by Kyra Gurney, Anjali Tsui, David Iaconangelo, Selina Cheng
December 9, 2016
Wealthy politicians and businessmen suspected of corruption in their native lands are fleeing to a safe haven where their wealth and influence shields them from arrest.
They have entered this country on a variety of visas, including one designed to encourage investment. Some have applied for asylum, which is intended to protect people fleeing oppression and political persecution.
The increasingly popular destination for people avoiding criminal charges is no pariah nation.
It’s the United States.
An investigation by ProPublica, in conjunction with the Stabile Center for Investigative Journalism at Columbia University, has found that officials fleeing prosecution in Colombia, China, South Korea, Bolivia and Panama have found refuge for themselves and their wealth in this country, taking advantage of lax enforcement of U.S. laws and gaps in immigration and financial regulations. Many have concealed their assets and real-estate purchases by creating trusts and limited liability companies in the names of lawyers and relatives.
American authorities are supposed to vet visa applicants to make sure they are not under active investigation on criminal charges. But the ProPublica examination shows that this requirement has been routinely ignored.
One of the most prominent cases involves a former president of Panama, who was allowed to enter the United States just days after his country’s Supreme Court opened an investigation into charges that he had helped embezzle $45 million from a government school lunch program.
Ricardo Martinelli, a billionaire supermarket magnate, had been on the State Department’s radar since he was elected in 2009. That year, the U.S. ambassador to Panama began sending diplomatic cables warning about the president’s “dark side,” including his links to corruption and his request for U.S. support for wiretapping his opponents.
Soon after Martinelli left office in 2014, Panamanian prosecutors conducted a widely publicized investigation of corruption in the school lunch program, and in mid-January 2015, forwarded their findings to the country’s Supreme Court.
On Jan. 28, 2015, just hours before the Supreme Court announced a formal probe into the charges, Martinelli boarded a private plane, flew to Guatemala City for a meeting and then entered the United States on a visitor visa. Within weeks, he was living comfortably in the Atlantis, a luxury condominium on Miami’s swanky Brickell Avenue. He is still here.
The State Department declined to comment on Martinelli’s case, saying visa records are confidential and it is the U.S. Customs and Border Protection that decides who is allowed to enter the country. CBP said privacy regulations prevent the agency from commenting on Martinelli.
Efforts to reach Martinelli, including a registered letter sent to his Miami address, were unsuccessful.
In September this year, Panama asked to extradite Martinelli, but the former president is fighting that request, arguing there are no legal grounds to bring him back to his home country where the investigation has broadened to include insider trading, corruption and abuse of authority. Last December, Panama’s high court issued a warrant for his arrest on charges that he used public funds to spy on over 150 political opponents. If found guilty, he could face up to 21 years in jail.
Rogelio Cruz, who is defending Martinelli in Panama’s Supreme Court, said that the former president “will return to Panama once adequate conditions exist with respect to due process, where there are independent judges — which there aren’t.”
The United States has explicit policies that bar issuing visas to foreign officials facing criminal charges in their homelands. In 2004, President George W. Bush issued a proclamation designed to keep the United States from becoming a haven for corrupt officials. Proclamation 7750, which has the force and effect of law, directed the State Department to ban officials who have accepted bribes or misappropriated public funds when their actions have “serious adverse effects on the national interests of the United States.”
Under the rules implementing Bush’s order, consular officers do not need a conviction or even formal charges to justify denying a visa. They can stamp “denied” based on information from unofficial, or informal sources, including newspaper articles, according to diplomats and State Department officials interviewed for this report.
The State Department declined to provide the number of times Proclamation 7750 has been invoked, but insisted that it has been used “robustly.”
Over the years, some allegedly corrupt officials have been banned from entering the United States, including former Panamanian President Ernesto Perez Balladares, former Nicaraguan President Arnoldo Aleman, former Cameroonian Defense Minister Remy Ze Meka, and retired Philippine Gen. Carlos Garcia, according to cables published by WikiLeaks. In 2014, the U.S. banned visas for 10 members of Hungarian Prime Minister Viktor Orban’s inner circle because of corruption allegations.
But numerous other foreign government officials, including former presidents and cabinet ministers, have slipped through the cracks, according to court documents, diplomatic cables and interviews with prosecutors and defense attorneys in the United States and abroad. The charges involved a wide range of misconduct, from stealing public funds to accepting bribes.
Six months before Martinelli entered the United States, a former Colombian agriculture minister and onetime presidential candidate, Andres Felipe Arias, fled to Miami three weeks before he was convicted of funneling $12.5 million to wealthy political supporters from a subsidy program that was intended to reduce inequality in rural areas and protect farmers from the effects of globalization.
