Open Letter: Call for Investigation Into HNA Group’s Activities in the U.S. and Probable Links With Corruption at Top of Chinese Communist Party

China Human Rights Accountability Center, August 15, 2017

Updated on October 19, 2017

We are writing this open letter to express our deepest concerns about the highly suspicious activities of the HNA Group (HNA) in the United States, including the lack of transparency of its ownership, the unclear nature of its plan for charity work, and allegations of large-scale corruption. Based on the mandate of the Global Magnitsky Human Rights Accountability Act, other relevant laws, and in the service of public interest, we strongly urge Congress and relevant administrative agencies to investigate and uncover the true nature of the HNA Group, its asset sources, and intended uses in the United States.

Headquartered in the capital city of Hainan Province, an island off mainland China between the South China Sea and the Gulf of Tonkin, HNA Group started in 1992 as a state-owned enterprise doing business primarily in airlines and tourism. It was re-incorporated around 2000 and began expanding its assets rapidly and mysteriously.

In the last decade alone, the HNA Group transformed itself into the largest acquirer of foreign assets in the U.S. and one of the largest worldwide. The HNA Group is heavily funded by Chinese state-owned bank loans, which have enabled it to leverage into completely unrelated business sectors. With acquisitions, its rank in the Fortune Global 500 list climbed from No. 464 in 2015 to 170 in 2017, and is projected to reach the top 100 in 2018. It is reported that HNA Group’s current total assets exceed $150 billion.

HNA’s ultimate target is to be one of the 10 largest companies in the world, according to its CEO Adam Tan. HNA’s sprawling portfolio now includes Ingram Micro, Avalon, Deutsche Bank, and Hilton Worldwide, to name a few. Its transactions and activities involve former White House Communication Director Anthony Scaramucci and other high profile luminaries including George Soros, David Cameron, and Nicolas Sarkozy. However, HNA remains behind a heavy veil, despite its incomprehensible success. It failed to make any clarifications when various journalists repeatedly raised questions about its ownership structure or how it made its fortune.

We are writing this letter out of concern over what appears to be one of the most generous donations to a U.S. foundation in the history of philanthropy, and its potential connections to unprecedented massive corruption.

On January 31,2017, New York Times first reported that HNA’s largest single shareholder was Guan Jun (贯君), a mysterious man who is alleged to be tied to China’s anti-corruption czar Wang Qishan. In June, the Financial Times also reported that Guan Jun purchased 29 percent of the company last year from Hong Kong-based businessman Bharat Bhise. Neither HNA nor Bhise revealed how the stake changed hands up to this transaction.

Only after the Chinese and foreign media began to focus on HNA’s ownership did the company finally release an open letter on July 24 to its employees, associates, and consumers; but even then, it did not list Guan Jun as the largest shareholder. When probed about the disappearance of Guan Jun’s share by a reporter from China Business Network, HNA said Guan is a “private investor” who owned some of the company’s shares, which has now been donated to the Cihang Foundation in New York.

This was confirmed by another Financial Times interview with HNA’s chief executive Adam Tan, who told the British newspaper that a Chinese citizen had donated $18 billion of the ownership of HNA—29 percent of the shares of the HNA Group of China—to a private foundation based in New York: the Hainan Cihang Charity Foundation, the company’s charitable arm in the United States. According to HNA, 53 percent of the company is owned by Cihang foundations, including a 22.8 percent stake held by a sister charity in China. The foundation registered with the New York Department of State on December 7, 2016, and it is currently applying for federal tax-exempt status with the Internal Revenue Service. The foundation says it will support a number of efforts, including anti-poverty work. Suspiciously, its three initial directors are all top executives of HNA, as reported by Wall Street Journal .

To put the size of the donation in context, a single donation of $18 billion will make the New York Cihang second only to the Bill Gates Foundation, the largest private foundation in the world. Cihang foundations — the New York Cihang and Hainan Cihang — now hold tens of billions in total assets.

What was not explained, however, was how the donor Guan Jun, a man in his 30s, acquired such a large share of one of China’s biggest companies in the first place. According to Hong Kong corporate filings, Guan Jun’s registered residential address is a simple apartment in what New York Times reporters found was a dingy, trash-laden building in Beijing, while his business address was registered in the “Oriental Aphrodite Beauty Spa”, a street-side salon in a residential neighborhood in western Beijing. Both proved to be very dubious; Guan does not appear to be the owner or resident of those locations. When asked some of these questions by the Financial Times in a telephone call, his answer was “It is inconvenient to answer any of your questions.” In a YouTube video posted after this letter was first published, Guan Jun supposedly denied his connections with government officials, but never mentioned how and when he could possibly have amassed such a princely sum of wealth. Curiously, the source of the professionally produced video was not identified, and neither was the video acknowledged by HNA.

