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Canada built fraud case with coercion in China, accused says

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Friday, November 9, 2018 – Page A1

TORONTO VANCOUVER -- Evidence gathered by Chinese police is being used against a Canadian businessman in an Ontario court in a case that will test the ties between law enforcement agencies in China and Canada.

Gong Xiao Hua, also known as Edward Gong, was arrested last December after a joint probe by the Ontario Securities Commission (OSC) and the Royal Canadian Mounted Police in collaboration with China's Ministry of Public Security and authorities in New Zealand, where some of the alleged proceeds of crime were transferred.

Mr. Gong is perhaps best known to Canadians as one of the faces in a photo with Prime Minister Justin Trudeau at an event in 2016, where the Liberal Leader courted members of Toronto's Chinese community at a cash-for-access fundraiser.

As Mr. Gong helped Mr. Trudeau make dumplings with other donors, the RCMP and regulators were already making inquiries into Mr.

Gong's business dealings, according to court records. In December, they launched an active investigation.

The OSC accuses Mr. Gong, 53, of masterminding the fraudulent sale of hundreds of millions of dollars in stock of his health-supplements company, O24, to Chinese citizens and funnelling a significant percentage of the money to bank accounts in Canada and New Zealand to use for personal benefit. Chinese authorities have alleged that, from Canada, Mr. Gong engineered what they consider an illegal pyramid scheme.

Mr. Gong and his lawyers say the evidence gathered by Chinese authorities was the result of coercion, and should be thrown out.

O24 was a multilevel marketing company. A salesperson can earn money by selling health supplements and from commissions made on sales by people whom they in turn recruit. Those initial salespeople often earn more by recruiting others than from their own sales. In Canada, multilevel marketing is legal. In China, it is the target of major crackdowns.

Mr. Gong faces four charges under Canadian law, including fraud and money laundering, for allegedly selling worthless stock certificates from 2012 to 2017. In court documents, a senior Ontario Securities Commission investigator describes O24 as an empty company that had already been dissolved.

The alleged victims are in China.

The OSC and RCMP were drawn in because the alleged plot was run from Toronto.

"We are alleging that criminal activity took place in our jurisdiction," OSC spokesperson Kristen Rose said. "When this happens, it undermines the integrity of our capital markets and harms investors, and we will take action."

The Canadian charges depend to a significant extent on police investigations in China, including interrogations of detained associates of Mr. Gong and testimony from O24's alleged investors.

In response to the allegations, Mr. Gong retained Craig Hannaford, the former head of the RCMP's capital market fraud investigation unit. Mr. Hannaford, now a partner at the investigations firm Inquisit Solutions, travelled to China to interview O24 associates, customers and distributors. Among them were two former associates who told him Chinese authorities tried to extort money from them and that they were physically coerced to give evidence against Mr.

Gong. On video testimony viewed by The Globe and Mail, they also told Mr. Hannaford that Canadian police never independently interviewed them.

TRANSNATIONAL POLICING The Toronto businessman's case is a prime example of transnational policing, an increasingly common practice as Western governments work with law enforcement in the developing world and elsewhere to combat crime that crosses international boundaries.

Collaboration with China, however, is particularly risky in an era where the increasingly powerful and assertive country presses Western countries to help it punish offenders beyond its borders. China's criminal justice system has a reputation for corruption, harassment and intimidation as well as torture and forced confessions. After a Globe and Mail series on the mass detention and surveillance of Uyghurs and other Muslims in the Western province of Xinjiang, Canada joined other Western countries in condemning the disregard for human rights.

As rights watchdog Democracy House explained in its 2018 report on China: "Limitations on due process - including excessive use of pretrial detention - remain rampant, and a multiyear crackdown on human rights lawyers has weakened defendants' access to independent legal counsel. Criminal trials are frequently closed to the public, and the conviction rate is estimated at 98 per cent or more."

Brad Adams, director of the Asian division of Human Rights Watch, said prosecutors in Canada or other countries should not give testimony from people interrogated in police custody in China any credit in their domestic legal proceedings.

He said Western authorities would need to question those witnesses in an environment without duress, but that this is impossible due to the powers of coercion available to authorities in China.

"Torture is rampant in China," Mr. Adams said. "It can also be coercion: In other words, 'If you don't co-operate, we're going to put you in prison for the rest of your life. Or we will put your family in prison. Or we will make sure you get fired from your job. Or we will force you to move back to your home province.' " Mr. Adams acknowledged this lack of trust in the Chinese justice system means anybody in another country accused of a crime based on testimony collected by Chinese police has what amounts to a "get out of jail free card" because the evidence would be tainted.