The U.S. embassy in Bogota had been following Arias’ trial closely and reporting on the scandal in cables to Washington. The trial featured documents and witnesses saying that under Arias’ watch, the agriculture ministry had doled out millions in subsidies to affluent families, some of whom, according to media reports, had donated to Arias’ political allies or his presidential campaign.
Subsidies went to relatives of congressmen, companies owned by the richest man in Colombia, and a former beauty queen. One powerful family and its associates received over $2.5 million, according to records released by prosecutors. Another family, which included relatives of a former senator, received $1.3 million. Both families had supported Arias’ chief political ally, former Colombian President Alvaro Uribe, with campaign contributions.
The law that established the program did not ban wealthy landowners from getting grants, but some elite families had received multiple subsidies for the same farm. They gamed the system by submitting multiple proposals in the names of different family members and by subdividing their land so they could apply for grants for each parcel, court records indicate.
Yet, in November 2013, while the trial was going on, the U.S. embassy in Bogota renewed Arias’ visitor visa. The State Department refused to discuss the case, saying that visa records are confidential. But a recent filing in federal court showed that the U.S. embassy had flagged Arias’ application, and asked him to provide documents to support his request to leave the country while charges were pending. Arias submitted documents from the Colombian court, including a judicial order that allowed him to travel. In the end, the embassy issued a visa because he had not yet been convicted.
On the night of June 13, 2014, three weeks before the judges convicted him of embezzlement by appropriation, a Colombian law that penalizes the unauthorized use of public funds to benefit private entities, Arias packed his bags and boarded a plane. The following month, the U.S. embassy in Bogota revoked the visa. But Arias hired an immigration attorney and applied for asylum.
“If you looked up ‘politically motivated charges’ in the dictionary, there would be a picture of Andres Arias next to it,” said David Oscar Markus, Arias’ lead attorney. “The case [against him] is absurd and not even one that is recognized in the United States.”
Over the next two years, Arias built a new life in South Florida with his wife and two children, opening a small consulting company and renting a house in Weston.
On August 24, he was arrested by U.S. authorities in response to an extradition request from Colombia. He spent several months in a detention facility until his release on bail in mid-November. Arias argues that the United States cannot extradite him because it has no active extradition treaty with Colombia, but the U.S. Attorney’s Office disagrees. A plea for asylum does not shield defendants from extradition if they are charged in Colombia with a crime covered by the treaty between the two countries.
Congress established the EB-5 immigrant investor program in 1990 as a way of creating jobs for Americans and encouraging investment by foreigners.
The agency that administers the program, the U.S. Citizenship and Immigration Services, has adopted regulations designed to prevent fraud, including requiring foreign investors to submit evidence, such as tax returns and bank statements, to prove they obtained their money legally.
But these safeguards did not stop the daughter-in-law and grandsons of former South Korean dictator Chun Doo-hwan from using Chun’s ill-gotten gains to get U.S. permanent residency.
In 1996, a Korean court convicted Chun of receiving more than $200 million in bribes while in office in the 1980s, from companies such as Samsung and Hyundai. He was ordered to return the bribes, but refused.
Part of Chun’s fortune was funneled into the United States through his son, who purchased a $2.2 million house in Newport Beach, California, according to South Korean prosecutors and real-estate records.
Millions of dollars from Chun’s bribery proceeds were hidden in bearer bonds, which are notoriously difficult to trace. Unlike regular bonds, which belong to registered owners, there is no record kept about the ownership or transfer of bearer bonds. The bonds can be cashed out by whoever has them.
In 2008, Chun’s daughter-in-law, a South Korean actress named Park Sang-ah, applied for an immigrant investor visa. Park listed her husband’s bearer bonds as the source of her funds without mentioning that the money had been initially provided to him by Chun. Eight months later, Park and her children received their conditional U.S. permanent residency cards in the mail.
In 2013, at the request of South Korean prosecutors, the U.S. Justice Department launched an investigation into the Chun family’s wealth in the United States and subsequently seized $1.2 million of the family’s U.S. assets in the United States. The money was returned to South Korea. Despite that, Chun’s family members have retained their residency status.
Chun’s relatives obtained their permanent residency by investing in an EB-5 project managed by the Philadelphia Industrial Development Corporation, a nonprofit company. The PIDC pooled Chun’s $500,000 with money from 200 other foreign investors to finance an expansion of the Pennsylvania Convention Center in downtown Philadelphia.
