The Devil Sells Prada - The Kinahans, Chinese Gangs and Luxury Goods

The Asian Crime Century briefing 27

In June the High Court in Ireland heard how an Irish based Chinese organised crime group had allegedly laundered large amounts of money for Irish criminals. The Chinese group allegedly charged a fee for laundering drug trafficking proceeds for other criminals to enable them to access the funds overseas, including an individual linked to the ‘Kinahan organised crime group’. Dutch police estimated that the contact of the Kinahan group had shipped €150 million worth of drugs, arms and ammunition to other criminal gangs in Dublin, Limerick, Belfast, London, Manchester and Liverpool.

According to the Criminal Assets Bureau (CAB), the 13 Chinese individuals involved immigrated to Ireland some years ago. The High Court was satisfied that they were engaged in money laundering and made orders deeming cash as well as luxury goods (Prada, Gucci, and Burberry bags) and vehicles purchased by those charged as the proceeds of crime. The ringleader of the Chinese group has previously been imprisoned for drugs related offences. The Chinese group used the drugs proceeds to purchase luxury goods in Ireland, which they then exported.

Several of the Chinese defendants claimed the money seized by the authorities was from savings having worked for cash as well as from money sent from Chinese for a shopping system known as ‘daiguo’, which has been described as “overseas surrogate shopping” of usually luxury goods to be sent to the end user in China.

As reported earlier in the Asian Crime Century (2023-18), the case in Ireland is similar to one in Scotland earlier this year, involving a student at the University of Stirling in Scotland who laundered thousands of pounds for a major criminal was sentenced to 18 months’ imprisonment. Ms. Huang Xiaotiong was found guilty of laundering a total of £160,000 through four bank accounts and using the money to buy designer label items and expensive wines as well as paying for her tuition fees at Stirling University. Her purchases included £12,479 on items bought from Gucci, Burberry and Coach, £797 on goods from Harrods, £480n on a Louis Vuitton bag, and £6,900 worth of wine. She would buy the luxury goods with money provided by a Chinese criminal, and send some of those goods back to China to be resold.

But the habits of Chinese shoppers are changing after the Covid-19 pandemic and this may also impact Daiguo and related money laundering. Morgan Stanley recently reported that before the pandemic two-thirds of Chinese consumers’ personal spending on luxury goods took place outside of China, and Chinese consumers accounted for about 60% of total industry growth between 2000 and 2019. Clearly during the pandemic luxury spending by Chinese decreased significantly, by up to 15% according to Morgan Stanley. There is a bounce back, and Chinese nationals are likely to account for 60% of total spending growth on personal luxury goods through 2030.

According to other reports, in April 2023 62 percent of luxury spending by Chinese consumers in April took place within China. This is leading to luxury brands such as Channel, Dior, Hermes, Sisley and Luis Vuitton all expanding their retail footprint in Mainland China. Industry experts assess that Chinese luxury goods buyers are not likely to return to European countries any time soon on the same scale as prior to the pandemic, preferring instead to buy in China.

Just what luxury goods will Chinese want? The Hurun Research Institute in March published the Hurun Chinese Luxury Consumer Survey & Hurun Best of the Best Awards 2023, which indicates what wealthy Chinese people want (and also perhaps those aspiring to be wealthy). Here are some of the results:

Best brand for gifting by men

Channel, Gucci, Rolex

Best brand for gifting by women

Channel, Hermes, Gucci

Best fashion label for women

Hermes, Louis Vuitton, Channel

Best fashion label for men

Hermes, Louis Vuitton, Gucci

Best accessory for women

Hermes, Gucci, Dior

Best accessory for men

Hermes, Gucci, Balenciaga

This is a basically a shopping list for Chinese gangs to procure to export from Europe back to China! Despite the increase in new stores in China, it is unlikely that luxury brand suppliers can provide sufficient product to meet demand and hence grey market imports are likely to continue. That means continued business for overseas Chinese gangs and the Daiguo system.

The overseas Chinese engaged in Daiguo have been described by Queensland University researchers as entrepreneur who complete small private orders of branded products from countries including Japan, the United States, South Korea, Australia, Canada, New Zealand and France that are then exported back to Chinese customers via courier. The Queensland University researchers estimate that Daiguo trade could be between USD 40 billion to USD 100 billion, and other researchers put the amount in 2020 at USD 57 billion.

The reason that Daiguo continues to exist, despite increasing direct retail sales in China, is price – Daiguo suppliers procure luxury goods from outlets such as duty free shops, securing a lower price point for sale back to customers in China. High demand from Chinese consumers has resulted in this cottage industry becoming a criminal enterprise. Criminal gangs can ramp up the levels of supply through their cross-border networks, and also have access to cash to invest in the purchase of large amounts of luxury goods. Which brings us back to the Chinese gang in Ireland working with the Kinahan organised crime group, which had drugs sales proceeds to dispose of and found a highly efficient channel with Chinese involved in Daiguo.

For those not familiar with the Kinahan family, the Under Secretary for Terrorism and Financial Intelligence in the US Department of the Treasury stated in April 2022 that “The Kinahan Organized Crime Group smuggles deadly narcotics, including cocaine, to Europe, and is a threat to the entire licit economy through its role in international money laundering.” The US implemented sanctions against the Kinahan family, designating them as individuals on the Office of Foreign Assets Control (OSAC) list.

The organised crime background of the family and their group is increasingly clear. They have operated in Ireland, the United Kingdom, Spain, and the United Arab Emirates, after emerging in the late 1990s and early 2000s as the most powerful organized crime group operating in Ireland. The group has allegedly been involved in drug trafficking and international money laundering, frequently using Dubai as a facilitation hub for its illicit activities. The Kinahans have a diverse list of international criminals and groups as associates, and may have added Chinese gangs to that network.

It seems that Daiguo surrogate shopping is not just a thriving cottage industry for overseas Chinese, but will also be increasingly used as a platform for international money laundering.