CASH ECONOMY

The immigrant success story that led Spanish police to a Chinese banking behemoth

FALL FROM GRACE: Gao Ping, who became a patron of the arts and was once pictured with Spain's King Juan Carlos I, is seen outside the High Court in Madrid in 2012. REUTERS/Juan Medina

The immigrant success story that led Spanish police to a Chinese banking behemoth

Part 2: Gao Ping, who worked as a cook when he arrived in Spain from China, built a lucrative import business. His arrest on suspicion of money laundering was part of a series of probes into alleged Chinese criminal networks that would ultimately lead to the Industrial and Commercial Bank of China.

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MADRID - In Spain’s Chinese community, Gao Ping was the ultimate immigrant success story. He was a young man when he arrived more than two decades ago and took a job as a cook in a Chinese restaurant.

By 1997 Gao had opened an import business and begun building a commercial empire that would make him the highest-profile Chinese in Spain. He became a patron of the arts and cultivated political ties in Spain and in his native Zhejiang Province. In 2007, Chinese media carried a picture of him with Spain’s King Juan Carlos I. And in interviews he was quoted saying he wanted to become a bridge between the two cultures.

But Gao was far from satisfied. When Spanish police arrested him on Oct. 16, 2012, they seized a trove of documents from his home. By 2012, according to a timeline he had drawn up, Gao had amassed assets of almost 100 million euros - and planned to become a billionaire. The document, written in Chinese and included in thousands of pages of confidential court filings reviewed by Reuters, showed he expected to double his wealth every four years to reach 1.6 billion euros ($1.9 billion) by 2028.

The police short-circuited that plan.

Gao had first attracted the attention of investigators in 2009, when they began to take a close look at a surge in the flow of funds leaving Spain for China, including from his businesses, Spanish officials told Reuters. That set in train a series of probes into Chinese organized crime in Spain that, as Reuters detailed yesterday, would eventually ensnare senior managers at the Madrid branch of the state-controlled Industrial and Commercial Bank of China (ICBC), the world’s biggest bank by assets.

From around 2009, Spain’s tax agency tracked individuals and companies who were wiring funds without declaring the transfers to Spanish authorities, a senior tax official told Reuters. Most of the remittances were in small amounts below the reporting threshold, the official said, and repeatedly went to the same accounts in mainland China and Hong Kong.      

Around the same time, Spain’s financial intelligence unit, Sepblac, was also detecting a spike in transfers to China from money transfer firms. These transactions were mostly just under the quarterly threshold of 3,000 euros per person that must be reported, a former Sepblac official said.

Suspicion hardened at senior levels of the Spanish government that the transfers were the laundering of illegal income, largely from undeclared imports of manufactured goods from China.

The Reuters report published yesterday revealed details of the role allegedly played by ICBC’s Madrid branch in the laundering of hundreds of millions of euros by suspected criminal networks like the one Gao is accused of running. Spanish authorities accuse these networks of dodging duties and sales tax on Chinese imports and then secreting the funds back to China through ICBC and other channels.

A spokesman for ICBC in Europe, Sun Feng, said the bank was a “law-abiding company” and had cooperated with Spanish authorities. The case file, he said, was sealed by the court so the bank could not comment on it.

By the time of his arrest, Gao had become a prominent philanthropist. He had opened art galleries in Madrid and Beijing. He lived in a large home with a swimming pool and tennis court in the suburbs of Madrid.

His arrest caused a media sensation in Spain. It was also big news in China, where the state-controlled press closely covered his fall from grace. Until now, however, little has been revealed about how the police investigation unfolded or the extent of Gao’s alleged role as the kingpin in a suspected money laundering network.

Gao was released in November 2012 and jailed again in 2013 because he was considered a flight risk, according to a court ruling. He was held on suspicion of committing tax fraud, money laundering, extortion, bribery and belonging to a criminal organization, before being released again on bail in 2015. He is currently in Spain awaiting further legal proceedings.

Contacted by Reuters, Gao’s lawyer said she would not accept questions on his behalf. Questions sent to the address listed in court filings for Gao at the time of his 2012 arrest went unanswered.

In a late 2012 interview with the local Intereconomia TV station, just after his arrest, Gao said that when he arrived in the country, he started to work as a cook, and had “only done three things since: work, save and invest.”

He said he would “explain to the judge whatever I have to explain to him about this matter, and I will collaborate to clear up all these issues. But what I am accused of is groundless.”

In 2009, the tax agency’s fraud unit began passing intelligence to the Spanish National Police about Gao’s business activities. Soon afterwards, the police launched Operation Emperor, an investigation focused on Gao’s network of family members and business partners.