The same project in Philadelphia also helped to secure permanent residency for Qiao Jianjun, a Chinese government official accused of embezzling more than $40 million from a state-owned grain storehouse, according to reports in the People’s Daily, the Chinese Communist Party’s newspaper. Qiao had divorced his wife, Shilan Zhao, in China in 2001, a fact he did not disclose to U.S. immigration authorities. When Zhao applied for an EB-5 visa, Qiao qualified for U.S. permanent residency as an applicant’s spouse.
The Justice Department launched an investigation only when it was tipped off by Chinese authorities. In January 2014, a federal grand jury indicted Zhao and her ex-husband, Qiao, for immigration fraud, money laundering and internationally transporting stolen funds. Zhao was arrested and released on bail. Federal authorities are pursuing Qiao, whose whereabouts remain unknown.
A trial has been set for February 2017. U.S. government attorneys have filed asset forfeiture cases to recover real estate linked to Qiao and Zhao in Flushing, New York, and Monterey Park, California.
In April 2015, Qiao appeared on the Chinese government’s list of 100 “most wanted” officials who fled abroad after being accused of crimes such as bribery and corruption. He and 39 other government officials and state-owned enterprise leaders on the list allegedly fled to the United States.
The list, called “Operation Skynet,” is part of Chinese President Xi Jinping’s anti-corruption campaign, which has vowed to take down what Chinese officials describe as corrupt “tigers” and “flies” within the country’s ruling Communist Party.
Fengxian Hu was another fugitive on China’s list. A former army singer and radio broadcaster, Hu headed the state-owned broadcasting company that had a joint venture with Pepsi to distribute soft drinks in Sichuan province. In 2002, The Washington Post and The Wall Street Journal reported that Pepsi had accused Hu of looting the joint venture and using company funds to buy fancy cars and go on European tours.
The same year, in a widely publicized move, Pepsi filed a case with international arbitrators in Stockholm, asking that the joint venture be dissolved. Despite this, Hu was given a visa that allowed him to fly regularly to Las Vegas, where he was a VIP client at the MGM casino.
In January 2010, Chinese authorities investigated Hu for corruption. But the month before, Hu had entered the United States on a B1 visitor visa, joining his wife, a U.S. citizen living in New York.
Hu tried to obtain a green card through his wife, but the petition was rejected by U.S. immigration authorities. He applied for asylum instead.
Meanwhile, he had gotten into trouble in the United States for losing millions in a Las Vegas casino and failing to pay a $12 million gambling debt. In 2012, he was indicted in a Nevada court on two counts of theft and one count of intentionally passing a check without sufficient funds.
Hu pled not guilty to the charges; his lawyers claimed that his checks bounced because his bank account had been closed by Chinese authorities. The charges against him in the U.S. were considered an aggravated felony, which is a common basis for deportation. Hu, however, had a pending asylum case and so could not be deported.
In August 2015, a New York immigration judge denied the asylum claim. But Hu’s lawyers argued that he would be tortured if he returned to China and invoked the United Nations Convention Against Torture, which says that an alien may not be sent to a country where he is likely to be tortured. In the end, the immigration court suspended Hu’s removal order, allowing him to remain in the United States and work here indefinitely. He will not, however, be given permanent residency or be allowed to travel outside the country.
The absence of an extradition treaty — coupled with a high standard of living — makes the United States a favored destination for Chinese officials and businessmen fleeing corruption charges.
In April 2015, Jeh Johnson, the Secretary for the Department of Homeland Security, made a 48-hour trip to Beijing. The visit was intended to pave the way for Chinese President Xi Jinping’s U.S. visit in September 2015, according to a memorandum Johnson wrote, which was obtained through a request under the Freedom of Information Act.
In the memo, Johnson said the Chinese government is seeking 132 people it said have fled to the United States to avoid prosecution. This represents a greater number of fugitives than Chinese authorities have publicly acknowledged.
“I’m told that in prior discussions, the Chinese have been frustrated by the lack of any information from us about the 132 fugitives,” Johnson wrote.
The Chinese request for assistance posed a dilemma for the United States. American officials are concerned about a lack of fairness in China’s criminal justice system. Human rights groups say that China continues to use torture to extract false confessions from suspected criminals. Torture has also been documented to be part of shuanggui — a secretive discipline process reserved for members of the Chinese Communist Party.
Some analysts see the crackdown on corrupt officials as part of a purge aimed at the current regime’s political rivals and ideological enemies. U.S. officials say this makes returning corrupt officials to China a delicate issue for the United States.
