In pursuit of runaway funds, Beijing struck a deal with a fraudster tired of life on the run; Li Dongzhe is one of the 18,000 Chinese economic escapees hiding around the world

http://www.wsj.com/articles/one-of-chinas-most-wanted-tries-to-make-a-final-deal-1426548369

One of China’s Most-Wanted Tries to Make a Final Deal

In pursuit of runaway funds, Beijing struck a deal with a fraudster tired of life on the lam

JAMES T. AREDDY

March 16, 2015 7:26 p.m. ET

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On a Sunday afternoon three years ago, one of China’s most-wanted fugitives, dressed in baggy jeans and a striped shirt, walked into the country’s pagoda-shaped consulate in Vancouver. Li Dongzhe was ready to take the biggest gamble of his life.

Accused of masterminding a $113 million embezzlement, he had been living in Canada for almost seven years, beyond the grasp of China’s justice system. At home, he faced likely life in prison or a possible death sentence if found guilty—and government figures show Chinese criminal courts hardly ever acquit.In Vancouver, he blended into a local Chinese community so familiar he hadn’t needed to learn English—almost like a forced vacation for a workaholic such as himself, he sometimes joked.

So what pulled Mr. Li into the consulate that day?

The answer is contained in documents and hours of recordings, recently made available for The Wall Street Journal to review by Mr. Li’s Canadian lawyer, which give a rare glimpse into the pressures that can build in a life on the lam.

ENLARGE

Beijing today is determined to ratchet up those pressures as it pursues illicit wealth allegedly amassed by as many as 18,000 economic fugitives it says are hiding around the world after bilking China during its long-running boom. As much as $1.25 trillion in ill-gotten funds drained out of China in the decade to 2012, according to the Washington-based advocacy group Global Financial Integrity.

Chinese authorities have followed that money across the globe, chasing white-collar criminals from Fiji to Belgium to the U.S. President Xi Jinping’s government last year unveiled a new and expanded campaign to catch such fugitives abroad dubbed “Fox Hunt.” It’s adding police liaison officers in embassies and pressing foreign governments to assist in the effort.

In Mr. Li’s case, though out of China’s reach, he was feeling the heat on both sides of the Pacific, the recordings and interviews with others familiar with his situation show. He couldn’t be reached for comment.

At home, authorities had detained his relatives and confiscated their assets. Canada is one of many countries that are reluctant to deport Chinese criminal suspects out of concern they might be tortured or executed.

But under Chinese pressure, the Canadians detained him in jail for more than two years on an immigration violation and then placed him under constant surveillance, according to his Canadian lawyer, Douglas Cannon, and others.

“Every knock on the door—just nervous,” Mr. Li told Chinese officials inside the consulate. “Immigration officers? The police?”

Mr. Li had become rich by wheeling and dealing his way through the go-go years of 1990s China. As he began negotiations with Chinese officials in Vancouver, he figured he could cut one more deal: Beijing wanted a scalp and he would offer his—if China agreed to give him a light sentence for returning home.

Photo of Li Dongzhe taken from a Canadian immigration document. PHOTO: DOUGLAS CANNON

Growing up in the northern Chinese city of Harbin—a frontier trading city closer to Russia than Beijing—Mr. Li, now 48, got little formal education beyond primary school.

But he had confidence and a knack for business. One venture sold disposable wooden chopsticks. Another trucked Russian color TVs to Chinese cities.

When private-car ownership dawned in the 1990s in China, Mr. Li won concessions to sell Buicks, Volkswagens and Nissans. He formed a medical-supplement business. He scooped up empty land for development.

“He has vision,” said Jiang Guozai, a younger cousin. “In our eyes, he was already very rich when everyone was poor.”

He also was a relentless worker, to the exclusion of all else. Mr. Li’s ex-wife, Qu Hongwei, said he arranged no honeymoon, missed the births of his two children, ignored birthdays and only once in their marriage marked Valentine’s Day, when his aide bought her flowers.

An unassuming man with a square jaw and spectacles, he avoided flashy displays of wealth but allowed himself a top-of-the-line Audi with chauffeur.

Still, his ambitions outpaced his ability to generate cash, a person familiar with the situation said.

In 2000, he teamed up with Gao Shan, the manager of an out-of-the-way Bank of Chinabranch in Harbin, according to statements the two made to authorities later in China that were reviewed by the Journal. Efforts to reach Mr. Gao were unsuccessful.