In the interview with the Financial Times, Tan made the surprising admission that Guan, and another shareholder, Bharat Bhise, had never really owned the shares, “but had just held the stake for us.” This claim is inconsistent with the HNA spokesperson’s statement. It remains to be examined how these shares were obtained from HNA, a former state-owned enterprise that had undergone government-managed privatization. HNA’s true relationship with Guan Jun also remains unsettled — HNA claims he does not work for the company, but according to media reports, he serves as co-chairman with the son of HNA’s Chairman Chen Feng in a peer-to-peer financing platform owned by HNA. Recent New York Times Reported that shares that Guan Jun held originated from companies affiliated with Chen Feng and his family.

Doubts about the company’s unclear ownership structure and allegations of corruption have recently caused Bank of America to decide not to do any business with the Chinese conglomerate. Meanwhile, the European Central Bank is reportedly investigating HNA’s nearly 10% stake in Deutsche Bank. Goldman Sachs, longtime partner of HNA, recently suspended its IPO work for a HNA unit on due diligence concerns.

On top of this, the New York Attorney General pointed out that the group had not registered in the state as a charity, as required by law, and asked it to do so within 20 days or explain why it has not done so. HNA argued that it was not required to register by Executive Law because it did not intend to raise funds from third party, after the first explanation that the foundation couldn’t register because it hadn’t yet received its federal 501(c)(3) status, a tax exemption of nonprofit organizations, which is pending.

More recently, in September, the Swiss Takeover Board (Übernahmekommission) requested HNA to explain its ownership structure. It is concerned that HNA is a “white glove” that holds wealth for the powerful.

Although Chinese citizens are effectively prohibited from asking questions about HNA and its business and political affiliations, there is little doubt that this conglomerate needed close ties with senior leaders of the Chinese Communist Party to achieve such spectacular growth. There is no other possible explanation for how HNA could obtain a seemingly unlimited line of credit from all major state-owned financial institutions in China. Most Chinese people are prohibited from knowing the nature of the HNA transactions. Those who are aware of the hidden fact are outraged by such an abnormal transfer of assets — possibly a grand embezzlement of public wealth — but they are too afraid to protest or speak up because they fear the potential backlash from the individuals who genuinely control the HNA assets, who are likely connected to the very top of the communist regime.

For Congress and the administration, HNA’s unprecedented, massive corruption and dubious transfer of large assets to a U.S.-based “charity” should sound an alarm: Cihang foundations control over 53% of HNA, making Cihang a shell holding company of HNA, one of the top companies in the world, not a charity.

We suspect that HNA’s largest shareholder Guan Jun may have acquired his 29.5% share ownership by siphoning off public assets through government-manipulated privatizations, because public records provide no evidence that he purchased these shares fairly.

Consistent with Guan Jun’s murky identity, only very high level political privileges can explain why HNA was able to grow at a parabolic rate, fueled by bank lending and easy access to hard currency, despite China’s tight capital controls. HNA’s chairman of the board, Chen Feng was a former PLA officer, worked under Wang Qishan for a project of the now defunct China Agriculture Trust Investment Co., and has “been a delegate to three national congresses of the Chinese Communist Party since 2002, spanning the presidencies of Jiang Zemin, Hu Jintao and Xi Jinping”, as reported by Nikkei. HNA’s business took off when Wang Qishan became Hainan’s Party chief in 2002. In Chen Feng’s most recent public appearance, he accompanied Xi Jinping on Xi’s state visit to the U.K in 2015, where he was received by then-Prime Minister David Cameron on the same stage with Xi. HNA filed a lawsuit in New York in Augustus 2017, denying allegations that Wang Qishan or his nephew Yao Qing is the controlling shareholder of HNA Group, directly or indirectly. Public records found online show that Yao Qing has several transactions with HNA subsidiaries and affiliates.

HNA bypassed scrutiny while acting as a state sovereign investment company. On the other hand, given the opacity of the ownership and its special connections, we are concerned that it could very well be controlled by individuals and families connected with the top of the Chinese Communist Party (CCP), operating through a shadowy Guan Jun. Cihang will provide a shelter for CCP leaders’ families to retain their wealth, which they could only have obtained through corruption. Cihang may thus become a beachhead for the CCP to influence the U.S. government and public.

If this is the case, such an entity would be liable for examination per the Global Magnitsky Human Rights Accountability Act, passed in December 2016 (NDAA 2017, section 1261-1265) as the law aims at sanctioning officials or their senior associates who have committed “expropriation of private or public assets for personal gain, corruption related to government contracts or the extraction of natural resources, bribery, or the facilitation or transfer of the proceeds of corruption to foreign jurisdictions.”

Therefore, we ask the U.S. Congress and the administration to support the following:

Conduct an independent investigation into all transactions and assets held by HNA and its U.S. -based business affiliates in connection with alleged corruption by CCP leaders;

Conduct an independent investigation of the source of funding for HNA and Cihang’s U.S. operations in connection with alleged corruption by CCP leaders;

Hold an open hearing through the U.S. Congress regarding the above investigations;

Suspend approval of HNA’s application for the tax-exempt status until the completion of the above investigations;

Suspend approval of all HNA’s business mergers and acquisitions in the United States until the completion of the above investigations;

Audit HNA’s U.S.-based companies, NY Cihang Foundation, and Guan Jun’s donation and suspend their operations in the U.S. until the completion of the above investigations.

