SECRET
Joint RCMP Study
Information as of
24 June 1997
Chinese Intelligence Services
and Triads Financial Links in Canada
Draft Submitted to
the RCMP-CSIS Joint Review Committee
Forward
In May 1996 a joint project was initiated by the RCMP Criminal Analysis Branch and the CSIS Analysis and Production Branch to assess the extent of the threat posed by the acquisition and control of Canadian companies by members or associates of triads and with affiliations to the Chinese Intelligence Services. The research team quickly realized that the initial premise was the tip of the iceberg with only a minute portion of a much more complex situation showing. It should be stressed that this report is a prospective document that makes to claim to provide a full survey of the issue; in fact, quite the opposite.
This document does not present theories but indicators of a multifaceted threat to Canada's national security based on concrete fats drawn from the databanks of the two agencies involved, classified reports from allied agencies and various open sources. This study has departed from the conventional and sometimes confining approaches followed by our respective methodologies. Although both organizations have fairly extensive expertise on Chinese matters, it is nevertheless very different. It is clear at the end of this exercise that both organizations have gained from cooperating on this research. When put together, these two bodies of expertise complement each other, providing a broader and more substantial perspective of the Chinese issues.
The scope of the problem found after a few weeks of research dictated that the initial research results had to be presented in the form of case studies. At the moment, we estimate that over 200 Canadian companies are under the direct or indirect control of China. Although it was impossible to do all the research within the parameters initially given; however, sufficient details have been found to reveal the threat. It should be reiterated that this report presents concrete facts, not just ideas or speculation. We trust that we have demonstrated the need to continue the work within a broader and more elaborate framework.
Chinese Intelligence Services and Triads
Financial Links in Canada
Summary
Since the mid-1980s, a substantial immigration flow from Hong Kong has taken place and Canadian authorities were first alerted when a significant presence of Chinese organized crime elements among this group was detected. Many came through the "entrepreneur and "investor" immigration program and some of these criminals even have succeeded to obtain their Canadian citizenship. Although not all immigrants in these categories are suspected, two particular groups of individuals raised attention. Two other groups have also taken advantage of the "entrepreneur" and "investor" categories to immigrate and to invest in Canada. First, a certain number of very rich Hong Kong Chinese business people (tycoons) who are known to have been cooperating with the Chinese Government for years. Then a group composed of associates and relatives that certain individuals of these three groups have been working for over fifteen years in concert with the Chinese government and some of their "financial ventures" in Canada serve to conceal criminal or intelligence activities.
Hand in hand with this situation, the ChIS [Chinese Intelligence Service] make very active use of their access to Canadian industries through exchanges of specialists and students, and also set up shell companies to pursue their acquisition of economic and technological intelligence. Cooperation between the Hong Kong tycoons, the triads and the Beijing leadership adds a new dimension to the well known "mass line collection" strategy followed by the ChIS. This situation substantially raises the level of the potential threat, revealing the effectiveness of Chinese efforts to obtain Canadian technology and their capability to interfere in the management of the country. Central points and essential for the understanding of the problem are the cultural singularities that characterize the Chinese as the concepts of "debt of honour", "duties", "Hou Tai or backers" and "Guanxi or connections."
By using these alliances, the Chinese government is trying to gain influence on Canadian politics by maximizing their presence over some of the country's economic levers. To that end, they proceed initially to buy and/or legally set up a company in Canada that, once under their control, buys other companies and so on. An effective domino effect ensues that acts like a well-spun web or network at strategic points. It is estimated that over 200 Canadian companies have passed into Chinese influence or ownership since the early 1980s through the triads, tycoons or China national companies. These businesses are found in various sectors of the economy, ranging from multinationals to banking, high technology and real estate (CITIC, Norinco, Husky Oil, Grand Adex Properties Inc, Merrill Lynch, Gordon Capital, Inc, Tai Foong International, CIBC, Ramada Hotels, China Vision and Semi-Tech Corporation, etc.). The triads' companies are also used to pursue their criminal activities, such as money-laundering and heroin trafficking, as well as assistance to the ChIs.
Being Canadian these businesses are also eligible to receive government subsidies for research or classified contracts from Federal Departments. The risk is that after the research is done, there [sic] results can be transfered to China. Other form of risk is with the access gain[ed] through classified contract. As an example, a Canadian company under Chinese influence was in contention for a contract to set up and run a classified communications system linking the main agencies of the Canadian intelligence community. A company in Toronto specializing in video surveillance was originally Canadian, but was bought by a Chinese multinational. It is impossible at present to say how many or which Canadian companies are in the same situation. These examples, however, raise questions about the integrity of some companies that have already installed security systems for various Canadian government institutions or Canadian research industries.