Mr. Li introduced Mr. Gao to officials at local companies and the two men offered the executives kickbacks to make deposits at Mr. Gao’s branch, Mr. Gao said in the statements.

Then Mr. Gao doctored transactions with fake stamps and phony invoices to siphon 939 million yuan (then about $113 million) from the customers into accounts controlled by Mr. Li, Mr. Gao said. Millions of dollars were never recovered.

Among those approached in Harbin were an expressway company and a local pension fund. The kickback to one telecommunications-company executive equaled 1% of the deposit, Mr. Gao told Chinese authorities.

Mr. Li admitted to Chinese authorities his companies obtained money through the bank branch but considered the funds bridging loans, and insisted he didn’t take any for personal use, according to his statements. Mr. Gao told authorities he just hoped to get a promotion by building up the bank’s deposits.

During this period, Mr. Li bought four apartments on Pender Street in downtown Vancouver, a typical offshore investment for rich Chinese.

And when a Harbin friend living in Canada approached Mr. Li with a request to support the Royal Winnipeg Ballet, Mr. Li provided over $450,000 to underwrite an 18-day tour by the company in China, according to a Canadian government report. The ballet company didn’t respond to requests for comment.

After the alleged fraud at its branch managed by Gao Shan, Bank of China fired employees and moved the outlet down the block to this location. The old bank branch is now a grocery.PHOTO: JAMES T. AREDDY/THE WALL STREET JOURNAL

Then, in late 2004, at least one Bank of China customer began asking questions. Mr. Li got wind detectives were on his trail, his Canadian lawyer, Mr. Cannon, said. He then fled, bolting for Vancouver.

Mr. Li arrived in Canada a day after Mr. Gao, now 49, immigration records show.

Chinese police issued an arrest warrant and Interpol Red Notices seeking Messrs. Li and Gao for what was believed to be one of China’s largest-ever bank embezzlement frauds.

In Vancouver, Mr. Li assumed a low profile, and within six months of his arrival in Canada sold all traceable assets there, including the Pender Street properties.

With China eager to get him back, Vancouver police began surveillance of Mr. Li and agreed to send an officer to Harbin to hear a briefing.

Back home, some of Mr. Li’s cousins were imprisoned on suspicion of involvement in the embezzlement, according to Mr. Cannon, the lawyer, and relatives of Mr. Li.

Authorities evicted some family members and former business associates from their homes. And they took control of many of Mr. Li’s properties, dealerships and other businesses, then sold some of them, Mr. Li said in later statements to authorities.

In February 2007, roughly two years after Mr. Li arrived, Vancouver police traced him to a hotel and forced open the door, a Canadian government report said. They arrested Mr. Li and charged him with overstaying his tourist visa.

But Canadian immigration officials decided not to deport Mr. Li for fear he “would face a risk to life, a risk of torture or a risk of cruel and unusual treatment or punishment” in China, they said in an April 2008 ruling.

Stuck in jail, Mr. Li wrote a 37-page proposal to China’s government. He said he’d accept up to three years in jail if authorities dropped charges against his family members and returned their real estate.

Mr. Li suggested such a deal would set an example for other criminals who had fled China and encourage more to turn themselves in. It was time for everyone to “exercise their political wisdom, legal flexibility and negotiation skills,” Mr. Li wrote, according to a copy viewed by the Journal.

It is unclear whether Beijing responded.

But China’s Ministry of Foreign Affairs did pledge in an August 2008 memo to Canadian officials that if Mr. Li were extradited and found guilty, “the presiding court will not sentence Li Dongzhe to death,” according to a copy reviewed by the Journal. The memo didn’t provide any other assurances.

China’s Ministry of Foreign Affairs said in response to questions that all dealings with Mr. Li were handled according to Chinese law.

After more than two years, Canadian authorities released Mr. Li in mid-2009. But they saddled him with a 6 p.m. curfew and bans on handling cash or credit cards, driving, using the Internet and even going near the waterfront. To get around the cash ban, he asked contacts including his lawyer to help with his shopping.

An electronic monitor was strapped to his ankle and two video cameras inside his apartment recorded the front door and his balcony.

Mr. Cannon, in an interview, recalled joining Mr. Li on a trip to the mall to buy clothes when two uniformed Canadian immigration officers tailed them.

The View From Canada

The Canada Border Services Agency declined to comment on individual cases but in a statement said it “works closely with international and domestic law enforcement partners” and “is committed to ensuring Canada is not a safe haven for people who are fugitives from justice.” Other Canadian government offices, including the Foreign Ministry in Ottawa and the Royal Canadian Mounted Police, declined to comment.