The court filings show that police suspect other prominent names in Spain’s Chinese business community also were linked to the money transfers. Lawyers for several of the suspected money launderers arrested as part of Operation Emperor said that they had opened negotiations for a plea bargain with prosecutors. A Spanish judicial official confirmed the talks, telling Reuters it was possible some of the principal and secondary suspects would plead guilty to some charges rather than go to trial.

Like Gao, many of those who would be snared by the police were immigrants from Qingtian County, a hilly region in the southeast of China’s Zhejiang Province.

About 80 percent of Spain’s 180,000 ethnic Chinese community are from Qingtian, according to Mario Esteban, a specialist on the Spanish Chinese community at the Elcano Royal Institute. In Spain, they rely on close family and hometown links with other immigrants to find jobs, establish businesses and provide credit. In Madrid, many Qingtian immigrants have settled in Usera, a district in the south of the Spanish capital. The streets of Usera are lined with Chinese auto repairers, restaurants, bars, small grocery shops and doctors’ offices.

THRIVING COMMUNITY: Chinese residents take part in a parade to celebrate the lunar New Year in the Usera district of Madrid in January. REUTERS/Susana Vera

Police officers eventually stopped monitoring the cash handovers because there were too many to track.

The head of Operation Emperor, an investigation into suspected Chinese money laundering networks in Spain

In early 2011, an employee in one of Gao’s companies made an anonymous complaint via email to a local government office, accusing the businessman of tax evasion. “Last year, the total turnover was close to 90 million dollars, and less than 10 million was declared,” the complainant wrote in the message. “They cook the books.”

Based on this, a judge in June 2011 approved a wiretap, the court filings show. A team of 14 investigators and five translators began listening to Gao’s conversations with other members of his network, according to the head of Operation Emperor, who asked not to be named.

One of Gao’s businesses, International Trade City Import-Export (ITC), was named in a police report as a dominant player in the import of manufactured goods from China to Spain and Italy, where ITC also had a branch. Gao’s grip on the Chinese import market meant Chinese retailers in Spain were under pressure to buy from him or other importers related to his network, the police alleged.

The investigators reported large movements of cash on an almost daily basis. In September 2011, Gao’s wife, Yang Lizhen, sent an employee to Barcelona to deliver cash to a money transfer agent, according to a police report. Tipped off from their wiretaps, the police arrested the employee at Madrid’s Atocha Station, making the bust appear like a routine inspection. They confiscated 258,130 euros, the report shows.

Later, Yang discussed the seizure with a number of associates, according to wiretap transcripts of the calls. In one conversation, she spoke about forging an invoice to explain where the cash came from. In another call, she said it would be better in future to send women posing as tourists to carry cash.

Eventually, the head of Operation Emperor told Reuters, the officers stopped monitoring the cash handovers because there were too many to track.

Yang Lizhen was arrested in 2012 and released on bail a month later. She did not respond to questions sent to her lawyer.

Gao denied smuggling cash out of the country in his 2012 interview with TV station Intereconomia: “My companies pay their suppliers in China using bank transfers,” he said.

The police wiretap transcripts also document the alleged use of violent threats by Gao and his subordinates. In one case, Gao ordered a female employee to be held against her will because he said her boyfriend had stolen 50,000 euros from his company.

On May 10, 2012, Gao told a business partner that if the money wasn’t returned, “I’m not going to beat her to death, but at least slap her and take photos of her,” according to the wiretap transcripts.

Two months later, the transcripts indicate, the money still hadn’t been returned. On July 9, Xia Yongping, another of Gao’s associates, told the mother of the employee that he was keeping the daughter until her boyfriend was found. If her parents did not help find the boyfriend, Xia told her he would solve it his way.

“I will call the mafia and get them to take charge of this problem,” he said.

“If she gets a beating, I will call the police,” the mother replied.

According to an interview transcript in the court filings, the abducted employee told investigators in February 2013 that no one had hit her - but an associate of Gao’s had threatened to kill her if the funds weren’t returned. She put the amount at 120,000 euros.

Ultimately, the woman said, she returned half the money. She no longer worked for Gao and she was no longer with the boyfriend, she told investigators.

Xia Yongping was arrested in October 2012 on suspicion of money laundering, tax fraud and belonging to a criminal organization, and was later released on bail. He declined to discuss the case, including the events as described in the wiretap transcripts.

In his interview with Intereconomia, Gao said he was “a legal businessman” and that he had “never beaten anyone.”

According to Xia’s lawyer, Jacobo Teijelo, the Chinese suspects in the case are scapegoats. Focusing on the Chinese had allowed Spanish intelligence services to avoid investigating genuine corruption involving Spanish institutions, he said in a written submission to the High Court in May 2014. Teijelo, who formerly represented Gao Ping, also accused investigators of pressuring people to reveal incriminating information about the targets of the probe.

