Canadian businessman cuts record $60M forfeiture deal with New Zealand police over ‘profits from pyramid scheme’

Wealthy Chinese-Canadian businessman Edward Gong has agreed to forfeit more than $60-million to the New Zealand government, in a record settlement under a law that enables that country’s authorities to confiscate proceeds of crime, the New Zealand Police announced Wednesday.

The 51-year-old Toronto businessman is perhaps best known to Canadians as one of the faces in a famous 2016 photo with Prime Minister Justin Trudeau, where the Liberal leader courted members of Toronto’s Chinese community at a fundraiser. The photo, in which the group is shown making dumplings, drew attention to Mr. Trudeau’s cash-for-access dealings after details of the event were reported by The Globe and Mail.

Mr. Gong’s bank accounts in New Zealand were frozen three years ago as part of an international investigation into his business dealings. New Zealand Detective Inspector Craig Hamilton said the money had been transferred to New Zealand to “conceal its source.”

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The source, he said, was a pyramid scheme based in Canada and China.

Pyramid schemes are an illegal form of multilevel marketing, a business structure in which participants are supposed to earn money by supplying products to other participants. According to Canada’s Competition Bureau, pyramid schemes focus primarily on generating profit by recruiting others to put their money into the scheme, rather than by selling the products. Even as a scheme’s organizers profit, lower-level participants typically lose some or all of their investments.

The assets forfeited include more than $68-million in New Zealand dollars and a property in Auckland. Members of Mr. Gong’s immediate family live in New Zealand.

“This is the largest forfeiture of proceeds of crime ever secured in New Zealand,” Detective Inspector Hamilton said in a statement.

“This outcome sends a simple message to criminals around the world – send your dirty money to New Zealand and you will lose it.”

Under New Zealand law, the court only has to be satisfied “on the balance of probabilities” that seized assets are “tainted property,” according to the country’s 2009 forfeiture legislation.

Mr. Gong, also known as Xiao Hua Gong, was accused by Chinese authorities of running a pyramid scheme from Canada. The Ontario Securities Commission alleged he masterminded the fraudulent sale of hundreds of millions of dollars in stock in his health-supplements company, O24, to Chinese citizens and funneled a significant percentage of the money to bank accounts in Canada and New Zealand to use for personal benefit.

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He faced four charges under Canadian law, including fraud and money laundering, but his lawyers raised serious concerns in court filings that the evidence gathered against Mr. Gong was based on confessions coerced by Chinese authorities. A former RCMP officer hired by Mr. Gong had travelled to China and spoken to witnesses who said authorities threatened them with jail time or transfers to more brutal incarceration.

In an Ontario Superior Court of Justice settlement this past February, the charges against Mr. Gong were withdrawn. Instead, his company Edward Enterprise International Group Inc. pleaded guilty to pyramid scheme selling and using forged documents. The company agreed to forfeit nearly $15-million of assets and pay a fine of nearly $1-million.

Mr. Gong’s lawyer Joel Etienne said the withdrawal of charges against Mr. Gong “means that Mr. Gong is an innocent man who remains innocent of any personal criminal wrongdoing.”

Mr. Gong, a former theatre director who staged opera performances and Shakespeare plays in China, moved to Canada in 2002. He built a business empire in North America over the following decade, acquiring several hotels in the Toronto area, the second-largest hotel in Michigan and two Chinese-language TV channels in Canada, including Canada National TV. In 2008, he became a Canadian citizen.

The Ontario Securities Commission alleged that more than $140-million obtained from the pyramid operation was directed to Mr. Gong’s bank accounts in Canada, which he then used to buy hotels, residential property, luxury cars and a boat.

As recently as 2016, Mr. Gong was still on good terms with the Chinese government. That year, 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.

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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.

In an unusual move in June, 2018, former Liberal MP Geng Tan hand-delivered a letter to a top official at the Canadian embassy in Beijing and personally spoke to Chinese authorities on behalf of Mr. Gong.

The investigation into Mr. Gong involved the New Zealand Police and China’s Ministry of Public Security, as well as the RCMP and Canada’s FinTRAC, a federal agency that tracks the movement of money offshore.

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