Mr. Li was miserable in other ways, too. He disliked Western food and rarely had visitors—not even his former partner Mr. Gao, who was trying to carve out a quiet life with his family in Canada despite facing his own pressure from Canadian authorities. Mr. Li lived in a bland two-bedroom apartment overlooking a parking lot that he rented with his brother, who had gone with him to Vancouver.

Living such a life was “torture,” Mr. Li said later during one of his recorded meetings with Chinese officials.

In March 2010, he’d had enough. He made a fresh approach to the Chinese consulate with a letter proposing a confidential meeting, according to a copy reviewed by the Journal.

Mr. Li’s Proposal

After several months, the consulate invited him in but rejected one of his prerequisites—official Canadian involvement—Mr. Cannon said. Mr. Li agreed anyway, and starting in mid-2011 met Chinese officials around a dozen times, recordings show.

The recordings suggest Mr. Li initially oozed confidence. He said his family had legitimate wealth that should be returned. He said his brother, who was also wanted by Chinese authorities for alleged involvement in the fraud, had no significant role in his business. The brother couldn’t be reached for comment.

And Mr. Li repeated his claim that his arrangement could become a “showcase” to encourage other fugitives to do deals.

“You are sincere but not resolute enough,” one Chinese official responded in the recordings.

Soon, Mr. Li offered a show of good faith: He convinced his brother to surrender. In exchange for a verbal assurance from the consulate that he wouldn’t be prosecuted, the brother returned to China in July 2011, according to recordings and documents viewed by the Journal.

“We are answering the motherland’s call,” Mr. Li said to the Chinese consular officials.

Mr. Li appeared to click with his primary interlocutor, You Xiaowen, China’s chief police liaison officer in Canada.

One Friday, over a seafood dinner out, they chatted about hometowns and Vancouver’s affordable lobster, according to a recording of the meeting.

“You’re a nice guy, and that’s why we can talk,” said Mr. Li. Mr. You didn’t respond to a request for comment.

Still, Mr. Li didn’t seem to be making progress. His initial demands—like a three-year jail sentence—fell away. He was growing weary.

“There’s never a happy day,” Mr. Li said during one recorded meeting. “The food is tasteless.”

Point-Counterpoint: Deportation Dilemma

Canada and other western nations are grappling with what to do with Chinese fugitives: Send them back to a country with a poor human rights record, or protect them and risk becoming a haven for international criminals.

Douglas Cannon, Li Dongzhe’s Canadian lawyer, argues that China needs a fairer criminal justice system before western countries cooperate more on fugitives.

Yan Xiaojun, a Chinese legal expert at the University of Hong Kong, argues that western nations have a duty to assist China in bringing its criminals to justice.

On Sept. 4, 2011, Mr. Li sat down with China’s consul general in Vancouver, Liang Shugen,according to recordings, documents and photos from the meeting reviewed by the Journal.

The consul read a vague five-point offer that he said had been approved in Beijing. For Mr. Li’s and Mr. Gao’s voluntary surrender, he said, China could verbally promise unspecified “leniency”—but not rule out life in prison.

No harm would come to innocent family members, the official pledged, and they could reclaim legitimate assets.

“This is the best deal you’ve got,” said Mr. Liang. “Seize it.”

Efforts to reach Mr. Liang, now based in South Africa, were unsuccessful.

The offer required both Mr. Li and Mr. Gao to return, and it would expire on New Year’s Day. Mr. Li sounded thrilled and Mr. Liang accepted his suggestion that they pose for a photo.

“Now we have these promises from the Chinese government, we can go back with relief,” Mr. Li said to Chinese officials in the recordings.

His exuberance didn’t last, the recordings show. In a meeting the following month, Mr. Li worried aloud that his brother’s return to China in July had cost him leverage: If Mr. Li failed to follow, his brother could face prosecution.

He suggested to Mr. You that the time had come for China to demonstrate its sincerity by, for instance, handing back his family in Harbin an apartment or two. The Chinese officials didn’t budge.

“I tell you, Counselor You, now I don’t know what to do,” Mr. Li said. “Because I’ve made this big step, now I can neither retreat, nor move forward.”

He added: “I am all alone in Canada. Every single family member is in China. Am I digging my own grave?

