You Are In: USINFO > Regions > East Asia Pacific > Chinese Human Smuggling
 
 

Money and "Guanxi": Keys to Understanding Crime By Asians

By M. Cordell Hart

A Proper Perspective

The surge in crime perpetrated by Asians in the United States and elsewhere in the West over the last 15 years has ethnic and operational characteristics which are poorly described by the term "Asian organized crime" (AOC). The reason for this goes beyond the easy observations that Asians rather identify with their specific language/cultural group (i.e. Chinese, Japanese, Korean, etc.) and that members of those specific groups do not mix well or easily with persons from another Asian group -- whether in social affairs or in criminal concert. More importantly, the criminal activity of ethnic Asians -- with the notable exception of Japanese Boryokudan -- is rarely organized, at least in the way U.S. law enforcement defines the term.¹

While triads and other Chinese secret societies have offices, ranks, oaths, and other features of a continuing hierarchy, the structures serve more to bond their members than to direct members' activities. Clearly, the vast majority of triads do not have the same organizational function in crime as do the "families" which comprise La Cosa Nostra. Leaving aside certain differences in triad definition and operation specified by the Royal Hong Kong Police as appropriate to Hong Kong law and circumstance, experts have observed that triad members may engage in a variety of criminal enterprises, but operational direction rarely comes from the triad hierarchy and proceeds of the criminal activity are almost never given to the triad for distribution as profits. Triad members do contribute money to their sponsors in the triad, but the money is offered more in tribute than as an obligation.²

As for "criminally-influenced tongs," they are just that: Chinese fraternal and mutual-aid societies that are controlled in some degree by individuals striving for illicit profits. Occasionally, tongs are influenced and used in the same way labor unions in the United States have been exploited, and some tongs' hiring of ethnic Asian gangs³ to serve as guards and enforcers for tong social and business functions only supports the perception of criminality. By definition and history, however, tongs are not inherently criminal associations.⁴

Asian gangs are of immediate consequence because they recruit and introduce ethnic Asian youths to a career in crime. Too, gangs are of law enforcement concern for their violence and their provision of some facilities to assist larger criminal endeavors (i.e. "safe houses" and heroin distribution networks). Some gangs admit members from different ethnic groups, but most gangs are formed from only one ethnic groups.⁵

Money and "Guanxi"

In sum, the term "Asian Organized Crime" is handy but misleading, and while the esoterica surrounding Asian criminal organizations is immediately fascinating, the organizational structures alone are rather incidental to the phenomenon of crime as played out by ethnic Asians in the West. The real dynamics of this sector of Asian crime are better understood through an examination of the financial and personal ties, however remote, among participating individuals. Critical to this are information on Asian money movers and an understanding of the practice of "guanxi," a fundamental part of the Asian mindset.⁶

"Guanxi" is essentially an Asian "social glue." It is part of social interaction across a wide range, from close personal relationships to the extended, often unknowing, support arrangements found in Asian criminal enterprises. To our knowledge, courts have yet to rule on the applicability or admissibility of "guanxi" in criminal cases, but it seems likely that the concept of "guanxi" could be used either to specify an individual's contribution to a criminal enterprise or to assist in his defense.

The Flow of Money

A common thread among Asian criminals -- indeed, all criminals -- is profits. (Crimes of passion have great societal impact, to be sure, but they are far less prevalent than crimes with a profit motive.) Examined coldly -- and to deny the old comic book admonition -- crime does pay, and it pays well. Leaving aside factors of morality and risk, criminal enterprises must be seen as viable economic endeavors. Otherwise, no person or series of persons would persist in the particular criminal behavior. Another common thread seems to be that Asian criminals -- as with all Asians -- prefer to move their money through financial and business channels that are closely identified with, or managed by, other Asians, whether that involves, for example, an ethnic Asian real estate agent, a chartered bank in Chinatown, or the so-called "underground banking system."

While Asian crooks in the West are ingenious and flexible as to money laundering methods -- now also involving credit cards and smart cards, and, likely, cybercurrency in the near future -- the vast majority of their proceeds is thought to be handled in more traditional ways: placement in the underground banking system for wire transfer overseas, movement through corrupt banks and gambling casinos, physical movement abroad of cash and negotiable instruments, and the domestic purchase of real estate and other items of value. There are no dependable figures on the total number of dollars involved in any of those, but anecdotal information suggests the underground banking system is primary.

Money Taken Out of the Country

In an ongoing investigation of just one underground banking network, a U.S. law enforcement agency has determined that over $200 million was moved out of the United States in a four-year period. Accepting money from ethnic Asians in a 35-state area, that network charges a fee of 10% on increments of money up to $15,000. For larger increments of money, the fee is negotiated downwards. The specified amount of money of a single transaction is made available to the ultimate recipient in Asia in a matter of hours, even before the initial customer's check clears his regular U.S. bank -- though most transactions are made in cash. The network then moves the money from the regional representative to a regional hub in Houston, Texas, for direct transfer to Hong Kong, or from a regional representative, through various businesses, and on to an operation in California for transfer abroad. In both channels, wire transfers or the transportation of currency, postal money orders, etc., are used to move the money to Asia. The fee paid initially is distributed along the way.

