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  1. Home
  2. / Investing
  3. / Global Equity

Chinese Developer Takes $1.05 Million Fine in Political Bribery Scandal

The bribery case involves Los Angeles City Councilman Jose Huizar.
By ALEX FREW MCMILLAN
Oct 12, 2020 | 09:30 AM EDT

A Chinese property developer has agreed to pay a US$1.05 million penalty to resolve its participation in a bribery case surrounding public officials with the City of Los Angeles.

The developer Shenzhen Hazens took part in a "pay-to-play" scheme in which developers bribed Los Angeles city officials to win approvals for their property projects, according to the U.S. Department of Justice.

The investigation into political influence peddling threatens to ensnare other Chinese developers, several of which went on a buying spree in southern California in the last decade. But they're also now subject to investigation in one of the worst bribery scandals to hit Los Angeles City Hall.

Hazens bought the Los Angeles Luxe City Center Hotel in 2014 for US$105 million. It planned a huge US$700 million redevelopment of the site into a mixed-use development, which has now run aground.

Although approved by the Los Angeles City Council in 2017, the redevelopment has yet to break ground. The city's current planning director has reportedly begun revoking the project's approvals.

The project is caught up in the bribery case against suspended Los Angeles City Councilman Jose Huizar. Huizar introduced the Luxe Hotel project to the council and voted in favor of a motion to benefit it. But Huizar now faces trial slated for June on a 34-count racketeering indictment.

Huizar chaired the Planning and Land Use Management Committee at Los Angeles City Hall until shortly after federal agents raided his Boyle Heights home and city offices in November 2018. Huizar voted in favor of the Luxe Hotel redevelopment after receiving a string of benefits, prosecutors say.

FBI agents found US$129,000 hidden in a closet in Huizar's home, including money tucked into red envelopes with Chinese characters on them. Such "red packets" are used to offer cash gifts in China.

A power player in Los Angeles politics, Huizar was arrested in June, with prosecutors saying he received around US$1.5 million in illicit cash. Others in the case called him "the boss."

"This case pulled back the curtain on rampant corruption at City Hall," U.S. Attorney Nick Hanna said at the time of Huizar's arrest, corruption Hanna described as a "cancer."

In a "statement of facts," Hazens admits it gave tickets to a Katy Perry concert to Huizar, as well as to the city's deputy mayor for economic development.

The Los Angeles subsidiary of Hazens, called Jia Yuan USA, also admits that it reimbursed its employees for making campaign contributions to "several U.S. political candidates." The payments were at the direction of a "foreign national" who is therefore not allowed to participate in U.S. elections.

Jia Yuan also admitted to making "in-kind" political donations to several U.S. political candidates by hosting reduced-cost fundraising events at the Luxe Hotel. Again, these perks were directed by a foreign citizen who shouldn't be participating in U.S. elections.

The chairman of Hazens facilitated an introduction resulting in a contract that paid indirect bribes to Huizar, according to the statement of facts.

The agreement also states that the property broker George Chiang organized a family trip for Huizar to China that was partially subsidized by Hazens.

Chiang is due to be sentenced in February after pleading guilty to a racketeering offense. Chiang worked with several Chinese developers on their projects in Los Angeles.

Chiang pleaded guilty in May to conspiring to violate the Racketeer Influenced and Corrupt Organization (RICO) statute. He copped a plea agreement to cooperate with the investigation.

Chiang admitted to taking part in a "criminal enterprise" set up and led by a member of the Los Angeles City Council. This, authorities allege, orchestrated bribes in return for favorable treatment from the City of Los Angeles on property projects.

There have been three other guilty pleas in the case already. Another Chinese developer, Shenzhen New World Group, has also been targeted by investigators in the case, although it has denied any link to Huizar.

Real-estate appraiser Justin Jangwoo Kim, who worked as a fundraiser for several Los Angeles politicians, in March pleaded guilty to a federal bribery offense in the case. Authorities say he helped a property developer negotiate and pay US$500,000 in cash as a bribe to Huizar, according to court filings.

Former Los Angeles City Council member Mitchell Englander has also agreed to plead guilty to a charge of scheming to falsify facts related to the cover-up of cash payments and gifts from a Los Angeles businessperson.

George Esparza, an aide to Huizar, took a plea deal in which he admitted that a Chinese billionaire planning a 77-floor skyscraper gave him and Huizar trips to Las Vegas, and other bribes.

As a result of the deal with prosecutors and the FBI, Jia Yuan USA will receive a three-year non-prosecution agreement, if it pays the fine within two weeks and as long as Hazens and its subsidiaries continue to cooperate with the FBI in its investigations.

The Justice Department said it agreed not to prosecute the Hazens subsidiary because it accepted responsibility for its conduct, fired Chiang, improved compliance and cooperated in a "robust and timely" manner with the investigation. That included providing records in China and in the personal possession of Haizens Chairman Yuan Fuer.

Chairman Yuan also volunteered to participate in an interview with the authorities despite being outside the reach of U.S. law enforcement.

Other Chinese developers have also made a big splash with purchases in Southern California.

Shanghai Greenland Group in 2013 bought the US$1 billion Metropolis project in downtown Los Angeles.

Beijing-based Oceanwide in 2014 bought the Fig Central project in downtown L.A., across the street from the Staples Center, and renamed it Oceanwide Plaza. The US$200,000 purchase has also stalled, with suppliers suing Oceanwide for nonpayment of bills.

An FBI search warrant in July 2018 said Hazens, New World, Greenland and Oceanwide are all "parties of interest" in the Huizar bribery scandal.

The warrant named Huizar, Esparza, Chiang, Hazens Chairman Yuan, New World Chairman Huang Wei and several other individuals as part of the bribery and kickbacks investigation.

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At the time of publication, Alex Frew McMillan had no position in the securities mentioned.

TAGS: Investing | China | Global Equity

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