In 2003, headlines around the world reported widespread street protests in Bolivia that led to security forces killing 58 people, most of them members of indigenous groups. Not long afterward, as protesters massed up on the streets of La Paz demanding his resignation, Bolivian President Gonzalo Sanchez de Lozada resigned and fled his country along with his defense minister, Jose Carlos Sanchez Berzain.
The two men flew to the United States, where they continue to reside. In 2006, Berzain applied for political asylum, which he was granted in 2007. On his application, when the form asked, “Have you or your family members ever been accused, charged, arrested, detained, interrogated, convicted and sentenced, or imprisoned in any country other than the United States?” Berzain checked the box “no,” even though by then he and de Lozada had been formally accused of genocide by Bolivia’s attorney general. The indictment was approved by Bolivia’s Supreme Court in 2007. Berzain also stated on his application that the State Department had arranged for his travel to the United States.
The de Lozada administration was vocally pro-American. Before it was ousted, officials had announced they would facilitate gas exports to the United States.
After their departure, Bolivia’s attorney general publicly stated that the administration had embezzled millions from government coffers, but did not formally file charges. He said de Lozada had taken some $22 million from the country’s reserve funds before fleeing.
De Lozada and members of his administration have dismissed the allegations as part of a politically motivated smear campaign, but there is evidence to suggest irregularities may have occurred in the handling of the reserve funds. The former president signed a decree shortly before leaving office authorizing the interior and finance ministers to withdraw money from Bolivia’s reserve funds without going through the normal approval process. De Lozada’s former interior minister pleaded guilty in 2004 to embezzlement after $270,000 in cash was found in an associate’s home.
De Lozada, a mining mogul before he became president, moved to Chevy Chase, Maryland, an upscale suburb of Washington, D.C. He now lives in a two-story brick house bought for $1.4 million by Macalester Limited, a limited liability company that was formed in the British Virgin Islands and lists a post office box in the Bahamas as its principal address.
De Lozada’s immigration status is unclear. He said in a sworn deposition in 2015 that he was not a U.S. citizen. His son-in-law, who spoke to ProPublica on his behalf, would not say whether de Lozada had applied for asylum.
Berzain, meanwhile, settled in South Florida. Records show that he and his brother-in-law personally own or are listed as officers or members of business entities that together control around $9 million worth of Miami real estate.
Some of the purchases were made in the names of entities that appear to list different variations of Berzain’s name in business records.
In addition, in the purchase of two properties, Berzain’s name was added to business records only after the deal had gone through. Berzain’s brother-in-law incorporated a company called Warren USA Corp in October 2010, for example, and the company purchased a $1.4 million residential property the following month. Three weeks after Warren USA Corp became the owner of an elegant Spanish-style villa in Key Biscayne, Berzain was added as the company’s secretary.
The following year, in May 2011, Berzain’s brother-in-law created Galen KB Corp and registered as the company’s president. A month later, Galen KB Corp purchased a $250,000 condo. In August, Berzain replaced his brother-in-law as the company’s president, according to business records. Berzain is no longer listed as a company officer in either company.
During an interview in January, Berzain told ProPublica “I don’t have any companies.” When asked about several of the companies associated with his name or address in public records, the former defense minister said he had a consulting firm that helped clients set up companies and that he was sometimes added to the board of directors. Efforts to reach Berzain’s brother-in-law, a wealthy businessman and the owner of a bus company in Bolivia, were unsuccessful. Berzain’s brother-in-law has not been accused of any wrongdoing.
The practice of purchasing real estate in the name of a business entity like a limited liability company, or LLC, is a common and legal practice in high-end real-estate markets, and one that enables celebrities and other wealthy individuals to protect their privacy.
But the practice also allows foreign officials to hide ill-gotten gains. U.S. regulations allow individuals to form business entities like LLCs without disclosing the beneficial owner. The LLCs can be registered in the names of lawyers, accountants or other associates — or even anonymously in some states — and used to purchase real estate, making it nearly impossible to determine the actual owner of a property.
Government investigators and lawmakers have pointed out persistent gaps in U.S. policy that have enabled corrupt officials to evade justice and hide their assets in this country. But little has changed.
Last year, a U.S. Government Accountability Office investigation said it can be “difficult” for immigration officials to identify the true source of an immigrant investor’s funds. Immigration officials told the government auditors that EB-5 applicants with ties to corruption, the drug trade, human trafficking and other criminal activities have a strong incentive to omit key details about their financial histories or lie on their applications.
