Caixin
Apr 25, 2018 07:45 PM
FINANCE

The Warning Shot: How Anbang Founder Fell

Wu Xiaohui, who attended the Boao Forum in March 2017, had a knack for leveraging his ties to political figures to achieve his business ambitions. Photo: VCG
Wu Xiaohui, who attended the Boao Forum in March 2017, had a knack for leveraging his ties to political figures to achieve his business ambitions. Photo: VCG

* Under Wu Xiaohui, Anbang had the ability to convince regulators to revise rules due to his close ties to officials, industry insiders say

* As soon as Wu learned Anbang was under investigation, he ordered senior executives and key employees to flee China or take leave to avoid investigators

(Beijing) — With his navy-blue suit, slicked-back hair and patent leather shoes, 52-year-old tycoon Wu Xiaohui looked the same as he ever did in a Shanghai court on March 28, though he was facing punishment for fundraising fraud and embezzlement at his financial empire, Anbang Insurance Group.

That court appearance may well be one of the last times Wu is in the national spotlight before he is sentenced.

The court has not announced its verdict yet. As the judge pounded the gavel to end the trial, a warning shot had been fired over China’s financial industry — evidence that the country’s vow to prevent the outbreak of systemic financial risks would be backed up by criminal punishment.

The Shanghai prosecutor’s office accused Wu of collecting more than 723 billion yuan ($114.6 billion) from illicit insurance sales by Anbang’s property insurance subsidiary, Anbang Property and Casualty Insurance Co. Ltd. Part of the proceeds were transferred to other companies that Wu controlled, nearly 50 billion yuan of which was injected into the parent company in 2014, the office said.

Wu was charged with swindling retail investors out of 65 billion yuan — the amount that hadn’t been paid back to Anbang Property.

The other alleged crime is embezzlement. Prosecutors said Wu transferred 10 billion yuan of insurance premium income from Anbang Property to other companies that he controlled. The proceeds were used to repay debts and inject capital back into Anbang Property.

Early in the trial, which was live-blogged by Shanghai No. 1 Intermediate People’s Court, Wu disputed the charges by pleading ignorance of the law. But by the trial’s conclusion, he had admitted his guilt and asked for a lesser punishment, according to a court statement.

Turning point

The trial of the chairman of China’s third-largest insurer made headlines around the world.

Founded in 2004, Anbang started out as a car insurance company with registered capital of 500 million yuan, and now runs an insurance-banking-investment-hotel-property developer conglomerate with around 2 trillion yuan in assets.

The conglomerate has been a high-profile global shopper, picking up assets that included New York’s luxury Waldorf Astoria hotel.

As the helmsman, Wu gets much of the credit for Anbang’s success. Almost all of the group’s major investments were directly handled by Wu, sources close to the company said.

After China’s National Audit Office discovered different branches of Anbang made fraudulent transactions between each other in 2016, Wu told regulators that he had handled this properly, Caixin has learned. Later that year, the country’s top insurance regulator punished nine firms that had failed to meet regulatory requirements for investment-linked policies, but Anbang was not on the list. Observers said the regulator might have been biding its time and trying not to arouse Wu’s suspicions too soon.

The police started investigating the insurance giant in March 2017. As soon as Wu learned of the action, he ordered Anbang’s senior executives and key employees to flee China or take leave to avoid being investigated, as well as change their computers and cellphones, delete emails, and destroy digital materials to cover up all the evidence, prosecutors alleged.

Caixin also learned that at that time, Wu also ordered security guards to bar regulators from entering the company’s offices.

In the first half of 2017, Wu repeatedly tried to speak to Chen Wenhui, deputy chairman of the then-regulator, the China Insurance Regulatory Commission (CIRC), but was never able to arrange a meeting, sources close to the matter told Caixin.

In the meantime, he did all he could to place himself in the public eye, as a response to rumors he was in trouble. He appeared at conferences, including the China Development Forum in Beijing and the Boao Forum for Asia Annual Conference in Hainan province, in March 2017.

Soon after it was announced that Xiang Junbo, former head of the CIRC, was being investigated for alleged graft in April 2017, Wu did an interview with newspaper The Beijing News, an unusual move that may have also showed the businessman was concerned about being detained. The CIRC began its probe into Anbang the following month, Caixin has learned.

In June 2017, Anbang said in a statement that Wu could not perform his duties due to personal reasons, and he had delegated his responsibilities to other executives. This statement was released shortly after Wu was detained by police, sources familiar with the matter told Caixin.

Anbang was taken over by China’s insurance regulator in February because it had struggled to repay its customers. Wu’s era finally came to an end.

Links to political figures

During its short lifespan, Anbang has obtained regulatory permission to operate a variety of financial businesses, ranging from car, health, life and property insurance to banking, asset management, financial leasing and brokerage services.

Players in the insurance industry told Caixin that Anbang had the capacity to “push regulatory limits” and convince regulators to revise rules due to Wu’s close ties to CIRC officials. Wu could visit senior CIRC officials’ offices freely over the past few years, said unnamed sources.

Political connections had helped Wu for a long time.

Born in 1966, Wu grew up in the entrepreneurial city of Wenzhou, which is located in the eastern province of Zhejiang. With no more than a primary school education, Wu married three times. His first ex-wife is a daughter of the one-time head of a county. After his first divorce, he married the daughter of a former deputy governor of Zhejiang.

His most recent wife is a granddaughter of late state leader Deng Xiaoping, who was long thought to be one of the most politically connected men in China. In a meeting in late 2014, the Deng clan concluded that none of its members had links to Anbang, a person close to the family told Caixin.

In addition, Wu had business connections with Chen Xiaolu, the son of famous late general Chen Yi. Chen, who died in February at the age of 72, told Caixin in early 2015 that, despite rumors to the contrary, he was not the actual controller of Anbang, and only served as a consultant to the company.

People close to Wu described him as an aggressive figure with an “oppressive” personality. Wu was good at leveraging his ties to key political figures to achieve his business ambitions, they told Caixin.

Contact reporter Lin Jinbing (jinbinglin@caixin.com)

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