The 21st Century Mafia: Made in China

10 february 2007

Vladimir Ovchinsky

Resume: As China continues to consolidate its leading positions in the global economy, Chinese organized crime is expected to broaden its presence in global criminal links. This is of tremendous concern for Russia and the world.

China, which is rapidly becoming a leader in global development, is now the talk of the world. However, the positive manifestations of this diverse phenomenon are closely linked with negative ones. For example, as China continues to consolidate its leading positions in the global economy, Chinese organized crime is expected to broaden its presence in global criminal links. This is of tremendous concern for Russia and the world.

THE “TRIADS” AND REFORMS

Many observers believe that information concerning the negative processes in contemporary China is classified, but this view is largely exaggerated. Chinese criminologists (including Liao Ping, He Bisong, Xin Yan, and others) have conducted in-depth studies into organized crime in their country, and the results of these studies have been translated into other languages, including Russian. Furthermore, Chinese officials from the Communist Party and law-enforcement bodies eagerly share their information about the criminal situation.

Analysis of these studies suggests that any shift from a command economy to a market economy brings about, as a negative side effect, an upsurge (or rather an outburst) of organized crime and corruption. China launched market reforms earlier than the Soviet Union, followed by Russia, and therefore was in the position to recognize the problem at an earlier time. While the Soviet Union first confronted the problem of organized crime and corruption in the mid-1980s, beginning with the famous “Uzbek affair,” China already experienced this phenomenon in the late 1970s, with the revival of the notorious “triads” (which, incidentally, played a significant role in the Celestial Empire back in the 17th century).

The study of contemporary organized crime in China, carried out by Chinese scholar Xin Yan, shows that mafia-type organizations seriously destabilize public order. Their leaders actively infiltrate economic structures as corruption ties grow stronger and economic crimes become more refined. Meanwhile, low-level government bodies (in villages and small towns) and law-enforcement agencies become increasingly infiltrated by criminal elements.

Eventually, the leaders of criminal organizations succeed in rising to high positions in the social hierarchy. For example, they become deputies of the National People’s Congress or members of political consultative councils in the provinces. Criminal organizations are more frequently interfering with the reshuffling of high-ranking officials. Moreover, there were even cases when the authorities of some Chinese regions asked the mafia to take over low-level administrative power (for example, in villages), while many local administrators asked the mafia for financial aid. Thus, criminal organizations in those regions evolved from a “criminal force” into a “criminal power.”

Xin Yan has studied many criminal cases and concluded that organized crime groups are often organized and run by former party and administrative functionaries and high-ranking officials of prosecutor’s offices. There were even reports alleging that these criminal leaders were active deputies of the National People’s Congress, secretaries of Communist Party cells, and chief executives of local Public Security Bureaus.

An increasing number of triad societies now operate under the umbrella of legitimate companies and enterprises and infiltrate governmental economic entities. Triads, which generate massive profits, have built a system for laundering illegal revenues. According to Chinese experts, about 200 billion yuans (U.S. $24.7 billion) is laundered in China each year; huge sums of money circulate through illegal money-changing shops. 

Triads are more active in the coastal provinces, especially in Hong Kong. They control heroin and opium supplies, the hard currency black market, and the trafficking of Russian and Ukrainian prostitutes for brothels in Hong Kong and Macao. Finally, they control arms trafficking and provide “protection” for local businessmen. In Hong Kong, for example, there are 15 to 20 triad groups that actively engage in criminal activities, each having at least 30,000 members.

The official China News Weekly Review published an article in 2005, revealing that, apart from Hong Kong and Macao, the Chinese mafia has spread its operations to large industrial centers in mainland China, such as Guangzhou, Tianjin and Shanghai.

Mafia organizations are taking advantage of both the negative and positive aspects of China’s economic reforms. Of course, they could not ignore the country’s fast-developing Internet market (as of early 2006, China placed second in the world with over 110 million users, behind only the U.S.) and organized on-line sales of pirated audio and video materials. Now, items offered for sale by triads also include drugs, prostitutes, stolen cars, weapons, false documents, and even human organs for transplantation.