China Human Rights Accountability Center

Contact: Fengsuo Zhou, Email: zhou@h-china.org

The China Human Rights Accountability Center was formed in January 2017 by a network of Chinese activists, primarily based in the U.S., to promote and assist the implementation of the Global Magnitsky Human Rights Accountability Act.

Relevant publications

Financial Times: HNA chief shrugs off regulatory and ownership concerns

https://www.ft.com/content/d9bc0760-70d0-11e7-aca6-c6bd07df1a3c

Financial Times: Who owns HNA, China’s most aggressive dealmaker?

https://www.ft.com/content/8acfe40e-410b-11e7-9d56-25f963e998b2

Financial Times: Goldman Sachs suspends HNA work on due diligence concerns

https://amp.ft.com/content/f2097f50-9308-11e7-a9e6-11d2f0ebb7f0

Financial Times: ECB probes HNA and Qatar Stakes in Deutsche Bank

https://www.ft.com/content/1e9ca0e2-6ba9-11e7-b9c7-15af748b60d0

Financial Times:Former HNA shareholder denies Beijing ties

https://www.ft.com/content/a481a5a0-915a-11e7-a9e6-11d2f0ebb7f0

New York Times: Behind an $18 Billion Donation to a New York Charity, a Shadowy Chinese Conglomerate

https://www.nytimes.com/2017/07/26/business/hna-group-billion-donation-new-york-charity.html

New York Times: HNA dealing with Scaramucci, first report of Guan Jun

https://mobile.nytimes.com/2017/01/31/us/anthony-scaramucci-business-white-house.html

New York Times:Mounting Questions About Who Controls HNA, a Top Chinese Conglomerate

https://www.nytimes.com/2017/08/24/business/dealbook/hna-ownership-disclosure.html?smid=tw-share

Regulatory filing of AID in Hong Kong, a HNA shell lists Guan Jun as shareholder

http://www.hkexnews.hk/listedco/listconews/GEM/2016/0330/GLN20160330275.pdf

Wall Street Journal: HNA has deepened the uncertainties around the New York foundation that is its biggest shareholder by changing its reason for not registering yet with the state.

https://www.wsj.com/articles/hnas-new-york-charity-wont-take-outside-money-for-now-1501893615

Bloomberg:Bank of America Halts Deals With HNA Amid Debt Concerns

https://www.bloomberg.com/news/articles/2017-07-19/bank-of-america-said-to-halt-deals-with-hna-amid-debt-concerns

Wall Street Journal: HNA’s Biggest Shareholder Doesn’t Really Exist Yet

https://www.wsj.com/articles/hnas-biggest-shareholder-doesnt-really-exist-yet-1501159085

Bloomberg: Don’t fly in the dark, HNA

https://www.bloomberg.com/gadfly/articles/2017-06-06/chinese-cash-magnet-hna-must-clear-the-murk-to-reach-its-goals

Bloomberg: HNA’s NYC Charity Owner Told by A.G. to Register With State

https://www.bloomberg.com/news/articles/2017-07-27/hna-s-nyc-nonprofit-owner-told-by-state-to-register-as-charity

Bloomberg:HNA is not going to raise funds in New York State

https://www.bloomberg.com/news/articles/2017-08-03/hna-s-foundation-pushes-back-on-n-y-attorney-general-s-request

HKEJ:The ties that bind: HNA’s Chen Feng and his rise to power

http://www.ejinsight.com/20170522-the-ties-that-bind-hna-s-chen-feng-and-his-rise-to-power/

Fortune: You’ve Never Heard of HNA Group. Here’s Why You Will

http://fortune.com/2017/07/24/fortune-global-500-hna-group-china/l

Global Magnitsky Human Rights Accountability Act

https://www.congress.gov/bill/114th-congress/senate-bill/284

Nikkei:Questions mount over HNA’s financial engineering

https://asia.nikkei.com/Features/Company-in-focus/Questions-mount-over-HNA-s-financial-engineering

Why HNA is on a buying binge?

https://www.xcnnews.com/rd/159722.html

Hainan Cihang registration at New York Department of State.

https://appext20.dos.ny.gov/corp_public/CORPSEARCH.ENTITY_INFORMATION?p_token=05E802F662B75268CF28BB101283266F719FCDDE5829066C371B474E3012B58C9173744907E7B39478A94A75F692D9BC&p_nameid=DAB0EBE0256869E8&p_corpid=94B8FB0CF3559FCA&p_captcha=12422&p_captcha_check=80F162C216CC3291&p_entity_name=%63%69%68%61%6E%67&p_name_type=%25&p_search_type=%43%4F%4E%54%41%49%4E%53&p_srch_results_page=0

Cihang’s tax filing, 2016

http://990s.foundationcenter.org/990pf_pdf_archive/820/820700090/820700090_201612_990PF.pdf

Video appearance of Guan Jun, HNA’s main shareholder.

https://m.youtube.com/watch?feature=youtu.be&v=bnoHGSOHBP

HNA lawsuit against Guo Wengui

https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=7Cz6q9JwR_PLUS_eSqCV3ceGOGw==&system=prod

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