A crackdown on Chinese, cash-only, business practices would be the only way to terminate the multi-billion, international wildlife contraband market, said a senior South African state prosecutor.
This, after an ancient but highly sophisticated, trade-based, financial-settlement scheme, known as Chinese Flying Money or fei qian, emerged as the key enabling mechanism in the annual USD$260 billion, international, wildlife, contraband market. Illicit commodities, functioning as a form of currency, allegedly support massive wealth transfers outside the regulatory oversight of the international banking system.
A former Singaporean finance expert, whose name is being withheld for his protection, explained: “The deception behind fei qian is that the money never actually leaves China. It’s just the commodities that get moved around.” This is part of a longer payment chain within the Chinese diaspora, worldwide.
The seamless nature of global trade and massive volumes of shipping containers handled, daily, allows the fei qian business to ‘hide in the open’, shifting containers with contraband between Africa and the Far East.
In effect, it is a form of invisible and untaxed trade that gives Chinese business an edge in Africa’s construction sector – the untraceable income used to under-bid local competitors and grease ‘high-up’ palms for contracts.
At its most benign, it is a low-cost and trusted method of remitting money, much like the Islamic hawala system. In its simplest form, Chinese Flying Money uses an established Chinese account holder abroad as a channel to add smaller amounts to a supplier’s official invoice. The supplier then pays out the extra amount in cash, on the receiving end.
Unlike straight barter trade, fei qian is not a straight swap, but rather an exchange in stored value that leaves no paper trail, except in the books of the operators of these secretive underground Chinese banks.
What makes it even more impenetrable is that it appears to be operated, in the main, by older, well-established women in a closed-off network of mutually trusted contacts. A year-long investigation established this and it is the single, biggest obstacle in investigating organised, wildlife and related crime, such as the drugs-for-abalone trade in the Western Cape.
Over the past 10 years, fei qian has morphed into something much more dangerous, becoming increasingly visible in the surge in the wildlife contraband trade. This is due to a global shortage of hard currency that has forced Chinese traders to resort to the system, first developed 1 200 years ago as a rice-trading method during the Tang Dynasty.
Regionally, it has become visible in the surge in hardwood smuggling from any African country with deep forest resources but non-convertible currencies, weak administration, poverty, and entrenched corruption. Deeply indebted countries have suffered profound, ecological and economic damage wrought by the destructive hardwood trade.
When the 2014 oil-price collapse saw foreign banks refusing to sell Angola any US dollars until the country had settled its outstanding debts, the Chinese traders in Angola started converting their worthless kwanzas into rosewood logs that were (mostly) smuggled out via Namibia to China, where they were sold for very convertible yuan.
It was also visible in the multi-billion South African rand drugs-for-abalone trade. This non-linear payment system has thus far defeated all attempts at linking specific, intercepted, illicit drug or abalone shipments to specific Chinese buyers, known to have been operating in the Western Cape since the early 1990s.
“How do the poachers get paid for hundreds of tons of abalone?” asked Marcel Kroese, a former head of enforcement at the, then, Directorate Economic Affairs and Fisheries (DEAF), who is now an international fisheries consultant.
During his stint, DEAF could convict only one syndicate run by whites and partially disable one Chinese syndicate in an elaborate Value Added Tax (VAT) scam, despite huge amounts of cash, evidently, being passed around.
“So, who has the cash and where was it all coming from?” Following the money as a means of identifying the main Chinese players yielded zero results. “We could never find the [source of the] money,” he said, adding that the reason was because making water-proof evidence for the court that relies on formal paper trails was a major practical and legal challenge.
It occasionally appears as a gaping hole in individual countries’ balance of payments account with China, as Namibia discovered in an ongoing R3.1 billion import tax-fraud investigation involving Jack Huang, a friend and business associate of President Hage Geingob.
The contraband found its way into the fei qian payment chain by the way small Chinese traders operate everywhere in Africa – cash only, and most of it off the books. In practice, this amounts to systemic tax fraud. Chinese operators routinely and massively under-declare the value of cheap goods, which are then sold for undeclared and unreported cash.
The fungible nature of all precious contraband, such as gold or US greenbacks, makes fei qian suited to smuggling. Every kilogram of rhino horn, ivory, abalone, shark fin, or log of precious hardwood can be divided into smaller parts to make those parts more trade-able, at lower prices and smaller volumes. This singular characteristic is a major clue to what has been partly responsible for the surge in poaching of rhino and elephant in Africa, since 2008. Not surprisingly, rhino horn became more valuable than gold – not for its inherent value, but for its exchange value.
When, in 2009, several African countries were allowed a once-off sale of their ivory stockpiles to drive down black-market prices, poaching in Africa surged, wiping out a massive 60 percent of elephant herds in East and Southern Africa. This was a simple illustration of fei qian and the Law of Price Demand. Making a scarce and valuable commodity more readily and cheaply available will increase demand and, as a result, increase the price for that commodity.
According to TRAFFIC – an international wildlife trade-monitoring organisation – instead of selling their newly acquired ivory, the Chinese buyers stockpiled it because actual demand for ivory in China was static or declining. Yet poaching exploded, driven by individuals such as the notorious ‘Ivory Queen’ Yang Feng Glan (69), convicted to 15 years in jail by a Tanzania court for her part in smuggling USD$6.5 million in poached ivory to China, over the past decade.
Glan, however, was only convicted for 1 889 kgs of ivory – about 350 elephants’ worth – while investigators such as the late Wayne Lotter, assassinated two years ago in Dar es Salaam, believe she was handling much more ivory than that.
Most of Glan’s business was conducted via shipping containers. So how many of the thousands she had dispatched to China contained other contraband, and how much of that was for her own account? In court her stoic defence gave nothing away but left the impression that she was protecting something bigger and more important than only herself.
With millions of containers being stored and trans-shipped, annually, through free ports including Coega in South Africa, Dubai in the United Arab Emirates, Tanjung Pelepas and Kelang in Malaysia and China’s Hong Kong, a container holding contraband could never cross any customs point while ownership, on paper, passed through half a dozen hands, in as many countries.
Containers at sea (or stored in a port), due to changing bills of lading and destinations of shipping, was expensive but it was a very common practice in business, said a veteran Walvis Bay-based shipping agent. The middleman would not want his client to know who his supplier was for fear of being cut out, and would, therefore, do a ‘Switched Bills of Lading’ to hide the origin of his goods.
While such shipments from suspect ports are often red flagged by customs officials, the volumes passing through trans-shipment ports are so enormous, it amounts to chasing one needle through six mega-haystacks.
“If you know the shipping routes, as any halfway-decent shipping agent would, you could play ping-pong with that container [of contraband] between the trans-shipment ports forever,” said the veteran shipping agent.
Disrupting the fei qian practice will be difficult – until Chinese in Africa play by the same rules as everyone else.
As with Al Capone, nailing them for undeclared income might be the simplest and most cost-effective way.
John Grobler is an independent investigative journalist with a special interest in the relationship between the exploitation of primary resources and organised crime. This article was made possible with financial support from the EU Journalism Funds Money Trail Grant Programme.