“It’s very easy to get lost in the noise if you’re a bad person,” said Seto Bagdoyan, the accountability office’s director of forensic audits, who co-authored the GAO report.
Immigration officials, he added, have an “almost nonexistent” ability to thoroughly evaluate investors’ backgrounds and trace their assets.
Despite such weaknesses, Congress has continually extended the EB-5 program with minor changes. The program is backed by real-estate lobbyists who argue that it is a crucial source of financing for luxury condos and hotels. The program is expected to thrive in a Trump presidency because the president-elect is a developer and his son-in-law Jared Kushner received $50 million in EB-5 funds to build a Trump-branded tower in New Jersey.
In 2010, a Senate report described how powerful foreign officials and their relatives moved millions of dollars in suspect funds into the United States. The report said investors bypassed anti-money laundering regulations with help from U.S. lawyers, real-estate agents, and banking institutions. Last year, ABC News reported that lobbyists for real estate and other business groups spent $30 million in 2015 in an effort to protect the EB-5 program.
Senate investigators proposed legislation that would require companies to disclose their beneficial owners and make it easier for authorities to restrict entry, deny visas and deport corrupt foreign officials.
A few of the proposals have been adopted, but they have not made much difference. Banks have stepped up their efforts to identify corrupt officials and monitor their accounts. Professional groups such as the American Bar Association have issued non-binding guidelines for their members on compliance with anti-money-laundering controls. The U.S. government has also worked with the Financial Action Task Force, an international body set up to fight money laundering, to bring its anti-corruption controls in accordance with the body’s guidelines.
In May, the Treasury Department enacted a new rule that will take full effect in 2018 and will require financial institutions to identify the beneficial owners of shell companies. Some advocates see the rule as a step backward. The new rule allows shell companies to designate the manager of the account as the beneficial owner, concealing the identity of the person ultimately exercising control.
The State Department declined to say what progress, if any, it has made on the Senate subcommittee’s recommendation to more aggressively deny visas through Proclamation 7750. “The Department takes seriously congressional recommendations and devotes resources to addressing corruption worldwide,” a State Department official wrote in response to questions.
In 2010, then-Attorney General Eric Holder launched the Kleptocracy Asset Recovery Initiative. The small unit, which has grown to include 16 attorneys, aims to recover assets in the United States that are tied to foreign corruption and return the money to the looted countries.
Over the past six years, the unit has filed around two dozen civil asset forfeiture cases in an attempt to seize money, real estate and other assets tied to government officials from 16 countries. Assets have ranged from a lone diamond-encrusted glove worn by Michael Jackson that was purchased by Equatorial Guinea’s Vice President, Teodoro Obiang, to a $1 billion fund tied to Malaysian Prime Minister Najib Razak.
Yet most of the money the Department of Justice has pursued remains in limbo. The case involving Chun, the former president of South Korea, is one of only two instances in which corrupt gains have been returned to the home country through the Justice Department’s efforts. The other arose when Justice Department officials returned $1.5 million to Taiwan from property bought with bribes paid to the family of Chun Shui Bian, the former president of Taiwan.
The agency faces myriad challenges when attempting to seize and return assets acquired by corrupt foreign officials, including a lack of witnesses, said Kendall Day, head of the Department of Justice’s Asset Forfeiture and Money Laundering Section. These officials often shield their transactions through shell companies, offshore companies or a network of associates.
“The mission of the Kleptocracy Initiative is really to target what we call grand foreign corruption that impacts the U.S. financial system,” Day said, citing the Chun case as an example.
The 2012 Magnitsky Act gives the government power to deny visas and freeze the assets of Russian nationals accused of corruption or human rights violations. The Global Magnitsky Act would extend the same sanctions to the rest of the world, but it has yet to be passed by Congress. Unlike Proclamation 7750, the Magnitsky laws require the government to publish a list of foreign government officials who are barred from the United States.
In addition, the Treasury Department imposed regulations this year that aim to crack down on the use of shell companies to purchase real estate in places like Miami and Manhattan. Title insurance companies are now required to identify the real owners of companies purchasing high-end real estate without a mortgage. These regulations, however, are temporary.
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Canada, Fraudster’s Nirvana, by Jonathan Manthorpe, International Affairs Column
Canada was slammed in a new report on corruption. It matters because tricks –blind trusts, shell companies, anonymous accounts in tax havens — are spurring the kind of populist, enraged politics that elected Donald Trump and is behind Brexit. Unless Ottawa ensures that Canada’s privileged classes play by the same rules as everyone else Canada, too, will experience a tide of outrage.
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