A spokesman for the High Court, which is overseeing the case, declined to comment on Teijelo’s allegations.

By focusing on Chinese businessmen, the Spanish intelligence services were able to avoid investigating genuine corruption involving the country’s institutions.

Jacobo Teijelo, a lawyer for one of the smuggling suspects, in a 2014 submission to the High Court

If the suspects from Operation Emperor go on trial, it is possible some might deny they participated in the bugged conversations. They might also dispute the conclusions authorities drew from the wiretaps. The lawyer for one suspect already has challenged the police interpretation of wiretap recordings, according to a submission to the court.

Spanish investigators told Reuters the wiretap transcripts were accurate and the suspects correctly identified.

As Operation Emperor continued, Spanish police say they learned they were dealing with a number of overlapping Chinese networks, sometimes collaborating and sometimes in conflict.

In September 2009, according to a police report, two Chinese men took part in the armed robbery of Zhang Jianren, a prominent figure in the Chinese community. The heist came as Zhang was shifting more than one million euros out of Spain in a van, according to the report.

In a move that ultimately led to the widening of the investigation, an associate of Zhang later made an official complaint to police about the robbery. After their arrest, the two robbers described what they knew about the Chinese money laundering networks in lengthy statements in the court filings. Both men named Zhang as ringleader of one of the biggest money laundering networks.

One of the robbers told police he had smuggled about 18 million euros in cash by road from Spain to Italy via France on several trips, some of it for Zhang. The money was concealed in boxes of textiles. The network later switched routes and took cash by road to Hungary, from where it was transferred to China through an unidentified Chinese bank, he said.

The two robbers were convicted of theft and illegal detention, according to court documents. They were released on appeal and fled Spain. Warrants have been issued for their arrest, according to a lawyer who formerly represented them.

An arrest warrant was later issued for Zhang on suspicion of money laundering and tax fraud, but police said he was already in China. Reuters was unable to contact him. 

Based on the investigation of the robbery, a judge approved wiretaps for Zhang and others in his network. This new investigation, starting in mid-2011, was dubbed Operation Cheqian. The probe would lead investigators to ICBC.

The operation expanded, focusing on a network of four Chinese families based in Spain and their use of money transfer firms, two of which were later fined for not complying with Spain’s anti-money laundering laws.

These family networks reported to a suspected crime boss in Qingtian County, Ming Wenxue, according to wiretap transcripts. Ming is recorded giving instructions – how much money to transfer, which accounts and banks to use – to suspected money launderers in Spain.

Police surveillance records show that Ming visited Madrid in December 2011, staying at a luxury hotel. Undercover officers tracked him shopping with a top member of the Cheqian network at Louis Vuitton, Chanel, Dior and other luxury shops in the city center.

Ming Wenxue did not respond to questions sent to a man in China who identified himself as Ming’s secretary.

One of the top targets of the Cheqian investigation, Liu Cong, was suspected by police of money laundering. According to wiretap transcripts, Liu talked with associates about gambling all night with hundreds of thousands of euros on the table and boasted about his winnings.

Liu also discussed with his sister in China the details of transfers from Spain of hundreds of thousands of euros to accounts in China, according to wiretap transcripts.

By October 2012, police had enough evidence from the Emperor and Cheqian investigations to obtain warrants to move against the ring of criminal networks.

“I went to the police commissioner and told him I needed all the police in Madrid,” the head of Operation Emperor recalled.     

On the morning of Oct. 16, 2012, the investigators briefed several hundred police officers. The force split into teams and fanned out to make arrests in Chinese homes and businesses around Spain.

Liu Cong was among those arrested. He was later released on bail. He did not respond to questions sent by Reuters to his home outside Madrid.

“This operation emphasizes how organized crime is not only a threat to people’s security, but also a threat to the functioning of our economy,” Ignacio Cosido, then National Police chief, told a news conference after the raid.

For the ambitious immigrant Gao Ping, Operation Emperor derailed his dream of becoming a billionaire. Spanish officials said the raids were the biggest police operation ever against organized crime in the country. In more than 120 raids on the day Gao was arrested in October 2012, police detained over 80 people and seized about 10 million euros in cash.

Of that, about five million euros was found in the offices of Gao’s company ITC, the head of Operation Emperor said. Officers had to use shopping carts from a local store to carry it all out.

Cash Economy

By Angus Berwick and David Lague

Photo Editing: Thomas White

Design: Catherine Tai

Edited by Peter Hirschberg