The Beijing authorities work hard to control the Net by means of over 30,000 Internet police officers. Since the beginning of the 21st century, more than 2,000 web sites have been closed down for offering sexual services and gambling entertainment. Yet every day new sites appear that replace the closed web sites.

The rapid growth in fuel prices tempted the mafia to steal crude oil from pipelines, many of which were seriously damaged. The police estimated the amount of oil stolen in 2005 at over U.S. $120 million.

CHOPPING OFF THE DRAGON HEADS

The architect of the Chinese reforms, Deng Xiaoping, laid the ideological and organizational basis for the struggle against mafia structures and corruption in the People’s Republic of China. In the early 1980s, he pointed to a steadily worsening criminogenic situation in the country and emphasized the need for a long-term struggle against this social evil. In particular, he ordered full-scale operations against organized crime.

Deng also initiated the establishment of powerful analytical subdivisions within the Ministry of State Security and the Ministry of Public Security. These subdivisions prepare long-term forecasts for the development of the geostrategic and regional criminogenic situation and devise plans for full-scale operations. There are also several central analytical organizations (for example, the Research Office under the State Council).

From 1983 to 2005, at least ten full-scale operations of this kind were carried out, in which more than one million criminal groups were liquidated. Many of their leaders, together with the most odious members, were executed.

Importantly, these types of operations against organized crime, together with the ongoing struggle against the mafia and corruption, are conducted in China in strict compliance with the law. China’s criminal law, together with those laws that pertain to criminal procedure, is constantly modified to respond to changes in the situation. Chinese laws, unlike Russia’s, contain clear definitions of mafia organizations, while the Supreme People’s Court regularly gives detailed explanations of judicial practices pertaining to cases on organized crime and corruption.

To counter the increased scope of money laundering by the mafia, the Chinese government in 2004 set up the Anti-Money Laundering Monitoring and Analysis Center. Additionally, the Ministry of Public Security has an anti-money laundering department, which develops specific measures, interacts with foreign counterparts, and coordinates the activities of the ministry’s local divisions. There is even a special computer network that controls money flows 24 hours a day.

All these organizations participate in the full-scale operations, after which criminal activities subside for some time. Yet, after a while, criminal groups become active again, because these operations fail to eliminate the main reasons for crime. Thus, in place of the chopped off head of the dragon, many more deadlier heads grow in its place.

Unless unemployment, China’s main social problem, is solved, the self-reproduction of liquidated criminal organizations will continue. The number of the unemployed in the country is estimated at 182 million to 199 million, or 26 to 28 percent of the number of the employed. This figure equals 10 Chinese armies, and the mafia uses a large part of these redundant people.

A source of special concern is that the army of the unemployed is largely recruited from young people below the age of 35. According to a study conducted by China’s Ministry of Labor and Social Security, the unemployment rate among young people in 62 cities across China has exceeded 60 percent. Even graduates from institutions of higher learning have difficulties finding a job.

The “going outward” and “welcome to come” strategies, conducted by China in the last few years, are intended to increase the country’s foreign trade and foreign direct investment and, simultaneously, to solve the unemployment problem through intensive labor migration to other countries.

THE EXPANSION PROJECT GAINING STRENGTH

The above strategies helped China to increase its foreign trade almost threefold between 2001 and 2005. According to expert estimates, by 2020-2030, China will pass the United States in terms of GDP, thus becoming the world’s economic leader. The same conclusion is drawn by the well-known 2020 Project [Mapping the Global Future, prepared by the National Intelligence Council, a CIA advisory group, and issued on January 15, 2006 – Ed.].

As regards the “welcome to come” strategy, according to some Western analytical centers cited by Maxim Chereda, the leaders of the largest and most influential triads established contacts with representatives of the Chinese leadership at all levels, which ensured the safe infiltration of their cash into Mainland China, mainly in its southern provinces. The triads’ money was used for establishing profitable joint ventures, such as nightclubs and casinos. The co-founders of these ventures included regional representatives of China’s security organizations, in particular the Ministry of Public Security and the People’s Liberation Army.

