate, and they are both senior guys at one of the major news wire services...

    They both admit that the news coming out of China, even from their own reporters and sources only picks up about <.001%.

    The things we read about outside of China barely scratch the surface, especially anything having to do with govt. fraud or misdeeds (putting it lightly).

    For example, the high-speed rail project which is ~10,000KM of tracks, is somewhere around US$1.5 - 2 trillion. Of which estimates outside of China put the embezzled amounts around 15-17% of the total…that would be around US$200-300 billion in funds that have made their way into offshore bank accounts for railway officials, construction and engineering firm owners and other middle-men.

    An 'associate' of mine who specializes in expatriating money for wealthy Chinese, informs me that the actual percentage embezzled out is closer to 30-35% which would be between US$500 billion +.

    Regardless of the actual amount, that would imply that a relatively small number of people would make the Forbes 400 list. Just to give an idea, US$2.8 billion was found in one Railway ministers offshore account. Now imagine that he's just one person and that's what was identified.

    On a smaller level, a friend of mine who works as an administrative assistant to a CEO of an Italian company makes around US$12,000 per year as her salary. she informs me that her predecessor made the same salary although she made closer to US$250,000. Her predecessor also drove a brand new Porsche Cayenne which retails for over $140,000 in China.

    How was this done? Well, she was responsible for the entire senior managements travel and accommodations, trade show organization, event planning and also transportation and living arrangements. Each service provider had to give 'kick-backs' to her for being chosen. These kick-backs were around 10% of the amounts spent. The travel and accommodation budget for 2010 was US$430,000 so that alone is $43,000 in kickbacks. One trade show in Beijing was $65,000 and the percentage was actually 15%.

    Economic miracle? I don't think so.