Caixin
Aug 23, 2020 06:49 AM
FINANCE

In Depth: How Chinese Developers Became Entangled in LA Bribery Case

Jose Huizar Photo: josehuizar.com
Jose Huizar Photo: josehuizar.com

An investigation of corruption allegations against a Los Angeles city councilman brought to light a multimillion-dollar bribery scheme involving several Chinese developers seeking the politician’s backing for lucrative property deals in the second-largest U.S. city.

Suspended LA Councilman Jose Huizar was charged with accepting at least $1.5 million in illicit financial benefits in what local media called the worst City Hall corruption scandal in almost a century. Huizar was indicted July 30 by a federal grand jury on 34 felony counts alleging he accepted bribes from a host of developers in exchange for favorable business treatment.

Huizar, 51, was elected in 2005 to the Los Angeles City Council representing District 14, which covers the development-rich downtown area and surrounding communities. He was re-elected three times, with the last term to end this year. He served as chair of the city’s Planning and Land Use Management Committee and a member of the Economic Development Committee until the FBI raided his office and residence in 2018.

Huizar “led a criminal enterprise where he used his powerful position to enrich himself and his close associates,” the U.S. Attorney’s Office for the Central District of California said in a statement. Through a pay-to-play scheme, he unlawfully gave favorable treatment to developers which financed and facilitated bribes and other illicit financial benefits, prosecutors said.

Among the multitude of corruption allegations, Huizar was accused of accepting more than $800,000 in benefits from a Chinese property tycoon who allegedly helped Huizar settle a sexual harassment lawsuit, provided him with more than a dozen gambling trips and sponsored his wife’s city council election campaign.

The indictment cited several Chinese developers as having illicit financial ties with Huizar. The 2018 search of Huizar’s residence uncovered nearly $130,000 in cash that was stashed in Huizar’s closet and which, according to the indictment, he received from a Chinese billionaire and another businessperson seeking favors from him. Some of the money was in red envelopes with Chinese characters, according to the indictment.  

A Caixin investigation found that two Shenzhen-based private companies — Shenzhen New World Group Co. Ltd. and Shenzhen Hazens Real Estate Group Co. Ltd. — were the main Chinese companies targeted by U.S. investigators for alleged bribery. Shenzhen New World was founded and controlled by businessman Huang Wei. Shenzhen Hazens is owned by businessman Yuan Fuer.

In a July statement Shenzhen New World denied any link with Huizar, and a Hazens executive declined Caixin’s request to comment on the matter.

Two larger Chinese developers also appeared on a search warrant related to the case — Hong Kong-listed, state-backed Greenland Holdings Corp. Ltd. and privately owned China Oceanwide Holdings Group Co. Ltd. Both companies denied any wrongdoing.

Investigations targeting Huizar started in 2015, U.S. media reported. A 172-page indictment recently released by a district court charged Huizar with bribery, mail and wire fraud, extortion and money laundering, among other things. Huizar was arrested in late June by special agents of the FBI on a federal racketeering charge. He appeared in court for the first time Aug. 3 and pleaded not guilty to all charges.

The CD-14 Enterprise

Prosecutors dubbed Huizar’s graft scheme the CD-14 Enterprise, comprising the councilman, middlemen and developers. “The concerted pay-to-play scheme operating in the city demonstrates the way the CD-14 Enterprise members operated as an informal organization,” prosecutors said. Huizar was at the center of the organization and was often referred to as “the boss” by its members.

Huizar and his special assistant George Esparza often made requests through consultants and lobbyists, who then relayed requests and demands to developers that were willing to participate in the scheme or were afraid not to participate, the indictment said. The financial benefits developers provided included cash, event tickets, political donations or other benefits and contributions, the document showed.

Developers counted on Huizar’s influence in the Planning and Land Use Management Committee, which plays an influential role in the city’s urban development as every project needs to be cleared by the committee.

Huizar’s tenure on the committee coincided with Chinese companies’ rush into the U.S. property market. Data from Rhodium Group and the National Committee on United States-China Relations indicated a rising trend of Chinese real estate investment in the U.S. since 2010, with major destinations including New York, Chicago and Los Angeles. Total outstanding investment value has reached $41 billion, including more than $6 billion in California.

A key figure linking Huizar and Chinese developers was a former head of the Los Angeles Department of Building and Safety who became the city’s vice mayor in May 2016 overseeing economic development, according to the indictment. Although the indictment named the person only as Individual 1, the detailed profile it provided fully conforms with that of Raymond Chan, a Chinese-American who retired as LA vice mayor in 2017. According to the indictment, two Chinese developers that provided the most bribes to Huizar were both introduced by Chan.

According to the indictment, Chan described Huizar’s power in the Los Angeles development process to a Chinese developer in 2018 a phone call: “If Huizar does not put you on the agenda, then your project will not see the light of day for a long time, because it’s up to (Huizar) whether the agenda is your project or not. … (His) power is so great….”