However, any sort of “peaceful coexistence” between the Chinese mafia and the country’s leadership could not last for long. “Triads were alright for Beijing for as long as their capital was needed for economic reforms in the country,” Chereda wrote. “Now the reform process no longer needs support from ‘not quite legitimate organizations,’ to put it mildly.” As a result, the Chinese leadership has launched an offensive against triads.

At the same time, as prominent sinologist Vilya Gelbras writes, China has attracted U.S. $600 billion in foreign direct investment in the course of its “going outward” policy. According to some estimates, China has invested U.S. $700 billion in American securities, thus protecting the dollar and securing its presence on the U.S. market. From 2002 to 2005, foreign direct investment by Chinese enterprises alone (without taking into account financial organizations) amounted to $17.9 billion (with an average increase of 36 percent a year!), while more than 10,000 various enterprises have been set up outside the country. Considering the toughening of the government’s anti-mafia and anti-corruption policies inside the country, and the continuing “going outward” strategy, triad leaders objectively benefit more from directing their expansion out of the country.

This global criminal project is already being implemented – and very effectively. Chinese mafia organizations have established control over migration processes and have taken leading positions in organizing human trafficking and illegal migration. As follows from the U.S. Department of State’s report of 2005, China now ranks amongst the countries that require special attention due to the vast number of people who are made victims of human trafficking. A June 2006 report by Europol described Chinese mafia groups as leaders in human trafficking throughout the European Union.

Chinese triads have even made Japan’s mafia, yakuza, make room in its own country: the Chinese account for about half of all crimes committed by foreigners in Japan (double the figure from a decade ago), while their mafia organizations control two-thirds of heroin trade in that country. According to U.S. expert estimates, these organizations have also infiltrated the U.S. legal and black-market economies, surpassing even the Colombian cartels. In Italy, in early 2006, law enforcement bodies launched a major investigation into links between Chinese gangsters and the Italian mafia. An investigation is being held in Milan’s Chinatown with regard to suspicious investments in real estate and trade. In Rome, investigators have revealed dummy firms and banks engaged in money laundering. The first large-scale investigation concerning the financial resources of the Chinese mafia in Italy involved 22,000 Chinese. In total, the Italian police have launched 250 criminal cases against the leaders of Chinese mafia organizations and their assistants.

A 2005 report by Italy’s chief prosecutor said that the local Chinese triad was becoming more and more aggressive and united. The last few years have seen a rise in illegal activity, such as robberies and acts of extortion with regard to Italian citizens, and the emergence of mixed Chinese-Italian criminal groups.

Chinese organized crime can provoke global economic crises and influence market prices. In particular, in 2005 the world copper market was on the brink of collapse after a disastrous gamble on the London Metal Exchange. Chinese copper trader Liu Qibing, well known among business circles, sold 200,000 tons of copper on the exchange on behalf of the Chinese State Reserve Bureau, after which he disappeared, while world copper prices reached a record high.

Given the vast expansion of Chinese organized crime, it was impossible that the phenomenon would bypass Russia, but the intensity and forms of this expansion differ in many respects from the situation in other countries. There are objective reasons for this.

INFILTRATION OF RUSSIA

Sociological studies conducted by Russian scholars on Chinese communities in Moscow, Irkutsk, Khabarovsk and Vladivostok, in addition to the results of polls taken in Blagoveshchensk, Nizhny Novgorod, Rostov-on-Don, Barnaul and Belokurikha (the Altai Region), have shown that Russia, like the rest of the world, is experiencing a decisive moment: the development of new conditions for the global expansion of Chinese migration, and the rise of Chinese communities in foreign countries. This largely spontaneous growth has given way to the organized expansion of Chinese immigrants abroad and the broadening of their business activities.

The estimated number of Chinese migrants in Russia varies from 400,000 to 3 million. The main problem posed by this relatively new phenomenon is the damage these groups inflict on the Russian economy: the Chinese communities, according to police information, are covertly controlled by Chinese mafia organizations. Meanwhile, relations within these communities are patterned after those in the triads (strict obedience to the leaders, a vow of silence, severe punishment of recalcitrant members, etc.).

The majority of Chinese migrants, organized by mafia, go to Russia’s Far East. There are objective historical, demographic and, particularly, economic reasons for this choice. Sinologist Andrei Ostrovsky writes that Russia’s market reforms, marked by the loss of state regulation in the economy, have not made the region attractive to investors. Actually, in the competition for attracting capital to the Far East, Russia lost out to China.