He said individual rights and due process cannot be waived in the name of international co-operation. "The problem isn't that Canada is co-operating with China. The problem is China doesn't have a proper legal system where one can trust the evidence, so the burden is on China to fix the problem."

He pointed to the recent sudden disappearance of Meng Hongwei, the Chinese-born head of Interpol, after returning to his homeland. After an international outcry, Beijing revealed he was under investigation for alleged violation of laws.

"This is a perfect example of why China cannot be trusted." 'IF YOU DO NOT CO-OPERATE, YOU CANNOT GET OUT OF JAIL' Mr. Gong, a theatre director in China who staged opera performances and Shakespeare plays, moved to Canada in 2002.

He built a business empire in North America over the past decade, acquiring several hotels in the Toronto area, the secondlargest hotel in Michigan, and two Chinese-language TV channels in Canada, including Canada National TV.

In 2008, he became a Canadian, which required him to abandon Chinese citizenship.

Beijing does not allow dual nationals.

Last year, the People's Court of Shaodong County, which is in China's Hunan Province, convicted 11 of his associates on charges of helping Mr. Gong sell shares bundled with health supplements made in his adopted country.

Canadian authorities charged Mr. Gong because China has no jurisdiction in the case. As a Canadian, Mr. Gong cannot be sent to China for trial. The two countries have no extradition treaty. Ottawa fears citizens transferred into Beijing's care would be mistreated. Ten months after his arrest, the Toronto businessman is free on bail, but says all of his personal assets in Canada have been frozen.

"I didn't expect the accusations from China could be effective in Canada," Mr. Gong said in an interview in August at the Toronto headquarters of Canada National TV, a nondescript building with papered-over windows that doubles as a banquet hall.

Inside are photos of Mr. Gong with some of this country's most prominent politicians from across the spectrum.

The gist of Mr. Gong's complaints about Canadian evidence-gathering comes from interviews conducted by the former senior RCMP member, Mr.

Hannaford, who earlier this year spoke with more than a dozen people associated with O24, including the two Chinese citizens who said authorities tried to extort money from them and threatened them with indefinite jail time or transfers to more brutal incarceration. They said they were imprisoned in the city of Shaoyang, Hunan Province, for two years.

A third associate told Mr. Hannaford that Chinese police detained him, took him to his bank, urged him to transfer funds to an undisclosed destination. After seeing that the account held no money, they released him. Eight others whom Mr. Hannaford interviewed were O24 customers who were supportive of the products.

Court documents confirm that Canadian law enforcement did not conduct independent interviews in China with the alleged victims or those accused of collaborating with Mr. Gong. Instead, the RCMP and OSC investigators were present for some interviews run by China's security police, and in court records describe their own role as onlookers.

OSC investigator Wayne Vanderlaan told an Ontario Superior Court judge that he and RCMP Constable Elie Youssef "were present during the voluntary interviews" of eight alleged victims

and four alleged associates of Mr.

Gong that security officials conducted in China. Similarly, Constable Youssef is described in court documents as "present during a video recorded interview" of accused parties.

In response to questions about whether the OSC-RCMP investigation was allowed to independently question victims or alleged associates of Mr. Gong, the regulator said that because the case was before the court, it could not go into specifics. "As a general comment [however], staff conduct all of our investigations with the utmost procedural integrity and in accordance with the law," OSC spokeswoman Ms.

Rose said.

"The ultimate success of our cases depends on this."

One of the two alleged associates of Mr. Gong's who said they were threatened with further jail time - The Globe is withholding her name for her safety - told Mr.

Hannaford neither she nor her husband sold the health supplements that were allegedly marketed with the stock shares, although her spouse bought shares from friends without making money. The Globe watched the videotapes of her interview with Mr. Hannaford and independently translated the responses.

She said authorities told her they wanted her as a witness to accuse Mr. Gong and his company of lying to and tricking people.

"They wanted to say I was a victim," she said, recalling police told her to "follow their lead," and said "if you do not co-operate with us, you cannot get out of jail."

She said she was pressed to write letters and record videos to persuade her husband - also imprisoned - to confess guilt. She was at the detention centre in Shaoyang for two years, with 20 women living in a room of 20 to 30 square metres, where inmates ate, drank, slept and used the washroom. They were forced to make lighters and required to work overtime, cutting into their sleep allocation, if they failed to meet production quotas. She talked of working six hours overtime each night for 20 days in failing health.

The woman said authorities tried to extort her and her husband, asking for 100,000 yuan ($19,000) in return for her freedom. She protested and they reduced the demand to 50,000 yuan. This offer was revoked after authorities decided they needed her and her husband to make statements against Mr.

Gong - which they refused to do, she told Mr. Hannaford.