Chinese fugitives Li Dongzhe, farthest left, and Gao Shan pose with then consul-general Liang Shugen and Chinese embassy police liaison officer You Xiaowen, farthest right, in September 2011 at China’s consulate in Vancouver. PHOTO: DOUGLAS CANNON

As negotiations wore on, Johnny Chang—one of Mr. Li’s few friends, the lead dancer in the Winnipeg ballet he had sponsored—said he twice flew to Vancouver to help Mr. Li with issues that required English, like buying clothes. Mr. Li seemed lonely and anxious, he recalled.

“Did he really need help?” Mr. Chang said in an interview. Sometimes Mr. Chang and his wife talked about whether Mr. Li required assistance or just wanted a friend, with Mr. Li phoning him at all hours for small talk, he said. “I think it was mental.”

On Dec. 27, as the deadline approached, the recordings capture Mr. Li pleading with Mr. You, the policeman: “Can you give me one more month?”

But three days later, his departure was back on track. Meeting with Chinese officials, he is heard in the recordings discussing how to handle two bulky suitcases.

Then, Mr. Li’s microphone suddenly picked up sobs as the reality of his situation sank in.

“I’m sorry,” Mr. Li whimpered.

His despondence, seemingly from nowhere, startled Chinese officials.

“Sorry, nothing,” one official snapped.

00:00/01:19

Touch the speaker icon to listen to Li Dongzhe’s dialogue with Chinese officials.

“Even when my father died, I didn’t cry,”Mr. Li mumbled, according to the recordings.

“Don’t be emotional,” said the official.

Mr. Li babbled through tears about trust, duty and age. He referred to family members he feared he had let down. He lamented he hadn’t seen his daughter in seven years. He told Mr. You he feared losing the policeman’s companionship. “I’m really ashamed.”

The officials abruptly ended the meeting.

On Dec. 31, 2011, exactly seven years after he fled China, Mr. Li went to Vancouver International Airport and signed a Canadian Certificate of Departure that described him as a nondangerous Chinese criminal denied entry to Canada.

Mr. Li bumped into Mr. Chang, the dancer, who was scheduled on a flight departing from a nearby gate.

“Well, I’m leaving in an hour,” Mr. Li told his friend, who recalled the meeting in an interview. He said that Mr. Li appeared confident that he was going to be free when he arrived home.

Just before 1 p.m., Mr. Li lifted off aboard Air China Flight 270 to Beijing. He paid to upgrade to business class, people familiar with his departure said, leaving two Chinese consulate staffers in coach for the 10-hour trip. After he landed, without fanfare police took Mr. Li to his hometown and remanded him in Harbin No. 1 Detention Center, family members said.

Eight months later, Mr. Gao, who was also negotiating his return to China, followed. He had missed the end-of-year deadline to await an assurance from Canada that his wife and daughter wouldn’t be deported. They continue to live there.

Once Mr. Gao was airborne, people familiar with the matter say, Chinese authorities pounced.

Police in various cities arrested a clutch of Mr. Li’s business associates and family members, including some it had detained and released earlier, as well as his brother. When Mr. Gao’s plane touched down, state-run media trumpeted the capture of the alleged bank fraudsters.

In a two-day trial in Harbin in September 2013, Mr. Li conceded that his companies engaged in fraud and bribery but he claimed to not have profited personally. He waited in detention, hoping his deal in Vancouver for leniency would stick.

A year later, in September 2014, standing in a green polo shirt with his ankles shackled, Mr. Li heard the court return guilty verdicts. He was sentenced to life in prison and all his assets were confiscated.

“We could consider giving him a lighter punishment,” the verdict said about Mr. Li, citing his voluntary surrender. “But a lenient sentence is not warranted” because the bank fraud “was particularly severe.”

His brother, who pleaded not guilty to fraud, was sentenced to 25 years. The court credited Mr. Gao with a full and truthful confession and sentenced him to 15 years.

The 166-page decision made no mention of Mr. Li’s contact with the Vancouver consulate.

Last month, a provincial high court rejected Mr. Li’s appeal, citing reliable evidence of his crimes.

“Chinese law-enforcement agencies and judicial agencies will not enter into any kind of deals with those criminals fleeing abroad,” said Xu Hong, a legal expert at China’s foreign ministry, in response to questions from the Journal at a press briefing.

“The reason why these criminal suspects are willing to return to China is they don’t see a way out to continue staying abroad.”

Mr. Cannon, who also represented Mr. Li’s brother, said Mr. Li returned to China believing he had an agreement that would protect his family and limit his own prison time.

In the end, he said, “My clients took a chance and lost.”

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