Chinese Tax Case Raises Questions
About Due Process for U.S. Citizen

By KARBY LEGGETT
Staff Reporter of THE WALL STREET JOURNAL
April 9, 2002

SHANGHAI, China -- Jude Shao returned to China nearly a decade ago with visions of wealth and success. Today, the U.S. businessman languishes in a prison outside Shanghai -- a stunning reversal of fortune that highlights the sometimes dangerous downside of doing business in China.

Two years ago, Mr. Shao, a 40-year-old naturalized U.S. citizen, was convicted in a Shanghai court of defrauding the government of $393,000 in taxes and sentenced to 16 years in prison. Yet today, Mr. Shao still insists he is innocent. Court and police officials, he and his family say, denied him the opportunity to gather evidence that would have exonerated him. Instead, according to court records, his conviction was based on two pieces of evidence: testimony from a Chinese individual implicated in a wider tax scandal, and a confession that prosecutors say Mr. Shao made in detention but that Mr. Shao denies ever happened.

After poring over reams of court, banking and accounting records for the past year, Mr. Shao says he can now prove his innocence. But he's bumping into another problem: China's Supreme Court appears reluctant to grant a retrial, he and his family members say, because it could reveal embarrassing mistakes made by the Shanghai court.

"At the trials, I couldn't defend our company or myself at all because I was held in total incommunicado all the time," Mr. Shao wrote in a recent letter to the U.S. Consulate in Shanghai, which forwarded it to President Bush. "There was no fair trial, no due process to speak of."

Officials from the city's tax bureau and police department both declined to comment on the case. Dai Youwen, the Shanghai High Court judge who rejected Mr. Shao's attempt to appeal, also declined to answer questions about the case.

As China becomes an ever larger magnet for foreign investment, Mr. Shao's plight provides a timely reminder of the dangers of operating in a country where judicial independence is spotty and where vague or frequently amended tax and legal codes can catch people unaware. Thirty-nine U.S. citizens are currently in Chinese prisons, convicted on charges ranging from illegally obtaining state secrets to bribery and tax evasion. Like Mr. Shao, most of those are of Chinese descent.

But almost any individual arrested in China faces a range of problems. Access to legal counsel, though guaranteed by Chinese law, is frequently restricted and sometimes denied, say Chinese and Western lawyers. Chinese police also often use methods to gather evidence that wouldn't be permitted in the U.S. And because many alleged crimes involve the Chinese government at one level or another, strong political undercurrents often run through court hearings, skewing evidence and influencing judges, say Chinese trial lawyers.

Though authorities at the Qingpu Prison, which houses all foreign prisoners in Shanghai, declined a request for a face-to-face interview with Mr. Shao, his tale can be pieced together from notes he has written from prison, interviews with family members in Shanghai and a review of court records.

Born and raised in Shanghai, Mr. Shao left for the U.S. in 1986 after finishing college in Shanghai. He attended Stanford University's Graduate School of Business, and after graduating says he and a group of Stanford alumni set up a trading company, called CBV Trading Co., around 1993. Mr. Shao was responsible for the company's Shanghai subsidiary, which specialized in importing medical equipment.

The first sign of trouble came in July 1997, when tax auditors showed up at Mr. Shao's downtown office for a "special audit" and confiscated his accounting books. When Mr. Shao appealed at the local tax bureau, he says he was told the audit would continue unless his company posted a $60,000 tax bond. Mr. Shao says he refused, believing a mistake had been made.

Mr. Shao continued to travel between the U.S. and China. But when he returned to China one day in April 1998, police arrested him shortly after landing at Shanghai's airport. He was held at a local hotel for more than a month and not allowed to call his family or contact a lawyer, according to Mr. Shao, his family members and a lawyer Mr. Shao later hired. Chinese authorities did contact the U.S. Consulate in Shanghai after his arrest.

A month into his confinement, Mr. Shao was formally arrested on tax-fraud charges and moved to a Shanghai jail, where police pressed their investigation for nearly a year. During that time, Mr. Shao communicated with his family through single-sentence notes written on pieces of paper, his sister and parents say. He says he wasn't allowed to meet with a lawyer.

In June 1999, Mr. Shao's fate was sealed at a courthouse in Shanghai. The presiding judge, Zhou Zhiguo, found him guilty of underreporting $253,000 in sales tax on medical equipment he sold in China and of using forged tax receipts to secure $140,000 in tax rebates from the local government. Nine months later, the verdict came down: Mr. Shao was given 16 years in prison -- among the lengthiest terms ever handed to a U.S. citizen in China.

Chinese legal experts say Shanghai police and court authorities violated at least one of their own regulations in Mr. Shao's case. Mr. Shao wasn't allowed to see a lawyer until a week before his trial, even though he should have been granted legal counsel months earlier according to Chinese law. The court's conviction was also based on evidence his family and lawyer have questioned. First, a self-confession that Mr. Shao denies making but that prosecutors say he made while in confinement. Second, the testimony of Chen Sinuo, a local businessman who was tried side-by-side with Mr. Shao, for providing Mr. Shao with forged value-added tax receipts. At the trial, Mr. Chen claimed the U.S. businessman had asked for the forged receipts. Mr. Shao denies that claim, but Mr. Chen was found guilty of issuing forged VAT receipts to Mr. Shao and sentenced to 12 years in jail.

Also troubling, Mr. Shao's sister and mother say, police and government officials requested on two separate occasions a cash payment of some $300,000, which they said would "make the case easier to handle." Government and police declined to comment on the allegations.

After being moved to the Qingpu Prison more than a year ago, Mr. Shao recovered an old laptop that his family says contained important evidence. Among the records he's collected: transaction slips for the sales tax payments the court says he never made. Those payments, he says, are equal to the sales tax he was charged with evading.

"The court," Mr. Shao says in a letter written recently from prison, "has made simple accounting errors."

Write to Karby Leggett at karby.leggett@awsj.com

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