797 Private Elderly Care Institutions: The Profits and Regulations Behind the "Thundering" Incidents
By Zhao Jiaxin and Zhu Haoyu May 12th 2021
On May 7th, the Jiangxi Provincial Civil Affairs Department issued the country's first policy on the management of prepayments for elderly care institutions ("Guiding Opinions on Strengthening the Management of Prepayments for Elderly Care Institutions (Trial)"). This policy aims to crack down on the criminal behavior of illegal fundraising by using investment in elderly care institutions as a cover.
In recent years, some elderly care institutions have deceived many elderly people out of hundreds of thousands or even millions of yuan by selling "pre-sold beds" or "membership cards" under the guise of "investment in elderly care", and then absconded with the money, leaving the elderly people's lifelong savings with no return.
Similar vicious cases in previous years have frequently attracted public attention: How profitable is illegal fundraising? Which regions are the key "minefields"? What tricks do criminal gangs use to deceive people? What charges and sentences do they face in the end? What regulatory measures are in place?
Guhe Media searched for relevant cases in the litigation judgment document database using keywords such as "elderly care" and "illegal absorption of public deposits", and compiled a total of 797 relevant cases. In conjunction with relevant data from the State Council's Civil Affairs Department and Tianyancha, we aim to provide a detailed summary of the regulatory policies and implementation of private elderly care institutions.
How many cases have occurred? How profitable is it?
One month before the Chinese New Year, a 62-year-old elderly person in Yiyang, Hunan Province, jumped off the Zijiang Bridge. It was later discovered that the elderly person's lifelong savings of 170,000 yuan were trapped in a nursing home called "Yiyang Nano". In Hunan Province alone, there were 16 cases of illegal fundraising by elderly care institutions in 2020, involving a total amount of several hundred million yuan.
In previous "thundering" cases, most elderly care institutions induced elderly people to invest in future beds and services in the institutions and promised to return high annual returns of up to 6%-9%. However, they absconded with the money on the grounds of a broken capital chain.
In recent years, private elderly care service institutions have received strong policy support, but social incidents such as "thundering" have also occurred. In terms of the number of cases, the total number is on the rise, with 2018-2020 being a high-incidence period, with more than 150 cases of elderly care institution fraud occurring each year.
From a regional distribution perspective, the most frequent explosions of P2P lending fraud occurred in East China and Central China, with Shanghai, Henan, Zhejiang, Jiangsu, and Shandong ranking in the top five, with 80, 76, 71, 60, and 52 cases, respectively, accounting for more than 40% of the country's total.
According to data from Wusong.com, just in 157 cases in 2020, the amount involved reached as high as RMB 23.52 billion, with more than 102,000 victims. Incomplete statistics indicate that at least RMB 4.47 billion in stolen funds have not been returned to victims. On average, each explosion of P2P lending fraud affects 128 victims, taking away more than RMB 29.51 million in funds and causing at least RMB 5.6 million in actual property losses.
There were 82 cases involving more than RMB 10 million, and 28 cases involving more than RMB 100 million. Among them, the case of illegal absorption of public deposits by Nanyang Daxin Industrial Co., Ltd. involved RMB 24.5 billion, causing actual property losses of over RMB 1 billion. The scam lasted from 2010 to 2015 and was only trailed in 2020, making it the most heinous elderly fraud case with the greatest social impact in recent years.
How large are the criminal gangs and what charges have they received?
In P2P lending fraud cases, many scammers work in groups. According to Wusong.com statistics, 482 cases involved joint crimes, accounting for more than 60%; 290 cases involved unit crimes, accounting for more than 36%. Incomplete statistics indicate that there were more than 2,000 criminals involved.
On average, each explosion of P2P lending fraud was ignited by 2-3 people.
Criminal gangs generally consist of 2-5 people. In 2020, in the case with the largest number of criminals, 21 main offenders were simultaneously prosecuted by the procuratorate. However, behind them were even more numerous accomplices.
Some main offenders involved in joint crimes were separately tried in other cases, so the actual joint crime rate is even higher.
In terms of the time span of the cases, in 49 cases in 2020, the average time for criminals to commit the crime was 2.5 years. The case with the longest time span lasted from 2006 to 2018, during which the criminal gang evaded justice for 12 years, fraudulently obtained more than RMB 27.78 million, and at least RMB 9.5 million in assets cannot be recovered.
All 797 cases in previous years were related to criminal offenses, among which illegal fundraising and pyramid schemes were the main charges, accounting for 87% and 10% respectively.
According to China's criminal law, individuals who commit fraud and embezzlement with a value of over 30,000 yuan but less than 100,000 yuan, over 100,000 yuan but less than 500,000 yuan, or over 500,000 yuan are recognized as committing "huge amounts" and "especially huge amounts" respectively. Among all the criminals, 679 were found to have committed fraud with a "huge amount" of money and were sentenced to less than 10 years in prison according to law.
What are the methods used in these scams?
In criminal gangs, the leader usually acts as the "executive" of the organization and recruits acquaintances as employees. There is a division of labor within the organization, such as "manager", "director", and "salesperson". As the gang grows, it may also divide into "first department", "second department", etc., and infiltrate various districts and counties.
In addition, the business of these fraud gangs usually extends beyond "nursing homes" to include taxi companies, hardware and electrical appliances, chemical materials, civil engineering, and real estate companies. These companies also often have problems with unclear assets and difficult fund flows, and some have already gone bankrupt.