Except for the structuring of deposits and withdrawals at commercial banks (keeping amounts below the $10,000 reporting threshold with an intent to evade reporting requirements under provisions of the Bank Secrecy Act) and in the purchase of postal money orders (keeping the amounts below the $3,000 reporting threshold), much of the money moved through this system is without direct criminal taint.⁷ For most Asians, it is largely a remittance system that guarantees the delivery of money to relatives and friends in Asia free from taxes and demands of corrupt officials. (To a much lesser degree, it is also a system used to move money from Asia to the United States.) However, proceeds of crime follow the same path. Of the numerous transactions that made up the approximate $200 million noted above, many were identified as proceeds of gambling, prostitution, and food stamp fraud. Further, there are indications that cash payments -- originating in the United States -- to Chinese alien smugglers are now being made in China, vice the United States, and that the money is then invested in China's burgeoning private industry. Whatever the ultimate disposition of the money, the money source remains the United States and the conveyance remains the underground banking system.

Though probably reflecting an entirely different market from that noted above, information on one underground banking system operating between Hong Kong and Thailand provides some interesting dimensions. Over a two month period in 1988, approximately 10%⁸ of the 900 transactions moving money from Hong Kong to Bangkok involved persons or organizations identified in the U.S. Drug Enforcement Administration's Narcotics and Dangerous Drug Information System. Only 5%⁹ of the subjects involved in money moves from Bangkok to Hong Kong were so identified.

Money Brought Here

Japan is a most prosperous nation, and it has a thriving -- and truly organized -- criminal element: the Boryokudan, more commonly known as "Yakuza." Although with ancient roots, it was during the years following World War II that modern organized crime groups took their forth in Japan. Since then, these groups have been changing their organization, diversifying, and more discreetly concealing their activities in an attempt to adapt themselves to the era of Japan's high economic growth, the ensuing period of stabilized growth, and also to evade police control.¹⁰

Japan's National Police Agency estimated in 1992 that annual revenues of Boryokudan were about $10 billion. The total annual income for all factions of Boryokudan is currently estimated at $13 billion. Given the traditional Japanese reliance on cash, and the relatively new and weak financial controls that could otherwise provide intelligence to Japanese law enforcement agencies, there is little need for Boryokudan to move money abroad for laundering. More likely as pure investments, or in an attempt to develop additional operational bases, Japanese businessmen with ties to Boryokudan have been known to purchase real estate and gambling casinos in the United States.

The Ken Mizuno Case is instructive.¹¹ That investigation, in many ways continuing, is recognized as the second-largest non-drug money laundering case in U.S. history.¹² It featured the first large-scale seizure in the United States of proceeds from foreign fraud and involved approximately $1 billion in proceeds. Of that amount, $440 million was determined to have accrued to Mizuno alone -- and only $280 million of that has been located. The investigation succeeded as a result of effective cooperation between U.S. and Japanese authorities.

Importantly, the Mizuno investigation also revealed a vulnerability of the U.S. financial system to sophisticated introduction of capital from international criminal activities and a particular vulnerability of U.S. financial institutions, gambling casinos and their parent corporations to foreign criminal manipulation. Specifically, the investigation revealed a complex web of financial transactions, the majority of which essentially avoided and evaded U.S. reporting requirements as called for by the Bank Secrecy Act. Moreover, given the Asian predilection for gambling, as well as the recent expansion of the U.S. gaming industry to 22 market centers, the potential for money laundering has become enormous.¹³

NOTES

1. It is generally accepted that an organized crime group will feature, as a minimum, a chain of command, a process for leadership succession, functional specialties, standards for promotions/assignments, and implicit codes of behavior.

2. See "Chinese Triads -- An Investigative Aid," by Mr. George Harkin, U.S. Drug Enforcement Administration, dated 16 February 1996.

3. See "Asian Gang Survey Results," by the New England State Police Information Network, dated April 1995.

4. See "Triads, Tongs and Street Gangs -- A Baseline Assessment of Asian Organized Crime," by the National Drug Intelligence Center, dated March 1994.

5. See "Asian Criminal Enterprise Briefing Book," by the Federal Bureau of Investigation, dated July 1993.

6. The matter is extensively treated in three papers: "Chinese," "On the Chinese Practice of 'Guanxi"' and "'Guanxi:' An Important Consideration for the Law Enforcement Officer," by M. Cordell Hart, U.S. Department of the Treasury, Financial Crimes Enforcement Network. Note that personal ties between members and sponsors in triads are an extremely close form of "guanxi."

7. Regulations covering non-bank financial institutions are currently being formulated.

8. This figure projects to 40% when considering matches with various romanized forms of names, Sino-Thai names, and simple nicknames.

9. No higher projection based on name variations is possible here, as almost all the remittances from Thailand to Hong Kong were by organizations, vice individuals.

10. See "White Paper on Police," by National Police Agency, Government of Japan, dated 1989.

11. Mizuno was convicted in Japan of tax fraud, but is currently free pending appeal. U.S. authorities hope to deal with him in the United States, and, interestingly, Mizuno wants to be extradited to the United States. He has much money located somewhere here and probably expects to strike a deal with prosecutors that will leave him with some of the money and require no jail time.

12. The BCCI Case was the largest, although it did involve undercover agents posing as drug traffickers.

13. The U.S. General Accounting Office cited in its January 1996 report on money laundering that "the proliferation of casinos, together with the rapid growth of the amounts washed, may make these operations highly vulnerable to money laundering." -----------------------------

M. Cordell Hart is a Chinese linguist and writer/lecturer on Asian crime matters. He is the director of the Center for Asian Crime Studies and an analyst for the Financial Crimes Enforcement Network at the U.S. Department of Treasury.