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Uncovering hidden billions in China

An interview with Pulitzer Prize-winning investigative journalist David Barboza, recipient of the ACFE Guardian Award

New York Times reporter David Barboza — a keynoter at the 27th Annual ACFE Global Fraud Conference — discovered at least $2.7 billion in assets controlled by relatives of the former Chinese premier. Read how he found the smoking guns among public records.

David Barboza heard the rumors. As a correspondent in China for The New York Times' business section since 2004, he says he'd hear the dinner talk from bankers, lawyers and accountants in Shanghai and Beijing. They were questioning if the families of then prime minister Wen Jiabao and other high-ranking Chinese government officials had benefited financially from the country's economic transformation by receiving "secret shares" in corporations. Barboza had no idea that he eventually would find strong evidence of these dubious arrangements in Chinese public records.

"Many relatives of Wen Jiabao, including his son, daughter, younger brother and brother-in-law, have become extraordinarily wealthy during his leadership, an investigation by The New York Times shows," wrote Barboza in his Oct. 25, 2012, article, Billions in Hidden Riches for Family of Chinese Leader. "A review of corporate and regulatory records indicates that the prime minister's relatives — some of whom, including his wife, have a knack for aggressive deal making — have controlled assets worth at least $2.7 billion," Barboza wrote.

Barboza recently told Fraud Magazine that he discovered the hidden billions of the relatives of China's ruling class through a circuitous reporting route. "I came up with an idea in 2010 to write about the government's role in business, mostly about how state-owned companies operate in China," Barboza says. "But I also wanted to explore the role of the so-called ‘princelings' — the sons and daughters of the political elites. I knew they were major players in the business world and I figured this was a subject that was too important not to write about."

In 2011, he began work on a series about what had been dubbed "state capitalism" with an envisioned final article about princelings. "And it was during the research on that piece that I began to discover that in China I could get access to corporate records, records of private companies, and records that listed current and former shareholders.

"I initially intended to look at the sons and daughters of Politburo members and write a little about their business deals. But then I found records related to the family of Wen Jiabao," he says. "I could hardly believe that within months of searching through government records and corporate filings of listed companies that there were indications the family might have a huge stake in Ping An, one of China's biggest insurance companies. I soon found that the family's wealth could be in the hundreds of millions of dollars. Eventually, we documented about $2.7 billion. But that was hardly all of it. I later found even more."

Untangling financial holdings

Barboza discovered that in many cases relatives' names had been hidden behind layers of partnerships and investment vehicles involving friends, work colleagues and business partners. "Untangling their financial holdings provides an unusually detailed look at how politically connected people have profited from being at the intersection of government and business as state influence and private wealth converge in China's fast-growing economy," he wrote.

Barboza eventually wrote a series of articles in 2012 on the Chinese princelings, which raised the ire of the government and made him start looking over his shoulder. He says he was threatened and felt that he was in danger.

In 2013, he was awarded the Pulitzer Prize for International Reporting "for his striking exposure of corruption at high levels of the Chinese government, including billions in secret wealth owned by relatives of the prime minister, well documented work published in the face of heavy pressure from the Chinese officials." (That same year he was also part of The Times' team that won the Pulitzer Prize for Explanatory Reporting for examining challenges posed by increasingly globalized high-tech industries.)

The ACFE will present Barboza its Guardian Award at the 27th Annual ACFE Global Fraud Conference, June 12-17 in Las Vegas. The award recognizes a journalist whose determination, perseverance and commitment to the truth has contributed significantly to the fight against fraud. Barboza also will be a keynote speaker at the conference.

FM: What attracted you to newspaper work? What excites you about the journalistic process? 
        DB: I got interested in journalism at a young age. I started out reading the sports pages. Eventually, I just found that newspapers and magazines were a great way to learn about the world.

What I find exciting about the journalistic process is, I guess, what excites me about the learning process or watching a good movie. You start out largely ignorant about a story or a topic and you start to build an understanding through reading and interviewing people. A mystery unfolds. This job has been my ticket to exploration, and there's nothing else I'd rather do than work as a journalist.

FM: How did you come to work for The New York Times as a freelance writer and a research assistant before becoming a staff writer in 1997? 
        DB: It helped that I worked for a student newspaper at Boston University. The New York Times picked up an investigative story I wrote there. So I joined The Times as a summer intern in the Boston bureau. Later, I was offered an internship at the paper's headquarters in New York City, in the old Times building at 43rd Street. At the time, I read the classic history of the newspaper, "The Kingdom and the Power," which captivated me. I've never really worked for anyone else.