The Chinese bribers

Chan introduced a Chinese billionaire to Huizar in 2013 who provided Huizar and associates more than a dozen casino trips and other financial benefits, according to the indictment. The billionaire’s business, labeled Company E in the document, operates two hotels in Los Angeles and planned to redevelop a project into a 77-story skyscraper, making it the tallest building west of the Mississippi River. The project transformation required Huizar’s assistance in the approval process, the document showed.

Based on public records, Caixin found that Company E refers to Shenzhen New World, which invested $63 million in a Los Angeles hotel in 2010 and in 2018 filed an application to redevelop a project in the city.

Established in 1997, Shenzhen New World was involved in several corruption inquiries in China, Chinese court documents showed. In 2016, Huang was formally investigated by prosecutors as part of graft probe of Zhang Shiming, a former land resources chief in Shenzhen, but no charge against Huang was announced. Zhang was sentenced to 11 years in jail for bribery.

The indictment listed all the spending provided by Huang for 19 casino trips between 2013 and 2017. Expenses for the trips totaled $1.15 million, including $260,000 that Huizar took as gambling chips.

Huang also provided about $600,000 as collateral to fund the settlement of a 2014 sexual harassment lawsuit filed against Huizar by a former CD-14 staffer, the indictment showed.

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Chinese investment in U.S. property market has reached $41 billion, including more than $6 billion in California.

To return the favor, Huizar signed a letter on official letterhead addressed to the United States Consulate General in Guangzhou supporting a visa application of a Shenzhen New World executive, assisted the company in resolving some disputes related to is U.S. projects and facilitated a meeting between Huang’s son and a high-ranking official at a southern California university regarding admission, according to the indictment.

In a telephone call with a CD-14 staffer, Esparza said Huang “should have all the leverage in the world because of what (Huizar) owes (him),” the indictment showed.

Apart from Shenzhen New World, Huizar also received indirect bribes from another leading Chinese developer, prosecutors said. The company acquired a project in District 14 in 2014 and planned to transform it into a residential and commercial complex.

Business registrations and publicly available California government records regarding the project indicated that the company, referred to as Company D in the indictment, is Shenzhen Hazens, owned by businessman Yuan Fuer. Between 2013 and 2015, Shenzhen Hazens acquired the Sheraton Gateway Los Angeles Hotel and the Luxe City Hotel in downtown and built the Sheraton Los Angeles San Gabriel.

According to the indictment, Huizar in late 2015 asked the chairman of Company D to hire one of his associates. Following the request, one of Yuan’s relatives set up a company with the associate to offer real estate consulting services. FBI investigators found that between May and November 2016, Yuan’s relative paid more than $60,000 as consultancy fees for six research reports from the company.

At Huizar’s request, Shenzhen Hazens in April 2015 arranged a one-week trip to China for Huizar and his family, covering all expenses, the indictment showed.

The indictment also listed benefits received by Huizar’s main associates from the bribers. Chan, who coordinated Huizar’s deals with Shenzhen Hazens, received $110,000 from the Shenzhen company. Harland Braun, Chan’s lawyer, denied to Caixin that his client committed any wrongdoing and said all of Chan’s income came from his salary as a public servant.

Since 2016, Huizar planned to have his wife Richelle Huizar run for the city council to continue the pay-to-play scheme after his tenure expired in 2020, prosecutors said. Huizar and associates pressured developers with projects in the district to contribute to the election campaign.

The indictment showed that Shenzhen New World’s Huang agreed to donate $50,000 to support Richelle Huizar. In 2017, Huizar told a middleman he hoped Shenzhen Hazens could donate $100,000 to his wife’s campaign. Caixin’s search of California’s election donation website didn’t turn up funding records from the two Chinese companies.

Under Huizar’s instruction, developers also poured money into Bishop Mora Salesian High School, a local high school where Huizar studied. His wife was the school’s fundraiser between 2012 and 2016, the indictment showed. Shenzhen Hazens donated $10,000 to the school in 2015, while three other Chinese developers contributed between $5,000 and $25,000 each, the document showed.

The school’s website listed the U.S. unit of China’s state-owned developer Greenland as its top donor before the page was taken down. Greenland U.S. confirmed its donation and told Caixin it was a common charity activity to support the local community. The company said it assisted in the Huizar investigation but was not directly involved.

Another leading Chinese developer, China Oceanwide, also appeared in a search warrant related to the case. The company said it was questioned because it has projects in the city and had email exchanges with Chan. China Oceanwide was not accused of any wrongdoing, the company said.

Shenzhen New World and Huizar’s lawyer did not respond to Caixin questions. Wang Zhibing, vice president of Shenzhen Hazens, declined to comment.

Four members of the CD-14 Enterprise including Esparza have pleaded guilty to racketeering conspiracy charges and are awaiting sentencing scheduled for February next year. Chan has yet to be charged.

An FBI agent told Caixin that investigations in the case are still underway, without disclosing whether Chinese companies will be pursued.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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