The governor of the Khabarovsk Territory in the Russian Far East, Victor Ishayev, told the Izvestia newspaper in April 2006: “The Far East has been isolated from the Russian economy. In the Soviet times, 75 percent of all our products were supplied to Russia’s domestic market, whereas today we supply only 4 percent. Full-scale ties with the rest of Russia are impossible due to unequal conditions, in particular high tariffs on heat energy, electricity and transport, and the absence of industrial restructuring… Today we are legislatively determined to be a raw-material appendage of the advanced, fast-developing countries (Japan, China, Korea).”

Chinese mafia organizations exploit Russia’s Far East and Siberia precisely as a raw-material appendage. Yuri Yegorov and Alexander Samsonov, who studied organized crime in Russia’s East Siberia and Far East on the basis of police information available for the period 1999-2003, cite the following figures.

 

Of all criminal cases launched by the Russian police against ethnic organized crime groups in 2002, Chinese criminal groups accounted for 38 percent of the criminal cases in East Siberia, and for 40.9 percent of all cases in the Far East.

 

Poaching and smuggling of the forests and seas in the Russian Far East is also carried out on an organized basis. Hundreds of Chinese citizens are repeatedly detained in the Ussuri taiga with ginseng roots and other plants included in the Red Book of Russia. During the season for pine nut picking, Russian police recovered many tons of pine nuts from Chinese illegals. In China, pine nuts are processed for oil, which is later used as a component in pharmaceuticals and perfumes. Products that are valuable on the Chinese market, including trepang, ginseng, tiger skins and even bear bile, are smuggled out of the Maritime Territory. There is also an underground market for various kinds of frogs and turtle. In 2003, Chinese citizens began to actively smuggle various species of sturgeons into China from Russia.

 

Chinese poachers have destroyed the commercial stock of autumn salmon in the Ussuri River and have taken almost complete control over the migration routes of valuable fish species, including Siberian salmon and Siberian sturgeon, as well as popular sturgeon spawning areas.

 

Initially, the Chinese caught the fish themselves; now they actually hire the local Russian population for this task. The Chinese organized crime groups also hire Russians for cultivating plots of land leased by these groups. In other words, instead of serving as additional manpower resources, these Chinese “migrants” mercilessly exploit the Russian population: the mafia never becomes a manpower resource!

 

Professor Vitaly Nomokonov of the Far Eastern State University warns that Chinese mafia organizations in the Far East are intensively integrating with the Russian mafia. In Ussuriisk, for example, triads have established business relations with local criminal leaders: Russian organized crime groups help triads to buy metals in the region and to ship them abroad. Also, Russians set up passenger transportation firms, which are used by the Chinese, and provide warehouses for storing goods, including contraband. The last few years have seen the rise of yet another phenomenon: more and more Chinese are joining Russian organized crime groups, tipping them off about the movements of Chinese traders. At least one Chinese trader is robbed every month.

Professor Valery Sobolnikov of the Siberian Academy of Civil Service points out that in 2002-2005 Chinese organized crime groups registered businesses with dummy Russian owners, which allowed the actual heads of these firms or commercial structures to evade taxes. In many cases, the Chinese mafia establishes firms for single transactions. In the Chita Region, for example, about a thousand such “companies” have been revealed. In the Novosibirsk Region, numerous facts have been disclosed about foreign-trade operations carried out by front businesses. Incidentally, a majority of such commercial structures export strategic raw materials out of Russia.

 

Professor Anna Repetskaya of the Baikal State University of Economics and Law points to a similar tendency in the Irkutsk Region. She cites reports collected by the local bodies of the Federal Security Service (FSB), which thwarted the thefts of strategic raw and radioactive materials that were intended for export to China. Many Russian and Chinese organized crime groups divided functions: Russians stole the products from local enterprises, while the Chinese smuggled them to China.

 

FOREST MANDARINS

 

Researchers are warning that the greatest threat to Russia’s national security (especially in the economic realm) comes from criminal operations in the timber sector. Anatoly Lebedev of the Bureau of Regional Public Companies in Vladivostok has analyzed this problem in detail in the course of a journalistic investigation. Below are its main findings.

