Two significant Vancouver court cases regarding Chinese money in Vancouver Real Estate

In case you missed them, there were two interesting articles written today by Ian Young, Vancouver correspondent for the South China Morning Post.

The first, in his "The Hongcouver" column (they say only Nixon could go to China... and only an Asian could get away with that title in today's PC world), headlines "A Vancouver firm offers clients 'new identities'. It's customers have included Chinese criminals"

It's news sure to add to Vancouver's reputation as a centre for laundering illegal money through our bubblicious Real Estate market.

Apparently a Vancouver firm, Amicus International Consulting, will provide clients “new legal identities” via new citizenships, passports and "plausible cover stories?"

One of Amicus' customers, which Young profiles, is Kuang Wan Fang. Writes Young:

Kuang’s husband, Xu Chaofan, and Yu’s husband, Xu Guojun, were involved in a massive scam to defraud their employer, the Bank of China, that lasted from 1991 until their arrest in the US in 2004. Together with a third BOC manager, they made off with at least US$485 million. They fled to the US via Vancouver, acquired US citizenship and laundered their cash through Canadian and Hong Kong banks, Macau and Las Vegas casinos, and the Vancouver and Toronto property markets. 

According to the US indictment that would lead to all being convicted, the fraudsters used the stolen cash to buy at least three Richmond mansions, on Udy Road and Mang Road, that are now valued at about C$9.5 million. 

According to Amicus, it helped get Kuang and Yu transferred into Spanish custody on September 23 and September 11, 2011, respectively; the US Federal Bureau of Prisons confirms that they did indeed leave US custody on those dates, although their destination is not listed. 

Kuang’s movements between 2011 and 2015 are unclear. In the meantime, the BC Supreme Court ruled on April 16, 2015, that Kuang should repay BOC the entire stolen sum, now valued at C$670 million, which the RCMP said had been hidden and dispersed among 14 relatives, many living in the Vancouver area, according to The Province newspaper’s account of the case.

$670 million? One assumes more than a couple of $5 million + homes on Vancouver's west side were acquired with that tidy sum.

Giggidy.

Young follows that up with a second article, "In landmark ruling, Vancouver homebuyer is ordered to repay millions to China’s Citic Bank" in which we are told about Chinese mainlander Yan Shibiao.

It seems China’s Citic Bank has won a landmark judgment in a Canadian court against Yan Shibiao and has ordered him to repay the bank RMB50 million (US$7.3 million), plus interest, that the bank says was spent in part on real estate in Vancouver.

The fact that a mainland Chinese bank has won a judgement in a Canadian court is causing a massive stir on local Chinese online internet chat boards.

China has been working with Canada for years to finalise a deal on the return of ill-gotten assets seized from those suspected of economic crimes. The agreement was originally announced in July 2013 and has not yet been ratified.

But this case marks a turning point. It's rare for Chinese banks to use Canadian courts to pursue those who have left the country and it sends a chilling message to Chinese nationals in Canada on visitor's visa's (which was Yan's situation).

Vancouver lawyer Christine Duhaime, an anti-money-laundering expert who represents Citic and originally petitioned the BC court on the bank’s behalf last year, said the case “shows China and their banks that [Canadian asset] recovery is possible in the civil context”.

“There are so many more cases with similar facts of foreign nationals from China who owe vast amounts of debt in unpaid loans that are parked in other countries, that I suspect the floodgates will open to pursuing recovery of those debts. Much of that money is in Canada,” said Duhaime in an interview.

We wonder what west side realtor Tom Gradecak's thoughts might be on these developments?

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Asian Cash Losing Its Cachet? A Vancouver Realtor offers comfort to Reuters American readers

On a day when all the local attention is focused on the release of the BC Provincial Budget, let's turn our attention to a small news item that probably slipped under your radar today.

NASDAQ.com posted an article by Reuters news service titled "Chinese investors find their cash is losing its cachet".

Apparently China's tightening capital controls are beginning to be felt in North America as Chinese firms struggle to close deals owing to lack of FX. As a result,  overseas direct investment is dropping sharply.  North American sellers want Chinese buyers to provide proof of funds and such deal scrutiny is hurting investor confidence.

According to Reuters:

"Chinese investors have been highly sought after the world over. Now, their cash is losing its cachet. China's increasing efforts to prevent capital from leaving the country are eroding the confidence of domestic and foreign investors about getting deals done inside and outside of the world's second-biggest economy. Chinese bidders had become ubiquitous in deals in the past two years and were welcomed, said Severin Brizay, head of Europe, the Middle East and Africa mergers and acquisitions for the investment bank UBS. 'Clients were asking if it would be possible to make sure they are involved. Now, we are seeing the reverse: some clients are asking if we can do it without Chinese bidders because of the domestic challenges they face,' he said.

Those at the heart of brokering investment deals with Chinese investors say that many Chinese firms are unable to close deals because they can not secure official permission to transfer yuan into foreign exchange.

This, of course, follows a series of capital control measures China implemented late last year to tighten restrictions on capital outflows and rein in what officials have called "irrational" outbound investment.

The Institute of International Finance estimated capital outflows surged to a record $725 billion last year and it expects even higher outflows this year. The yuan fell more than 6.5% last year against the US dollar, its steepest decline since 1994, prompting the central bank to spend hundreds of billions of dollars in reserves to prevent the slide from turning into a slump.

The most interesting of the facts presented are that Overseas Direct Investment (ODI) by Chinese in December fell almost 40% from a year earlier to $8.41 billion, the lowest monthly level in 2016.

In January, overseas property purchases by Chinese corporations plunged. In one case, a Chinese investor was unable to get permission from authorities to exchange yuan into $30 million to close a U.S. deal, a consultant involved in the project said. The planned $100 million investment in a U.S. residential property portfolio fell through.

"Sellers nowadays will request certain proof," said Jeffrey Sun, a Shanghai-based partner at the legal practice of Orrick, Herrington and Sutcliffe. "From the sellers' side, the worry is justified."

Reuters goes on to outline how fund managers that help Chinese investment abroad are "freaking out" and are searching for creative ways to circumvent capital control regulations.

But perhaps the best part of the article is the ending, which turns to the Village on the Edge of the Rainforest for reassurance and I'm sure will warm the hearts of all local real estate agents... and infuriate many frustrated with government complacency:

"Chinese conglomerate HNA Group announced about $20 billion in outbound deals last year. Thomson Reuters data shows it raised at least $17.05 billion in loans abroad in 2016. Overall, China's outbound investment hit a record last year but could have been much higher, said the Rhodium Group, a consultancy that tracks direct investment from China. It said a record 30 deals worth $74 billion and involving Chinese companies were cancelled in the United States and Europe in 2016.

"Right now everybody is thoroughly freaked out by capital controls," Daniel Rosen, a Rhodium partner and adjunct professor at Columbia University, said. Still, on Vancouver's upscale West Side, a neighborhood popular with foreign buyers where the price of homes runs in the millions of dollars, realtor Tom Gradecak was less worried about Chinese demand. In the past, Chinese investors have tended to find ways around capital controls, he said. "It won't take them long," he said. "The people that really want to come here, I don't think it's going to stop them."

Of course Gradecak would say that. Krusty just gutted the Foreign Buyers Tax to help make that happen, didn't she?

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