The day we went to press was one of the scariest days of my life. I just felt under so much pressure at that point; I knew it was a dangerous story."

FM: Were you fascinated with China even before you began reporting there for The New York Times in 2004? If yes, what was the attraction?
        DB: I took a few courses on China as an undergraduate at Boston University, including "Reporting the Revolutions: China and Vietnam." After that, I was kind of hooked on China and its history and culture, and I was eventually fortunate enough many years later to be posted to Shanghai as a business correspondent. I returned to New York in November. I had the best job I could ever imagine! I was able to explore a fascinating country, visit its massive factory zones, write about its economy, its history and culture and meet some of the country's dynamic entrepreneurs. I got to do that for 11 years, an extraordinarily long stint as a foreign correspondent. And I'm grateful that The Times gave me that opportunity.

FM: How were you able to continue to go back to the government and obtain public documents especially after the officials must have known your intentions? Does the government now restrict access to previously available documents?

        DB: I was mostly using corporate records of private companies and the records of public companies that had shares listed on the Shanghai, Shenzhen and Hong Kong stock markets. This was mostly public information that virtually anyone could access. But I had only recently learned that I could request the records of private companies through various government agencies. Those records were voluminous and complex. But they contained valuable leads that eventually led me to the family wealth.

It wasn't at all clear at the beginning, since many people in China hide their wealth by borrowing the I.D. cards of friends, relatives and other so-called "nominee" shareholders. But to my great surprise, it was possible to figure out patterns and names and unlock some of the secrets of ownership.

In other words, some of the attempts to mask the wealth weren't all that good. In other cases, I never completely figured it out. But there was enough information there for me to find clues that, after more than a year of work, led me to billions of dollars in holdings by the relatives of the prime minister.

I should say I didn't really choose to investigate the family of Prime Minister Wen. I looked at many other families of senior leaders, but the Wen family had so many assets in so many places, including public companies, that it made it easier to track them. Also, one of the major holdings was, as I said, Ping An, which had very good shareholder records on the Hong Kong and Shanghai stock markets. And those records listed private Chinese companies. And it was in the private records that I found the family holdings, hidden behind layers of so-called shell corporations, corporations that were owned by corporations, which were in turn owned by other corporations, suggesting that many companies were set up only as hollow shells meant to hide assets or easily transfer wealth to others.

FM: What were some ways you untangled financial holdings and proxies to find the names of relatives in partnerships and investment vehicles?
        DB: Explaining the process is complex. But I can say, much of it is just asking basic questions, making lists, creating charts and following the money. I started to understand how the records worked, looked at where people were from, cross-referenced names and dates and addresses and, at times, just sat in front of a piece of paper with names and figures and companies and struggled with how to make sense of things. When I got lost, I usually talked to an accountant or lawyer or financier and asked them some basic questions about how things worked in China with records. I didn't need to tell them what I was doing. I was too afraid to do that. I was just asking how things work. And that's one of the exciting things about investigative work — just figuring out things partly with the help of others but also partly with just your own brainstorming.

FM: Did the Chinese discourage you during your research and reporting? Did anybody advise you to leave the country? Did anybody threaten you? 
        DB: For most of the period I was working on this project, I didn't let many people know what I was doing. That was too risky. I knew the dangers and risks. So I was getting records, searching for things and digging around without many people knowing what I was up to. When I met people for the story, I didn't tell them what I was doing but asked them about little things that I thought might help me. I tried to be patient and just inch along.

Nobody threatened me because not many people knew what I was doing. I was, though, warned by various people about the dangers of looking into the backgrounds of princelings. I believe the government started to realize what I was doing rather late in the process, and then I started to hear footsteps and get nervous.

Eventually, I left China twice in 2012 to finish reporting and writing. Both times my wife and I left, and I was hoping to be able to finish the story safely, without risk and having a good Internet connection. As you may know, China blocks sites and even interferes with email. I returned to China after leaving the first time, in July 2012, because I wanted to get more evidence and I felt that enough of the work was done for me to go back and see if I could make a final push and get even more confirmation. In fact, I found a tremendous amount in the final month of work on the project.

It was only in the final week before we published that I alerted the Chinese government and the family of the then prime minister about the story. I was then under a lot of pressure from both. I was warned there'd be serious consequences if we ran the story. And there were threats, though I'd rather not go into detail about what the nature of those threats were. But let's put it this way: I felt that I was in danger. 