 

The lack of funding of the State Timber Service and Inspectorate in past years, compounded by official permission to seize confiscated illegal timber, resulted in unprecedented rates of corruption in the timber sector. Later, in 2002, a new government decree outlawed the practice by foresters and law enforcement bodies to profit by means of confiscated timber. Since then, all confiscated timber must be sold in favor of the Ministry of Property, while the foresters no longer receive a cent from these revenues.

 

Yet the corruption continues. The system of illegal logging and timber resales has become too widespread and involves too many local high-ranking officials to be easily liquidated. Chinese businessmen play a major role in this system. This is why attempts to adopt a new Forest Code that provides for the abolition of forestry enterprises, together with the delegation of their functions to leaseholders, have caused a panic in the region. For the Far East, this would mean that the vast forests could simply fall under the direct control of Chinese businesses.

 

Many retired Chinese generals and agents of special services actively participate in legal and illegal commercial operations in the Far East, buying property, hiring workers and controlling the most profitable kinds of businesses. The Chinese have quickly learned to copy Russian methods of evading taxes, with a slight difference: they are more effective at it. Thus, the large-scale smuggling of timber continues to the mutual delight of Russian and Chinese businessmen – and to the detriment of the Ussuri taiga.

 

Many Chinese, who operate under alias Russian names, control areas for wholesale timber sales in several cities of the Maritime Territory – Luchegorsk, Dalnerechensk, Lesozavodsk, Ussuriisk, Nakhodka and Dalnegorsk, in the Khabarovsk Territory, the Jewish Autonomous Region, and in the Amur and Chita Regions. According to the Anti-Organized Crime Department of the Maritime Interior Affairs Agency, there is enough proof that Chinese timber businesses in the Maritime Territory are under the strict control of triads.

 

DARING THE DRAGON

 

Why is it important to focus attention on these natural and raw-material resources? The matter is that over the years of reforms the Russian and foreign (including Chinese) mafias have got possession of what must never fall into their hands: Russia’s natural wealth, raw-material resources, metals (including rare-earth varieties and gold), timber and coal.

 

This situation is tantamount to a loss by the state of the levers of governance in the law enforcement sphere. If the government does not realize where it must focus its efforts, the law enforcement resource will continue to be dissipated without yielding the required results. Since it is impossible to address all the problems at once, the government must first set national priorities. Then it will be clear what methods will be the most effective against the Chinese mafia: cleaning up Chinese markets, dislodging triads from the taiga and timber-felling sites or launching military operations against those who destroy Russian bio-resources and ship trainloads of nonferrous metals and timber to China. On this last option, it would be extremely useful for Russia to borrow from China’s experience in conducting full-scale operations against the mafia. Certainly, the success of any law-enforcement operation depends on whether the government makes a turn for the better in its social and economic policy in the Far East and East Siberia, which, in turn, depends on its policy nationwide. Why not follow the example of the Chinese leadership, which has admitted making serious mistakes pertaining to the “going outward” and “welcome to come” strategies?

 

The 5th Plenum of the Chinese Communist Party Central Committee of the 16th convocation (held in October 2005) discussed the five-year plan for 2006-2010 and set the task of “revising the view on the development” and “creating a new development model.” In its desire to “reform the reforms,” the Chinese authorities are focusing their ideological efforts on two major areas – propaganda of a new economic policy, with an emphasis on social justice and maximum expansion of the domestic market, together with a struggle against the liberal ideology, viewed as a challenge to China’s political stability. At the same time, the authorities have shifted the focus of the polemic away from Chinese problems to Latin America, Russia and other states of the Commonwealth of Independent States, asserting that those regions have turned into disaster areas due to America’s policy of imposing its liberal model on them.

 

Beijing has already announced that the economic model that has been used to rapidly enrich the most active part of Chinese society has exhausted itself. Now, the time has come to pay attention to the quality of growth, smooth over social conflicts, remove inequality, and provide equal opportunities for hundreds of millions of Chinese.

Last updated 10 february 2007, 16:03

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