Significant portions of some large Canadian urban centres are also owned by Chinese entrepreneurs. For example, it is estimated that Li Ka-shing owns with his son at least one sixth to one third of downtown Vancouver.
These "corporate" figures have become an influential presence on the political and economic landscapes of Toronto and Vancouver and at the provincial and federal levels. The triads, the tycoons and the ChIS have learned the quick way to gain influence is to provide finance to the main political parties. Most of the companies identified in this research have contributed, sometimes several tends of thousands of dollars, to the two traditional political parties, that is, the Liberal and the Progressive-Conservative Parties.
The Chinese leadership continues to gain much direct or indirect influence over the Canadian economy and politics. Having bought significant real estate holdings and established businesses in Canada, China has obtained access to influential figures who are now or once active at various levels of Canadian society. In many ways, China remains one of the greatest ongoing threats to Canada's national security and Canadian industry.
1
"Be so subtle that you are invisible. Be so mysterious that you are intangible. Then you will control your rival's fate."
Sun Tzu, The Art of War (c. 509 BC)
INTRODUCTION
1. With the announcement of the return of Hong Kong to China in the mid-1980s, Canada witnessed the arrival of a substantial immigration and capital flow from that region. For example, between January 1990 and March 1997, 233,077 Hong Kong residents emigrated to Canada, of whom nearly 70,000 were in the "entrepreneur" or "investor" category. This exceeded the "family" category over the same period. Although the great majority of these migrants were legitimate, the Canadian authorities detected a significant presence of Chinese organized crime elements, among them, namely the triads and their associates, some of whom succeeded in obtaining Canadian citizenship.
2. Some wealthy Hong Kong Chinese investors and Chinese from Mainland closely affiliated or related with the country's leadership and the ChIS also took advantage of the "entrepreneur" and "investor" categories to emigrate in and invest in Canada. Few even bought or established companies on Canadian soil through family members who had obtained Canadian citizenship. Intelligence indicates that these specific individuals with these three groups: triads, Hong Kong investors and people close to China's leadership, have been identified working with [sic] concert with the Chinese government to gain influence through some of their "financial ventures" in Canada. Some companies which are also used to conceal criminal or intelligence activities. At the same time, the ChIS use their access to Canadian businesses through exchanges and technical or student visas to steal classified and technological information. They have gone so far as to set up shell companies to pursue their economic and technological information acquisition operations.
3. A new triumvirate was born. This cooperation between Hong Kong Chinese business people, the triads and the Beijing leadership adds a new dimension to the known mass line collection strategy followed by ChIS. Economic, political and security indicators based on factual data revealed the potential threat and efforts made by the Chinese to obtain Canadian technology, but above all to obtain influence over economic levers and prominent Canadian figures.
BEIJING'S STRATEGIC ALLIANCES, OR THE LESSONS OF SUN TZU
4. When Deng Xiaoping came to power in the late 1970s, he introduced his economic reforms with the slogan "to get rich is glorious." To achieve that end, he had to move China onto the international markets. The isolationism of the former regime, however, handicapped the Chinese leadership. It therefore turned to the richest Chinese business people of Hong Kong, including, among many others, Li Ka-Shing, Henry Fok Ying-Tung, Wang Foon-Shing, Stanley Ho and the man who would eventually be chosen by Beijing to head Hong Kong after the departure of the British, Tung Chee-Wa (C.H. Tung).On 23 May 1982, Li Ka-Shing and Henry Fok met with Deng Xiaoping and Zhao Ziyang in Beijing to discuss the future of the peninsula. Their task would be to advise and educate the Chinese authorities about the basic rules of capitalism. In return, Beijing gave them privileged access to the vast Chinese economic basin. These powerful international financiers played an important role in the preparations for the transfer of Hong Kong.
