Washing money in Hong Kong
Fok may have pioneered sanctions evasion in Hong Kong. But the modern blueprint for the operations of the five front companies in Wan Chai was written in the 1980s by those heroin dealers, who used the colony's lax financial system to clean tens of millions of dollars worth of drug money.
The sheer amount of greenbacks being moved out of Hong Kong from 1982 to 1984 was massive — hundreds of millions of dollars — and it paralleled the rise in Southeast Asian heroin's market share in the United States, according to US intelligence.
And the money kept pouring in.
In 1991, Hong Kong officially sent nearly $4 billion in cash back to the United States, according Robert Koppe, an official from the US Treasury Department's Financial Crime Enforcement Network (FinCEN).
That number just didn't make sense, and Koppe told a Senate subcommittee on Asian organized crime in 1992 he couldn't explain it. Koppe said that FinCEN had a few theories on where the money was coming from; laundered drug money seemed the most likely. Concerns about a similar currency surplus had been raised about eight years earlier by former President Reagan's Commission on Organized Crime, and it concluded drug trafficking was a logical explanation.
There was no way to know for sure. At the time, Hong Kong did not have currency transaction reporting requirements, meaning businesses and individuals didn't have to explain where large amounts of money were coming from. And nearly $50 billion in US dollars were being exchanged each businesses day in Hong Kong, according to Koppe.
That was part of the problem itself, per Koppe. With so much cash unaccounted for in a major financial hub, Hong Kong was, as Koppe put it, "an excellent target area for the laundering of large amounts of US currency."
So law enforcement officials reasoned that if Hong Kong was sending back millions of dollars' worth of drug money to the United States, it meant that Southeast Asia's heroin empires were successfully laundering their fortunes through the global financial system via Hong Kong.
They often used front companies to do it. A 1994 report by the US Drug Enforcement Administration explained that traffickers would set up front companies in Hong Kong in order to conceal the movement of funds, or add layers of complexity and anonymity to their schemes.
These heroin empires essentially provided a business model for shadowy operations, like the five front companies in Wan Chai. They showed them how to abuse Hong Kong's lax system to hide money made illegally overseas.