In terms of scams, the criminals first register a nursing home project company (often an empty shell company) at the local industrial and commercial bureau, and then simply renovate residential houses and offices into "sunset red nursing centers". They then meet local elderly people by distributing flyers and recruiting acquaintances and taking them on tours and introducing them to the organization and investment opportunities. Some even give the elderly rice, noodles, and other food to solidify their "relationship".
When the elderly are attracted by the high-yield retirement investment projects and discounted "retirement beds" or "retirement apartments", the criminals take the opportunity to recommend "consumption cards (welfare cards, annual cards)" and other "investment products".
In the first few months, interest and discounts are paid as promised, but the rebates do not continue for long, and the scammers use bankruptcy as an excuse to abscond with the money. Similar rhetoric and methods appear frequently in major cases, defrauding the life savings of the elderly who have worked hard for decades.
In these 797 cases of illegal fundraising, the implicated elderly care institutions were all registered through the Industry and Commerce Bureau and had physical storefronts. If the illegal fundraising cases are expanded from criminal cases to general illegal cases, 2258 judicial cases can be retrieved.
Moreover, among the 1461 newly added cases, "elderly care institutions" and "elderly care services" are often just one of the gimmicks used by scammers. It can be seen that such elderly care scams have become a common trick of illegal fundraising.
The Guiding Opinions on Strengthening the Management of Prepaid Fees for Elderly Care Institutions (Trial) in Jiangxi Province strictly restricts the qualifications of fee-charging private elderly care institutions, stipulating that membership-based elderly care institutions cannot adopt the "principal and interest return" charging form, should develop reasonable charging standards, and must provide charging vouchers, etc. It is hoped that by regulating from the source, common fraudulent schemes can be thwarted, making it impossible for these "tricks" to be carried out.
What are the regulatory measures?
72-year-old Xu Aixiu (pseudonym) told Guhe Media that when Nano "staff" initially promoted the investment opportunity to her, they showed her a photo of the boss of Nano and the Red Cross Society of Hunan Province, as well as articles and videos reporting on Nano in Hunan Daily and Yiyang News Broadcast, using "official" proof to claim that investing in Nano was risk-free. "At least the newspaper won't lie," she then tentatively invested 30,000 yuan, but she did not know how the government regulated private elderly care institutions, nor where to find relevant policy information. Xu Aixiu only learned about the Nano scandal from her grandson. After that, she felt indifferent to life and death. When she invested in Nano, she "thought she was buying a good ending".
In recent years, local governments have been constantly popularizing knowledge related to illegal fundraising scams in the elderly care industry to the public, such as the risk warning on elderly care institution illegal fundraising issued by the Yunnan Provincial Civil Affairs Department through television broadcasting on May 7 and the announcement on preventing the risk of illegal fundraising in the elderly care service sector by the Chongqing Municipal Civil Affairs Bureau on April 25.
Yunnan Political and Legal Weibo issued a risk warning
Since 2013, the Ministry of Civil Affairs has established a system for publicizing the list of untrustworthy elderly care institutions and a system for rating the level of elderly care institutions, building an "industry credit" and "third-party credit reporting" system for the private elderly care industry. In 2019, the Ministry of Civil Affairs proposed for the first time that local governments should establish a "blacklist of untrustworthy enterprises for public disclosure" mechanism.
At the "National Elderly Care Home Service Quality Construction Special Action Promotion Conference" held in 2017 by the Ministry of Civil Affairs and seven other ministries, the head of the Ministry of Civil Affairs stated that over 2,000 privately-run elderly care homes were suspected of violating regulations and had been shut down in accordance with the law. Taking Nanuo Elderly Apartment Development Co. Ltd., which was involved in the case, as an example, according to the result from Tianyancha, in June 2017, Nanuo was fined RMB 3,000 by the Yuanjiang City Market Supervision Bureau for "illegally setting up a branch company without authorization." In August 2020, it was ordered to "correct the illegal act of operating without a license" and fined RMB 10,000 for "violating registration management behaviors".
However, the government did not classify Nanuo Company as a dishonest company, and its credit information was not disclosed.
There is no published list of dishonest elderly care homes in the open information of the Hunan Provincial Department of Civil Affairs.
Yunnan Political and Legal Weibo issued a risk warning
Guhe Media searched for information about regulated elderly care institutions online and found that except for the list of 13 untrustworthy elderly care service institutions announced by Beijing in June 2020 and the grading of elderly care institutions announced by Guangdong in May of the same year, it is difficult to find relevant public information.
Baidu searched for "untrustworthy elderly care service institutions" and only had a list of 13 untrustworthy institutions published by Beijing in June 2020
Guangdong Province Pension Institution Rating Publicity
According to some professionals interviewed by the media, although some regulatory documents have been introduced at the national level, there are still problems such as unclear standards and boundaries in actual supervision. The regulatory checkpoint should be moved forward, and the fact that most elderly people do not know how to use smartphones should also be taken into account in policymaking.
The results of the seventh national census released on May 11th showed that the proportion of people over 60 years old has increased by 5.44 percentage points, and the degree of population aging has further deepened. Ning Jizhe, the head of the National Bureau of Statistics, pointed out that the "silver economy," including the elderly care industry, will also usher in new development opportunities.