5. In 1984, the British Government of Margaret Thatcher announced that it would return Hong Kong to China on 1st July 1997. This was not news to the Chinese or the rest of the world since a treaty signed nearly a century before had stipulated that Hong Kong was to revert to China in 1997. The reality of the impending transfer, however, created insecurity that was strengthened by the tragedy of Tiananment Square in June 1989. That incident made Beijing realize more than ever that it would have to prepare the ground for its arrival not only with regard to the financial community but also the population. In the late 1980s, Western intelligence services reported the very active presence in Hong Kong of the United Front Work Department (UFW). For that purpose, the UFW was given the responsibility among other things for building alliance with the triads already affiliated with many business people. As early as 1992, Western intelligence services knew that, Wong Man Fong, formerly Head of the New China News Agency, was instructed to inform the triads bosses that if they agreed not to jeopardize with the transition process and the normal business in Hong Kong, Beijing would assure them that they will be allowed to pursuit their illegal activities without interference. The Beijing authorities also created a front company in Hong Kong for Wong man Fong to facilitate his contacts with the triads and so assist triads groups set up legitimate business in China, particularly in Guangzhou and Shangai. Following these negotiations, Deng Xiaoping himself was speaking of the triads as Chiense "patriotic groups", and the Hong Kong press published a photograph of Charles Heung, a senior officer of the Sun Yee On, conversing with the patriarch's daughter. At the same time, Interior Minister Tao Siji indicated that there were patriotic members among the triads and they were welcome to do business in China.
6. The political class has also been targeted by Beijing's leaders. Without any doubts for the communist masters it was essential to obtain the cooperation of key elements of influential local personalities. Their collaboration or their resistance in China's requests before July 1st was going to make the difference between the possibility to do business with China after the transition. To achieve this, political and business people have been approached and enthusiastic collaborators received positions within various transition committees. For example, in early February 1997, Rita Fan Hsu Lai-Tai was appointed by Beijing, chair of the Hong Kong Special Administrative Region (SAR) Provisional Legislative Council (LEGCO). Mrs. Fan has been identified as a secret cadre of the Chinese Communist Party and an associate of Albert and Sonny Yeung, both officers of the Sun Yee On triad. She is also the daughter of one of the leaders of the Shanghai Triad criminal organization known as the Green Gang before the communist takeover in 1949. This group was known for its political assassinations on behalf of another triad boss, Chiang Kai Shek.
IMMIGRATION TO CANADA
7. Canada has always been a preferred destination for the people of Hong Kong. It is estimated that 100,000 Canadians live on the peninsula, and most of them are natives of the city. Hong Kong alone has been for the last 10 years the top source of immigration to Canada, with over 500,000 Hong Kong people now living here and accounting for 22 percent of all immigration to Canada. Over half of the 66,000 persons who left Hong Kong in 1996 came to Canada. To that must be added 17,000 students, amounting to a fifth of all foreign students in Canada.
8. Among legitimate immigrants in recent years, some persons affiliated with or members of the Chinese triads have succeeded in slipping in and obtaining Canadian citizenship. Several triad officers and their associates even have family members residing in Canada. Their choice of Canada was no accident. This country is an excellent place to invest in companies to launder the profits derived from criminal activities while securing a portion of their assets outside Hong Kong and obtaining a Canadian passport. Most of these individuals are members or associates of the upper echelons of the triads and own or run large businesses in Hong Kong. As part of their secret agreements reached with the Beijing leadership, these triads now use their Canadian acquisitions to engage in intelligence activities, such as intimidating individuals, identifying potential sources of facilitating visit of Chinese delegations on behalf of China.
9. Two other types of investor represent another danger to the Canadian economy, namely, the rich Hong Kong Chinese business people and leaders of the Chinese civilian and military authorities of China. Like the "entrepreneurs" affiliated with the triads, Chinese investors from Hong Kong or Beijing have taken control of Canadian companies in various sectors of the economy. Some of these businesses have even obtained Canadian government classified contracts. The threat is more significant because the strategic alliance between the Beijing leadership and Hong Kong tycoons is reinforced by the powerful ethnic and cultural ties associated with guanxi. This concept rules the links, the obligations or duties and the type of relations between individuals and is a characteristic of the Chinese culture.
10. In all three cases, their commercial activities have enabled them to develop a position in the Canadian economy that affords them the opportunity to engage in intelligence activities, such as illicit transfer of technology, foreign influence and interference, identification and cultivation of persons favourable to China, and the acquisition of undue control in important Canadian economic and political circles.