FM: What were your emotions during the year you were researching for these articles? Were you holding your breath when The Times published the first one? 
        DB: The day we went to press was one of the scariest days of my life. I just felt under so much pressure at that point; I knew it was a dangerous story. I was worried about the consequences for my wife and me. But I was also worried because no matter how much documentation we had, even government documents, I worried that some small mistake might undermine the piece. I feel that way about every story. But this was certainly of a magnitude I had never even contemplated.

FM: After the stories broke were you able to continue reporting on other stories in China or did your sources begin to mysteriously dry up? 
        DB: Oddly, even after the government complained about the pieces, blocked our website in China and began denying The Times new journalism visas, life went on rather normally. I was ok. I did my job normally, and very few people stopped talking to me. In some cases, I stopped calling some people because I thought the government might suspect they were a source. In fact, one of the wonderful things about this series was that we relied on the government's own documents. I didn't have any key sources. No one gave me information or encouraged me to write about this subject. And, as I said, I told almost no one what I was doing. 

FM: Have you checked to see if the relatives of some of the old regime have sold their holdings? Do you have any indication that any of the relatives of those in the new regime might be thinking twice about their holdings?
        DB: I have heard lots of rumors but can't verify anything. The records are more difficult to get now, but I can say that the names of the relatives of senior leaders continue to appear in documents I have seen since my first pieces came out in 2012. 

FM: In October of 2012, lawyers for Wen Jiabao threatened legal action against The Times. Did anything come from that?

        DB: No. But I had worked on this story thinking there could be a lawsuit, and so I was preparing for such an outcome. I had so many documents, and I tried to cross-check them and even reviewed many of them with the relatives of Prime Minister Wen about them. And I did. I can say that in my talks with the family they never challenged the documents. What they did challenge were some of the valuations of some of the companies.

FM: What are some lessons you've learned from reporting for these stories?
        DB: I relearned a lesson I had learned many times before. People often say there aren't any records; that it can't be done. But I've always been determined or even stubborn. There's often a way, and a way to do it ethically and legally. And so I just kind of stick with something not knowing whether it will pay off but hoping it will. And there are always surprises. People you don't think will talk, decide they actually do want to talk. Documents you think don't exist — they really do exist. And slowly plodding along doesn't always pay off. But it's the best you can do.

FM: Since ACFE Chairman Dr. Joseph T. Wells, CFE, CPA, founded the ACFE in 1988, he's emphasized that fraud examiners have to be objective in fraud examinations and to interview as many involved subjects as possible. It's impossible for reporters (and fraud examiners) not to be totally unbiased, but what are some ways you work to maintain balance in your research and reporting?  
        DB: I try very hard to approach stories without preconceived ideas about the conclusions. And I think a journalist should be as objective as possible, as fair as possible and as ethical as possible. At least, these should be really critical elements to the reporting process. I try to understand and sympathize with the people I interview and write about and not to think self-righteously or in an arrogant manner. I'm just trying to get at the truth and trying to weigh everything as carefully as possible.

I love investigative reporting, but I also would never want to be manipulated, used or pushed into a story or a conclusion to win an award or pat myself on the back. I want to do it the way I think is right and fair and with ethics in mind. For that to happen, you also need good editors, and I've had wonderful editors who can advise and make suggestions and push back when my evidence isn't convincing.

I'm willing to drop or give up on stories that don't pan out; I don't want anyone to ever say I was intentionally unfair or arrogant about the way I approached a story. We've had countless examples of investigative stories that have gone wrong, so we should learn from that. And I think every day about the ethics of what I'm doing. It's not easy but it's something I think is essential — for a person and a journalist.

FM: What advice can you give fraud examiners as they spend hours following up leads in fraud case examinations?
        DB: Ask good questions. Be curious. Be open-minded. Be fair. And be patient. At least, that's my approach. And also try to think of new and creative ways to get what you're looking for. And then start building your map. Every story and every investigation is different, so I build a new map for every story — a way to try to gather the information and map out the characters, etc. I've had some successes, but I've had many failed investigations. And I don't mind that. It's the nature of the game. You have to have some failures. Sometimes, a story is just not ripe.

Dick Carozza, CFE, is editor-in-chief of Fraud Magazine. His email address is: dcarozza@ACFE.com.