Jailed Birmingham City Owner Shows China Shadow Bank LinkShai Oster and Simon Lee
Over two decades, Carson Yeung says he transformed himself from an apprentice hairdresser in Hong Kong into a successful stock picker worth millions of dollars.
His love of gambling took him to Macau and private rooms reserved for high-stakes baccarat. It also led him to invest in the Neptune VIP Club, a gambling syndicate in the only Chinese territory where casinos are legal. That bet paid off. Yeung’s expanding fortune afforded him many Western luxuries: a Maybach car, a London apartment, even an English soccer team.
His luck has since turned. Hong Kong authorities made the gaming investment a centerpiece of a money laundering case, winning a conviction on Monday. District Court Judge Douglas Yau sentenced Yeung today to six years in jail for laundering HK$721.3 million ($93 million) from 2001 to 2007, including checks from a Macau casino operator and the Neptune club.
The trial, which began last year after Yeung’s 2011 arrest, provides a rare window into the flow of billions of dollars in and out of China through Hong Kong and Macau.
The hot money undercuts strict capital controls intended to insulate China’s economy from currency markets. Global Financial Integrity, a Washington-based watchdog group, estimated that $1 trillion flowed out of China in the decade ended in 2011. Some of that was handled by the Neptune club, identified in mainland China court cases unrelated to Yeung’s as controlled by people who ran an underground bank that bribed senior Chinese officials.
Without Yeung’s “considerable skills in share dealings and connections to the Macau casinos, the laundering could not have gone on for such a long time and on such a large scale,” Yau said today, adding that punishment had to include an element of deterrence to “protect the integrity” of Hong Kong as a banking center. Yeung faced a maximum seven-year sentence.
Even after Macau strengthened licensing of middlemen who lend to high rollers, Chinese citizens have found ways to keep the money flowing including faked trade invoices, which were blamed for a discrepancy between Hong Kong and China trade figures in January. Macau casino revenue rose to a record 38 billion patacas ($4.75 billion) last month.
Two of the men Yeung was convicted of laundering funds for have been linked to high-profile underground banking in China, according to judgments from separate court cases on the mainland. One of their associates, once China’s richest man, gambled close to 800 million yuan ($130 million) in Macau’s VIP rooms and was able to convert it to Hong Kong dollars, which flowed to investors in the Neptune gambling syndicate, according to court testimony cited in a judgment.
Yeung said he was just a businessman collecting checks from successful ventures. Judge Yau found that Yeung had reasonable grounds to believe that the checks from the syndicate were the proceeds of crime.
Prosecutors focused on the money coming in and out of Yeung’s accounts. They cited 436 deposits, including pay-to-cash checks for HK$72 million from Macau casino operator Sociedade de Jogos de Macau SA, a unit of SJM Holdings Ltd. Yeung described the cash as winnings from his frequent baccarat trips. SJM didn’t respond to emails and calls for comment.
“I find that the defendant was lying when he said that they were all moneys from his gambling winnings,” Yau said in his verdict on Monday.
The prosecution examined Yeung’s investments in both the Neptune club and the Neptune Group, a listed Hong Kong company that invests in casino middlemen known as junket operators. These junkets extend lines of credit and collect debts from mainland gamblers, who face restrictions on cash movements. While it’s illegal to collect gambling debts in mainland China, they operate legally in Macau.
Yeung told the court he didn’t know that one of the owners of the Neptune club, Cheung Chi-tai, was alleged by police to be a member of an organized crime group known as a triad.
Prosecutor John Reading pressed further. Why did the money from Neptune come in the form of cash checks from clerks and other businesses instead of directly from the company? What about the origin of HK$18 million in funds from Cheung?
“I didn’t ask him because I knew him for many years,” Yeung said. “He was the Neptune Group’s second-largest shareholder.”
Judge Yau rejected that argument, saying Yeung’s explanation was “ludicrous. The defendant is just making it up to cover up whatever the real reason behind the payment” is.
A “right thinking member of the community” would consider the money “represented proceeds of an indictable offense,” Yau said.
Yeung said Cheung and his business partner, Lin Cheuk Fung, invited him to invest in their business in 2005. Lin was chairman and chief executive of the Neptune Group until last year and was at one point its biggest individual shareholder. Shares of Neptune Group reached a five-year peak in October of 37 Hong Kong cents and have fallen 13 percent this year.
Yeung testified he bought a 20 percent share of Lin’s holding which wasn’t disclosed to the stock exchange so Lin could maintain his status as majority shareholder. Lin wasn’t familiar with running a listed company, Yeung said.
Yeung said he dealt with lawyers, accountants, “everything about the operation.” For his efforts Yeung made a HK$56 million profit on a HK$20 million investment.
“There can be no question,” the judge found, that Yeung should have suspected the money was from an indictable offense.
Even as Yeung was putting together Neptune Group’s strategy and holding shares in secret, court judgments from unrelated cases in China show that the group was controlled by someone else, Lin Cheuk Chiu. He has been connected to underground banks and illegal foreign exchange operations since at least 1999.
Court and company records indicate that the two Lins are brothers. The family connection wasn’t introduced in Yeung’s trial, nor was Neptune Group’s connection to Lin Cheuk Chiu.