Mr. Gong's legal team plans to use such testimony to argue the evidence on which Canadian authorities base their case is unreliable and discredited. They say it was forcefully extracted from the Chinese prisoners, whom they allege were denied a fair trial and railroaded into incriminating his business.

Such confessions, Mr. Gong's lawyer Joel Etienne argues, would be inadmissible in a Canadian court if they had been gathered by law enforcement in Canada.

"Much of this evidence was obtained through the interrogation of detained parties in China, and a number of these parties later reported being subject to threats, extortion and cruel and inhumane treatment by Chinese authorities as a means of eliciting confessions," Mr. Etienne said.

"This evidence is, at the very least, inadmissible in a court of law ... due to its extraction through torturous means, and Canadian authorities may even be considered complicit in crimes of torture for assisting and working with the Chinese authorities in their investigation and failing to question the reliability of the shared evidence when they know or ought to have known that it was produced through torture," Mr. Etienne added.

A prisoner who sold Mr.

Gong's health products bundled with shares told Mr. Hannaford he was arrested and held for nearly three months before authorities began repeated interrogations. "Their ultimate goal was to break us down and make us say whatever they want," said the man, whose name is also being withheld by The Globe for safety.

Police said if he did not tell them what they wanted to hear, he would be transferred to a jail where the conditions would be worse. He was also worked on a cigarette-lighter assembly line and was subject to sleep deprivation for failing to meet production quotas. He said authorities also tried to extort money from his wife in exchange for his release.

Two of the accused interviewed by Mr. Hannaford say none of the evidence prepared for their defence was accepted by the courts at trial. One said he was forced to defend himself after his lawyer abruptly quit a week before trial with no explanation.

'CHINA JUST WANTED MY MONEY' The collaboration between Canadian and Chinese law enforcement on the Gong case was aided by an information-sharing agreement the Ontario Securities Commission signed with China and New Zealand for this investigation. The arrangement is mentioned in court documents, but the securities regulator declined The Globe's request to make a copy public.

A Memorandum of Understanding on fighting crime that was renewed by the RCMP andA China's Ministry of Public Security in September, 2016, helped pave the way for closer collaboration on fighting crime, including financial crimes and money laundering between Canadian and Chinese authorities. The RCMP declined to make public a copy of the agreement available, saying The Globe would have to file an access to information request.

Federal law provides authorities the discretion not to reveal details about inter-government relations or crime-fighting efforts.

In the interview at CNTV headquarters, Mr. Gong also alleged that Chinese authorities tried to extort money from him in exchange for dropping the O24 case, telling his lawyers that they would make life difficult for Mr. Gong in both Canada and in New Zealand, where he has close family and other business interests.

"Canada is accusing me and treating me unfairly, which also harms Canada's national interest," Mr. Gong said. "China just wanted my money."

Mr. Gong does not want to talk in detail about his relationship with Beijing officials, but he fell out of favour with the Chinese government quickly - not uncommon in a country where a businessperson's standing can shift dramatically.

In 2016, the state-run China Daily ran a flattering portrait of Mr. Gong, chronicling his purchase of the Ford International Convention and Exhibition Center in Michigan and a former Motorola production and research centre in Illinois. As recently as 2014, even though he had abandoned Chinese citizenship when he obtained a Canadian passport in 2008, Mr. Gong was asked to join a Chinese delegation for a state visit to Finland and Slovenia with then-vice-premier Wang Yang.

In 2013, he was made a deputy director of China's foreign trade council and is still listed on the organization's website.

Mr. Gong said the Canadian case against him sets a dangerous precedent. "This is just the beginning ... after this case, there will be another Edward Gong and another Edward Gong and another Edward Gong."

Associated Graphic

Gong Xiao Hua, top, also known as Edward Gong, was a theatre director in China before he moved to Canada in 2002. Six years later, he became a Canadian citizen and was forced to abandon his Chinese citizenship as Beijing does not allow dual nationals. Mr. Gong made dumplings with Prime Minister Justin Trudeau at a fundraiser in 2016, above, during which the Liberal Leader courted members of Toronto's Chinese community at the cash-for-access event. TOP: FRED LUM/ THE GLOBE AND MAIL; ABOVE: DAWA NEWS PHOTO

Facing fraud and money laundering charges, Edward Gong retained Craig Hannaford, an ex-Mountie who is now a partner at investigations company Inquisit Solutions. Mr. Hannaford is seen above interviewing individuals - whose identities The Globe and Mail is protecting - alleged to be connected to O24, a health-supplements firm run by Mr. Gong.

Edward Gong, above, faces four charges under Canadian law for allegedly selling worthless stock certificates from 2012 until 2017. FRED LUM/ THE GLOBE AND MAIL

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