11. Even before Hong Kong's official return to the Communists, it was established by several Western agencies that their national immigration systems had been affected by illegal ChIS and triad interference. Laurence Leung Ming-Yen, a former director of the Hong Kong immigration service, is still under investigation after he had to resign under the pressure of allgations of corruption and illegally disclosing confidential information about residents of the peninsula. The controversy surrounding Leung was fed by his business relationship with the flamboyant tycoon Tsul Tsin Tong, well known for his pro-Beijing views and a member of the notorious Chinese People's Political Consultative Conference and Preparatory Committee. The murder of Leung's young daughter in Vancouver in 1993 by a crossbow bolt has still not been solved. The Vancouver police suspect the crime was committed by triad members.
12. In 1996, an extensive special investigation within the American immigration service led to the arrest of two former heads of this service stationed in Hong Kong. Jerry Wolf Stuchiner was found in possession of illegal Honduran passports and was recently released after he accepted to collaborate in the trial of James DeBates. James DeBates and his wife Heddy, an American of Chinese origin, were also arrested and questioned regarding their involvement in Stuchiner's activities and the illegal entry of Chinese immigrates into the United States. Canada has unfortunately its share of difficulties. Different cases were investigated and like the case of Robert Geddes, a former citizenship judge, whom was charged in May 1997 with 33 counts of fraud and misrepresentation in 13 known cases involving Hong Kong Chinese.
13. Analysis of the destination of immigrants broken down by Canadian province is an indicator of the concentration of the activities of these groups. Between january 1990 and March 1997, 39.1 percent of the persons registered in the entrepreneur and investor categories chose to settle in British Columbia, particularly in the south Frascr Valley. Ontario for its part received 28.5 per cent of immigrants, who settled mainly in the Toronto area. This pattern is explained by the large, long-established Chinese communities in these areas which are essential in the activities of the triads, Chinese investors and ChIS. Under the same program, 20.6 per cent of such immigrants settled in Quebec while Alberta received only 7.3 per cent.
HUNDREDS OF CANADIAN COMPANIES "MADE IN CHINA"
14. The influx of Chinese investors who are affiliated with the triads or new associates of Beijing poses a new challenge to Canada's national security. The central point of the strategy of the Chinese is first to buy a Canadian company so as to obtain a "local identity", legally concealing subtly their foreign identity. Then, using this acquisition, the Chinese-Canadian company invests heavily or buys other companies in various economic sectors, but always under the Canadian banner. In actual fact, control lies in Hong Kong or Beijing, and the financial benefits or fruits of research, often paid for by Ottawa or the provinces, are likely to make their way to Asia.
15. Hand in hand with their ethnicity and their commercial ambitions, the financial network of the Chinese entrepreneurs associated to the organized crime and to the power in Beijing has grown exponentially and very rapidly in Canada. Their influence over local, provincial and national political leaders has also increased. In the game of influence, several of these important Chinese entrepreneurs have associated themselves with prestigious and influential Canadian politicians, offering them positions on their boards of directors. Many of those companies are China's national companies.
16. The analysis of the information demonstrates that their attention was not initially directed towards sensitive sectors like high technology or other even more sensitive areas, but towards what might be called "soft" sectors such as: real estate, hotels, transportation, oil companies and travel agencies. Commercial sectors that at first sight do not involve any security risks and did not attract the attention of the Canadian services responsible for security. The scale of their ventures or investments has now made them some of the most important figures present in the major centres, and their decisions to invest in one place or another are not a matter of indifference to anyone. Such projects are seen by the local or national business community as a "favour" or a "chance" not to be missed.
One must wonder explicitly regarding the potential linkages between what is described herein, and, some recent arrests and investigations that have been made concerning the border crossing at Detroit.
Declassed or not, it is now publicly posted, on the Nyquist site. I am sure it is nothing that Klintoon has not already given the hordes...
What follows is a draft report submitted by a joint committee of the Canadian Security Intelligence Service and the Royal Canadian Mounted Police on the Chinese subversion and penetration of Canada. This report has been repeatedly referred to by Brian McAdam, a former Canadian immigration control officer, in his attempts to warn the public about Chinese intelligence successes and the corruption of government officials. The document shows that China has made significant inroads in North America. These inroads are potentially fatal if we continue to ignore the strategic implications of lax security combined with the bribery of bureaucrats, Communist-inspired organized crime, drug trafficking, terror and economic sabotage. It goes without saying the the recommendations of the Sidewinder study were not followed up on by Canada's policymakers. By 1997 Chinese economic involvement in Canada was already too advanced for correction, having special economic implications for political actors that trump security concerns.