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Chinese Shell Corporations Evade Taxes in Ecuador

13/08/2019 Diálogo - Gustavo Arias Retana

Chinese shell corporations use schemes to launder money and pay kickbacks for corruption in South America.

Chinese Company Sinohydro built Coca Codo Sinclair, Ecuador’s largest hydroelectric plant, in 2016. During an inspection, Ecuadorean authorities found structural damages worth more than $1 billion. Foto: Diálogo

Chinese Company Sinohydro built Coca Codo Sinclair, Ecuador’s largest hydroelectric plant, in 2016. During an inspection, Ecuadorean authorities found structural damages worth more than $1 billion. Foto: Diálogo

At least seven Chinese companies the Ecuadorean government hired for public works projects in the construction, mining, telecommunications, and oil exploitation sectors made payments to companies the Ecuadorean Internal Revenue Service (SRI, in Spanish) considers shell corporations.

This information is the result of an investigation by Ecuadorean daily El Universo, which compared SRI’s shell corporation database from April to tax returns of Chinese companies the country hired between 2010-2018.

According to Jorge Rodríguez, an Ecuadorean economist and a representative of the country’s National Anti-corruption Commission, the use of shell corporations is long-standing in Ecuador. He said these companies are usually hired to launder money, simulate expenses, artificially lower their earnings, and pay kickbacks to authorities for acts of corruption.

“The problem started in the 1990s, when banks tried to move the sucre and the dollar, so businessmen built shell corporations in the names of their drivers or assistants to launder cash and gain advantages over the exchange rates. That practice was reborn in 2007, as a way to pay kickbacks for corruption. Shell companies have fake receipts to collect money from public funds. They invoice, collect the funds, and then distribute it,” Rodríguez told Diálogo. “They use that same scheme to launder money that must go through the banks; they open accounts under the names of fake companies. It’s a great business because they artificially decrease their earnings, but in reality they channel all public funds to their pockets.”

Chinese Companies

El Universo’s investigation revealed that seven Chinese companies hired by the Ecuadorean government reported charges for supposed transactions with 84 shell corporations. Those amounted to close to $22 million.

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