Other court judgments also offer some insight into how these businesses may have avoided Chinese government scrutiny for so long.
Lin Cheuk Chiu was implicated in 2001 as part of an anti-smuggling crackdown led by Zheng Shaodong, according to a judgment from a court in China’s southern Guangdong province. Lin was using dummy companies in Hong Kong to move money across the border in an underground banking operation since at least 1999, according to the judgment.
Zheng, a law enforcement star who in 1998 had caught the kidnapper of the eldest son of Hong Kong tycoon Li Ka-shing, was bribed by Lin, according to a decision of a court in Xi’an, China’s former imperial capital. Zheng as deputy head of Guangdong’s public security department, helped Lin evade prosecution, according to the judgment.
Zheng, who rose to become assistant to China’s then public security minister Zhou Yongkang, later got swept up and arrested as part of an investigation of Huang Guangyu, the founder of Gome Electrical Appliances Holding Ltd.
Huang was China’s richest man before he was sentenced to 14 years in prison for graft in 2010. Huang said he used underground banks to convert hundreds of millions of yuan illegally into Hong Kong dollars to repay debts to VIP gaming rooms run by Lin Cheuk Chiu and Lin Cheuk Fung, according to a Beijing court judgment.
It’s unclear if Lin Cheuk Chiu was convicted or sentenced at the time. Months after the 2001 crackdown he enlisted the help of Hong Kong police when his partner in the busted illegal foreign exchange operation was kidnapped and held for HK$5 million in ransom.
There is no indication that the Lins are facing any legal charges, or that Cheung Chi-tai has ever been found guilty. Lin Cheuk Chiu didn’t respond to a letter or phone calls to his office. Lin Cheuk Fung didn’t reply to emails and a letter left with Neptune Group, which also didn’t respond to calls, emails and a letter requesting comment. Efforts to contact Cheung Chi-tai were unsuccessful.
Another business connection between these men and Yeung is their investment bank. The Neptune Group issued shares on the Hong Kong stock market to raise money for operations, including funding the purchase of junket operators and a used Russian ocean liner that was converted into a floating casino.
Those transactions were arranged by Kingston Securities, part of a group of companies controlled by Pollyanna Chu Yuet Wah, whose father worked for Caesars Palace in Las Vegas and VIP gambling rooms in Macau, and who also invests in gambling in Macau, according to company filings.
Kingston Securities later lent Yeung money to help with his purchase of Birmingham City Football Club, according to company filings, and bought 448.5 million shares in Yeung’s investment company after his 2011 arrest. Yeung agreed to sell Chu a property in Inner Mongolia for HK$300 million in 2007.
Yeung was one of the biggest and most important clients of Kingston Securities, its general manager Dilys Li Yuet Mei told the court. Kingston Financial Group didn’t respond to e-mailed and faxed questions seeking comment. A call to Chu’s office wasn’t responded to.
Yeung, 54, had a humble beginning, the court was told. His father was a caretaker in subsidized housing and owned a small grocer that barely broke even. Yeung dropped out of high school to work as an apprentice hairdresser for three years and then traveled to London and Paris for salon training.
When he returned, he worked his way up to styling the tresses of celebrities, including movie star Jackie Chan, and opening his own salons. By the mid-1990s, Yeung moved into real estate, including a hotel in the Chinese factory town of Dongguan and homes in Malaysia and Thailand he sold to Hong Kong residents before Britain returned the colony to China. He also traded stocks.
The cash rolled in. Yeung’s personal assistant and secretary would carry HK$200,000 three times a week to pay credit cards, moving from a safe to the bank flanked by bodyguards, according to court testimony.
Yeung bought a house on posh Victoria Peak for HK$146 million, splashed out for a HK$6 million Maybach and spent HK$49 million on an 88-foot-yacht where he entertained visiting Chinese officials.
In 2007, Yeung, a lifelong soccer fan who had at one point been chairman of a Hong Kong team, bought a stake in Birmingham City. A year later, he said he was planning to invest in Sing Pao Daily News, a Hong Kong publication struggling under debt.
Yeung bought the rest of the English soccer team in 2009 and pledged to invest 80 million pounds ($133 million) to pay for better players and to recruit Chinese onto the field.
He said he would develop soccer-themed real estate developments and took the team on a tour across China. Flush with cash, the team beat favored Arsenal in February 2011 to win its first cup in decades.
If Yeung was a money launderer, why would he make such a high profile takeover, his lawyers asked. Part of the money for it came from accounts where Cheung had deposited HK$18 million, according to testimony by Yeung’s expert witness. The judge rejected Yeung’s testimony that the alleged triad member’s check was a loan to buy London property.
Yeung’s house and bank accounts have now been seized. His holding company recently invested in an Indonesian oil services business. His conviction would have no impact on the soccer team, Hong Kong-listed Birmingham International Holdings Ltd. said. Fans are protesting and calling for a quick sale to protect the franchise.
“He went from rags to riches and it’s likely he’s to return to rags,” Yeung’s lawyer Graham Harris said today in mitigation before the sentencing. He submitted a letter to the judge from Yeung’s 19-year-old son Ryan, a student in the U.K. who remains on the soccer team’s board.