Shenzhen Developer Agrees to Pay $1M Fine in California Bribery Scandal

China’s surge of overseas real estate acquisitions of the past decade continues to reap negative returns for the country’s developers with the merely unprofitable now giving way to a million dollar fine in one Los Angeles case.

A unit of mainland developer Shenzhen Hazens has agreed to pay $1.05 million as part of a deal to avoid possible criminal charges and remove itself from an investigation into bribery of LA municipal officials, the US Department of Justice announced on Thursday.

The official statement noted that, “A three-year non-prosecution agreement (NPA) with Jia Yuan USA Co., Inc. is the latest development in the ongoing investigation into a wide-ranging “pay-to-play” scheme in which developers bribed Los Angeles city officials to secure official acts to benefit their real estate projects.

Hazens had set up Jia Yuan USA to acquire and redevelop the Los Angeles Luxe City Center Hotel in 2014, the second of multiple projects it acquired in Los Angeles with the developer having enlisted the help of a corrupt city official by providing concert tickets, campaign contributions to political campaigns and other illicit benefits.

City Council Pay to Play Scheme

Under the agreement with the Department of Justice, Jia Yuan will pay the monetary penalty within two weeks of the October 5 deal, and will continue cooperating with the FBI in its ongoing investigation into bribery, fraud and illicit campaign contributions by foreign entities and other disguised players.

The government probe is aimed at uncovering a pay to play scheme operated by corrupt city officials and Jia Yuan’s parent company Hazens must also abide by the non-prosecution agreement.

The focus of the investigation at this point appears to be former city councilman Jose Huizar, who is scheduled to face trial next June on 34 counts including racketeering, wire fraud, bribery, money laundering and other charges. Those alleged crimes are related to soliciting payments from property developers in return for favourable consideration of building permit applications and other procedures.

In a statement of facts which was part of the non-prosecution agreement, Jia Yuan admitted to providing Huizar with Katy Perry concert tickets in exchange for intervention on a compliance issue at a Hazens hotel, as well as to having employees make campaign contributions to political candidates at the behest of a foreign national prohibited from participating in American elections,

Beyond those admissions, Jia Yuan also agreed as part of its deal to avoid prosecution that it had, at the behest of a foreign national, provided in-kind contributions to political candidates via reduced cost events at the Luxe.

The company further admitted, that in order to ensure Huizar’s favourable vote on city motions beneficial to the Luxe project, it had facilitated introductions that resulted in contracts that in turn paid indirect bribes to the city official. The company also confessed that it had partially subsidised a trip to China for Huizar and his family organised by consultant George Chiang, who has already been cooperating with authorities concerning his role funneling contributions to the then-councilman.

Staying Out of Trouble

According to a statement by the Department of Justice,  the government opted out of prosecuting Jia Yuan for three years, on the condition that it refrain from illegal conduct, because the firm accepted responsibility for its actions, and immediately terminated Chiang.

Chiang is scheduled to be sentenced next February after pleading guilty to one Racketeer Influenced and Corrupt Organizations (RICO) charge in connection with his work with Hazens.

The government also noted Jia Yuan’s improved compliance procedures and cooperation with investigators as part of the rationale for its decision, including providing records to investigators which were out of reach in China and making its mainland-based chairman available for interviews.

“The NPA does not preclude or limit the investigation or prosecution of individuals, including any current or former Jia Yuan officer, employee or agent,” added the Department of Justice in its statement.

Rain in Southern California

Hazens acquired the Luxe City Center six years ago for $105 million and immediately began work on a plan to transform the property across from the LA Live complex into a $700 million mixed-use development.

Approved by the LA City Council in 2017, Hazens has yet to break ground, and the project ran into further trouble in June when the city’s planning director began revoking “all of the Project’s conditional use approvals,” according to Los Angeles Magazine.

At the time the little-known Shenzehn developer was part of a wave of Chinese capital flowing into southern California real estate which included Shanghai Greenland Group in mid-2013 announcing that it had purchased the $1 billion Metropolis mixed-use project in downtown Los Angeles.

Beijing-based Oceanwide also made a big LA splash in 2014, when it acquired the Fig Central project in downtown Los Angeles, renaming the project across the street from the Staples Center as Oceanwide Plaza and calling the acquisition a $200 million deal. That project has since stalled after the company was sued for non-payment by its suppliers.

Hazens’ hometown competitors at Shenzhen New World had begun investing in hotel projects in southern California in 2010 when it purchased the Sheraton Universal Hotel in Universal City for $90 million, the same year that it purchased what is now the LA Grand Hotel on Figueroa Street from GE Capital for $63 million.

In January of last year, Greenland Group, Oceanwide and Shenzhen New World, along with Hazens” were all named “parties of interest” in an FBI search warrant which was part of a Department of Justice investigation of the Huizar bribery scandal.

There has been no word of further investigation of Greenland, Oceanwide and Shenzhen New World, however, even mainland developers who have stayed out of legal trouble in California have suffered setbacks.

In addition to Oceanwide’s stalled LA development, Wang Jianlin’s Dalian Wanda agreed in 2018 to sell of its One Beverly Hills project for $420 million, the same price that the Beijing-based developer had paid to acquire the site in 2014. China’s largest commercial developer never managed to break ground on its southern California dream.